Login
Property price slump delivers no borrowing relief
Australia’s falling house prices have failed to give buyers the borrowing boost they need, with higher costs wiping out potential affordability gains, new modelling has found.
According to a new report from property listings platform Domain, median house prices have fallen 6.2 per cent from their peak across the nation’s capital cities, equivalent to around $81,000.
Likewise, data analytics company Cotality found that home values are tumbling at their fastest pace in at least 40 years, with its Home Value Index dropping 1.2 per cent in October, compared with 1.1 per cent in September.
Despite the deposit needed to buy a home reduced by around $16,000, Domain found that estimated monthly mortgage repayments have dropped by just $10 a month, or 0.2 per cent, from $6,073 to $6,063 (assuming an 80 per cent LVR and 30-year P&I loan).
In Sydney, Melbourne and Canberra, estimated monthly repayments are now actually up 0.2 per cent, 1.5 per cent and 1.9 per cent, respectively.
Domain’s analysis compares the deposit and monthly repayments needed at each capital city’s price peak with those needed today after house prices fell across every capital city in the September quarter for the first time in 15 years.
Domain’s chief residential economist Nicola Powell said the findings highlighted how much higher borrowing costs had undermined the affordability gains from falling prices.
According to Cotality, borrowing capacity of the median income household is around $88,000 lower (or 12 per cent) following this fifth hike than at the start of the year.
“Comparing the monthly repayments required at each city’s price peak with those required today shows just how much borrowing costs have offset falling prices,” she said.
“In some cities, buyers are actually paying more each month to service a mortgage on a cheaper home.
“Sydney is a clear example. House prices are 7.9 per cent below their December 2025 peak, cutting the deposit required by $28,612. Yet estimated monthly repayments are now 0.2 per cent higher, at $8,211 compared with $8,195.”
First home buyers hit hardest
This year has seen the growing uptake of schemes aimed at helping Australians enter the housing market, such as the 5 per cent Deposit Scheme, which has now helped more than 300,000 people move into their own home and saved borrowers more than $2.5 billion in lenders mortgage insurance (LMI) since 2022.
Free investor loan check
Better property decisions start with smarter lending.
A free 15-minute finance check for property investors.
What are your lending goals?
Choose a goal to request a callback.
Ready to talk?
Book a 15-minute call →Finni Pty Ltd · Australian Credit Licence 384324 · Privacy
Of the total 120,000 first home buyer loans in FY2025–26, use of the 5 per cent Deposit Scheme rose from around 25 per cent before the expansion to around 50 per cent afterwards, according to Domain.
However, while schemes such as the 5 per cent Deposit Scheme may help prospective buyers overcome the deposit hurdle, they do little to improve borrowing capacity.
“The 5 per cent Deposit Scheme can solve the deposit problem, but it doesn’t solve the borrowing capacity problem. I think that’s probably the biggest misconception,” Sarah Smelt, director of Finance Society, told Broker Daily.
“You still have to be able to service the loan. For the right buyer, these schemes are incredibly helpful, but serviceability can still be the thing that determines what they can actually buy.”
Samantha Harvey, senior mobile broker for Aussie, added that the serviceability issue was particularly acute for single applicants.
“I’m Sydney-based, and having enough deposit to qualify for the 5 per cent Deposit Scheme is one thing; having the borrowing capacity to buy is another. For a single first home buyer, borrowing power simply doesn’t go very far in Sydney,” Harvey said.
“I’m seeing more interest in the Help to Buy Scheme, as well as more first home buyers looking to purchase jointly with family members. The deposit hurdle might be getting easier, but for some buyers, borrowing capacity has become the bigger challenge.”
Larger fall needed for a meaningful change
Although falling house prices may have eased the upfront cost of buying, Domain’s analysis found that a much larger adjustment would be needed to deliver meaningful relief on mortgage repayments.
Holding mortgage rates constant, Domain’s modelling found that house prices across the combined capital cities would need to fall a further 9.8 per cent for monthly repayments to sit 10 per cent below their peak levels.
The adjustment would be even greater in some markets. Canberra would need a further 11.7 per cent decline, followed by Melbourne at 11.4 per cent and Sydney at 10.2 per cent. Brisbane is closest to the threshold, requiring a further 6.3 per cent fall.
These declines are larger than some forecasts for the current downturn.
For instance, National Australia Bank has revised its forecast to an 8 per cent decline in house prices over 2026, with an 11 per cent peak-to-trough fall expected before prices find a floor in mid-2027.
Meanwhile, the Commonwealth Bank of Australia (CBA) cut its house price forecasts again on 3 November, with national dwelling values now expected to decline around 14 per cent from peak to trough and the five-capital city average around 15 per cent.
Powell added that Domain’s modelling was not a forecast of house prices, but rather an indicator of how much higher borrowing costs could alter the affordability equation.
“Because the analysis is based on September-quarter borrowing costs, any further increase in mortgage rates would mean prices need to fall further to deliver the same improvement in affordability.”
This article was first published in SPI’s sister publication, Broker Daily.
Want to see more stories from trusted news sources?
Make Smart Property Investment a preferred news source on Google.
Click here to add Smart Property Investment as a preferred news source.