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FHBs face negative equity risk as Sydney, Melbourne prices set to rise in 2027
First home buyers who have used the 5 per cent Deposit Scheme to purchase their home could be plunged into negative equity by the end of the year.
New data showed first home buyers who borrowed the maximum amount under the 5 per cent Deposit Scheme could fall into negative equity by year’s end if property prices track the forecasts of the Commonwealth Bank of Australia (CBA).
According to the bank’s latest prediction, Sydney property prices could drop by a total of 6 per cent from January to December 2026, while Melbourne could fall by a total of 7 per cent this year.
However, CBA has predicted the markets to rise again in 2027 on the back of two potential Reserve Bank of Australia (RBA) cash rate cuts this year.
In contrast, Perth and Brisbane are expected to continue to power ahead, with dwelling prices tipped to rise by 12 per cent and 8 per cent respectively.
Based on CBA’s forecast, a Canstar analysis showed that a first home buyer who purchased a $1.5 million Sydney property under the five per cent deposit scheme could end up with next-to-no equity by the end of the year.
Similarly, in Melbourne, buyers using the 5 per cent Deposit Scheme to purchase a property of the same price could fall into negative equity by the end of the year.
Canstar.com.au data insights director, Sally Tindall, said for those who only recently scraped together a deposit to get into the market, potential price declines could leave them dangerously close to negative equity.
“A buyer who purchased with a 5 per cent deposit at the start of this year has very little buffer against falling property prices,” she said.
“If CBA’s forecasts play out, some recent buyers in Melbourne could owe the bank more than their home is worth by the end of the year, despite making their mortgage repayments on time.”
Tindall said negative equity wasn’t necessarily a crisis if the owner planned to stay put and keep making repayments, but it could be a major problem if they were forced to sell or wanted to refinance.
“If you do find yourself in this position, don’t panic. Instead, put your head down and keep your mortgage repayments up,” she said.
“It’s important to remember, these forecasts aren’t pointing to a property market crash or a long-term downturn.”
Tindall said that despite a projected 6 or 7 per cent fall in house prices, affordability would remain the biggest challenge for many Australians.
“When you’re talking about markets that have seen years of strong growth, combined with three cash rate hikes eroding borrowing capacity, it’s unlikely to suddenly make home ownership easy.”
Tindall also noted the inconsistency among major banks’ rate predictions, with CBA expecting cuts in early 2027, National Australia Bank (NAB) predicting cuts in the second quarter of 2027, Westpac anticipating two more hikes this year, and Australia and New Zealand Banking Group (ANZ) expecting an extended hold for the foreseeable future.
“Borrowers should prepare for a range of scenarios rather than assuming rate relief is locked in,” Tindall said.
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