Key implication: First‑home buyers are no longer a cyclical niche. They are now a structural growth lever shaping product design, pricing, distribution, and underwriting in Australian mortgages through 2026.

Signal from the noise: FHBs now anchor mortgage growth

GSB’s result — close to a third of new loans written to first‑timers — mirrors a national pivot. Industry data indicate 125,220 first‑home buyer (FHB) loans in 2024, up 5.9% year on year, with a further 6.5% uplift projected in 2025 to roughly 133,300. That growth outpaces broader owner‑occupier demand. In value terms, the average FHB loan hovers around the A$500,000 mark nationally, well above that in Sydney and Melbourne, reflecting ongoing price pressure in major capitals.

The strategic cue is simple: the FHB segment is now the incremental buyer setting the marginal price for mortgage growth. Lenders optimising for this cohort will capture volume, but only if they price risk precisely and execute faster than rivals.

Market context and demand drivers

Three forces are pulling in the same direction. First, rates have stabilised after the sharp tightening cycle, with the cash rate holding at restrictive levels but no longer climbing. That has eased fear of further payment shocks and brought buyers back to the pre‑approval table. Second, more stock is trickling onto the market compared with the 2021–22 drought, tempering bidding frenzies even as prices continue to rise at a mid‑ to high‑single‑digit annual pace in several cities. Third, employment conditions remain supportive, keeping serviceability within regulatory guardrails for many dual‑income households.

Global analysts, including voices like Jessica Lautz and Mark Hamrick, characterise the housing market as thawing: fewer extreme bidding wars, more balanced listings, and rate expectations that are flatter through 2026 than the pandemic whipsaw. Australia is participating in that reset, though elevated dwelling prices and rents continue to strain deposits and borrowing capacity.

Policy as a market‑maker: the 5% deposit effect

The Home Guarantee Scheme (HGS) has become the paramount accelerator. By guaranteeing up to 15% of a property’s value, it allows eligible FHBs to purchase with a 5% deposit and avoid lenders mortgage insurance. With combined annual places across the First Home Guarantee, Regional First Home Buyer Guarantee, and Family Home Guarantee numbering around 50,000, the HGS is now a major demand conduit.

Economically, the guarantee shifts tail risk from lender to sovereign, lowering effective loss‑given‑default for participating loans and changing price elasticity. That can pull forward demand and raise clearing prices at the margin, especially in entry‑level segments with tight supply. Second‑order effects include moral hazard (borrowers maximising leverage) and adverse selection if underwriting relies too heavily on the guarantee rather than income durability and expense realism.

The policy risk is concentration: if a material share of recent vintages are 95% LVR at origination, a moderate price correction combined with income shocks could push some cohorts into negative equity, even if aggregate arrears remain manageable.

Competitive chessboard: lenders, brokers, and product innovation

The broker channel now originates roughly 72% of new home loans, consolidating its gatekeeper role for FHBs. That shapes economics: customer acquisition costs are front‑loaded, clawback risks are real, and lifetime value must be proven via primary bank conversion and cross‑sell to offset skinny front‑book margins.

Competitive tactics are evolving. Unconditional cashbacks have receded after an expensive 2023 arms race, replaced by targeted fee waivers, tightly defined rebates, and rate tiers that reward digital document completeness. Professional LMI waivers remain, but HGS allocations are the scarce currency. Expect more micro‑segmented pricing (property type, postcode, verified expense profile), pre‑approved HGS slots, and retention squads focused on refinancing risk at month 22–24.

Case in point: mutuals and challenger banks like GSB punch above their weight in the FHB niche by pairing HGS participation with human‑plus‑digital advice. Major banks, meanwhile, leverage balance sheet depth and RMBS distribution to price selectively for share while protecting back‑book yield.

The tech stack behind faster approvals

Speed‑to‑yes is now a primary differentiator. Lenders using Consumer Data Right (open banking) to ingest verified transaction histories can replace blunt Household Expenditure Measure assumptions with machine‑learned expense categorisation. Optical character recognition and NLP tools triage payslips, tax returns, and rental ledgers; decision engines surface conditional approvals in hours rather than days.

Operationally, that reduces manual touch rates and abandonment, but it raises failure modes: model drift, explainability gaps, and privacy governance. Controls matter. Leading shops are building three lines of defence for AI underwriting — model risk validation, challenger models for back‑testing, and audit trails that explain declines in plain language. Onboarding is increasingly straight‑through with digital identity checks, AML screening, and property valuation APIs integrated into a single workflow.

Risk management under stress: affordability, arrears, and buffers

Regulatory settings remain tight: APRA’s 3 percentage point serviceability buffer is still in place and acts as a circuit breaker against marginal borrowers. Even so, cohort risk is rising. High LVR, single‑income reliance, and elevated non‑discretionary spend inflation can converge to push early‑vintage arrears higher than the system average. Arrears have ticked up from the lows, though remain well below GFC peaks.

Scenario maths for FHB portfolios: a 5–7% price decline, combined with flat wages and sustained higher‑for‑longer rates, could push a thin‑deposit borrower into negative equity within 18 months of settlement. Losses remain bounded if unemployment stays low and cure rates hold, but funding costs and capital consumption can still widen net interest margin compression.

Risk levers to deploy now: dynamic LVR caps by postcode, debt‑to‑income overlays above 6x, granular vintage‑cohort monitoring, proactive hardship protocols, and securitisation structures with thicker credit enhancement for high‑LVR pools.

The road ahead: strategy, execution, and the metrics that matter

For banks: double down on precision pricing and verified income‑expense analytics; treat HGS capacity as a portfolio asset to be allocated to the best risk‑adjusted segments; and link FHB onboarding to primary banking conversion within 90 days. Fund selectively, leaning on RMBS windows when spreads permit, and protect back‑book yield with data‑driven retention triggers at the first rate‑roll.

For brokers: pre‑qualify beyond rate — focus on cash‑flow resilience, buffers after settlement, and total cost of ownership. Build alliancing with lenders that offer API‑first document ingestion for faster turnarounds and lower clawback risk via improved settle‑to‑stick rates.

For fintechs: sell the picks and shovels — expense categorisation, fraud detection, valuation intelligence, and consented data orchestration that lift approval speed without inflating risk. Compliance‑by‑design is a commercial feature, not a cost centre.

KPIs to track in 2025–26: application‑to‑approval time, manual touch rate, proportion of loans with verified expenses via CDR, early‑vintage 90‑day arrears by LVR bucket, negative equity probability by postcode, CAC payback period, primary relationship conversion, and weighted average margin by cohort. If these indicators improve while share of FHB flows rises, the strategy is working.