Liberals are scaring first-home buyers with warnings of negative equity – but experts believe there’s little to worry about

Experts say even for those who may have bought property on the 5% deposit scheme, the impact of negative equity will only be felt if they are forced to sell. Photograph: Joel Carrett/AAP View image in fullscreen Experts say even for those who may have bought property on the 5% deposit scheme, the impact of negative equity will only be felt if they are forced to sell. Photograph: Joel Carrett/AAP Analysis Liberals are scaring first-home buyers with warnings of negative equity – but experts believe there’s little to worry about Patrick Commins Economics editor Exclusive: Economists say falling house prices are largely in the more expensive parts of Sydney and Melbourne’s markets and are less likely to affect first-time property owners Fears that first-time buyers with tiny deposits will find their mortgages are worth more than their homes may be assuaged by new data showing falling prices are concentrated in the top end of the Sydney and Melbourne property markets. Climbing inflation, interest rates and worries about the economic fallout from the Middle East conflict have helped depress housing values in the country’s two biggest cities. CBA economists caused a stir early this month when they predicted values in 2026 would eventually fall by 6% to 7% in Sydney and Melbourne. Australia’s affordability crisis means first home buyers often borrow at the very limit of their capacities. It takes more than a decade to save a 20% deposit on a median home in Sydney, and new entrants typically find ways to buy with a smaller deposit (like the bank of mum and dad). Yes Australia’s house prices may fall – but the decades of unchecked property price growth were the true policy failure Read more And since home prices began falling in Sydney and Melbourne, there have been concerns for potentially tens of thousands of first-home buyers who - often with the help of the government’s 5% guarantee scheme - may soon find they now owe more on the house than it is worth. A series of Liberal MPs and senators have been quick to raise the alarm for young Australians who, in the words of Liberal MP Andrew Hastie , “are leveraged up to their eyeballs” and are now “looking down the barrel of negative equity”. Gerard Burg, Cotality’s head of research, played down these fears. “It’s always difficult to know where first home buyers are making a purchase, but we do know that it’s most likely to be in the bottom 25% of the market, just from an affordability perspective,” Burg said. Chart showing quarterly changes in dwelling prices in Sydney split by the bottom 25%, middle 50% and top 25% (in terms of price). The chart peaked in late 2025 and is now on a downward trend. “This is evident in both Sydney and Melbourne, where [the cheapest] dwelling values in the three months to May were up 0.4% in Sydney and down 0.2% in Melbourne, considerably stronger than the trends for either the upper quartile or middle of the market.” Burg said it was still possible that some recent purchasers