Context: a demand surge meets a policy lever

Australia’s first‑home buyer (FHB) segment has re‑accelerated. In 2024, 125,220 FHB loans settled nationally (+5.9% year‑on‑year), with 2025 projected to reach 133,308 (+6.5%), outpacing broader owner‑occupier growth (projected +5.3% to 216,210). Average FHB loan size rose by about 6% in 2024, reflecting both price pressures and borrowers stretching into higher loan bands. The policy scaffolding matters: the Home Guarantee Scheme (HGS) has provided up to 50,000 places annually across its variants, enabling deposits from 2–5% without lenders mortgage insurance (LMI), effectively transferring part of the credit risk through a government guarantee.

Against this backdrop, GSB disclosed that “nearly a third” of its new lending now serves FHBs. That aligns with broader industry observations from research houses such as PropTrack and CoreLogic: affordability remains strained, but targeted support plus easing interest‑rate expectations have reopened a path for entry. Broker channel share is now north of 70%, amplifying the effect of lenders that execute well with brokers.

Decision: bet on the segment where lifetime value is rising

GSB made a strategic call to over‑index to FHBs. The business logic stacks up on three dimensions: (1) growth: FHB demand is expanding faster than the overall owner‑occupier market; (2) lifetime value: younger borrowers produce a longer annuity stream and cross‑sell potential (transaction accounts, savings, insurance), offsetting thinner initial margins; and (3) share economics: in a broker‑led market, superior process speed and HGS fluency convert directly to market share. With competition pruning unsustainable cashbacks, execution quality—not headline rate alone—has become the differentiator.

Risk was the counterweight. Low‑deposit lending is inherently higher risk. The decision therefore hinged on GSB’s ability to ring‑fence that risk with policy guarantees, robust underwriting and granular pricing. Industry analysts at Lateral Economics and others have cautioned about policy‑induced demand without matching supply; a prudent FHB strategy must therefore be as much about credit selection as acquisition volume.

Implementation: product, policy alignment and broker execution

GSB’s operating model shows four practical levers that other lenders can copy:

- Policy alignment: Maximise HGS participation (First Home Guarantee, Regional First Home Buyer Guarantee, Family Home Guarantee) to reduce effective LVR risk and waive LMI costs for eligible borrowers.

- Risk‑tiered pricing and buffers: Maintain APRA‑aligned serviceability buffers while dynamically tiering rates by LVR and borrower profile. IFRS 9 modelling enables early‑stage expected credit loss (ECL) tracking by cohort, adjusting origination appetite in near real time.

- Digital straight‑through processing: Pre‑approval engines that validate income, expenses and deposit sources digitally reduce time‑to‑yes and abandonment. For brokers, API‑driven lodgements and clear policy matrices cut rework and re‑submissions.

- Education and segmentation: Serve distinct FHB sub‑segments—dual‑income metropolitan buyers, regional buyers using the Regional Guarantee, and later‑life first‑timers (divorcees, returning migrants). Content, calculators and proactive broker support reduce uncertainty and shorten decision cycles.

Technical deep dive: why guarantees change the unit economics

The HGS alters capital and pricing maths. A government guarantee on the unsecured portion above 80% LVR mitigates loss‑given‑default, reducing overall expected loss and, for many banks, capital intensity under APRA’s mortgage risk‑weight framework. Practically, that allows lenders to price closer to prime rates than would be possible for 90–95% LVR loans with LMI, while offering customers materially lower upfront cost. The trade‑off is strict eligibility, documentation rigour and quota management across guarantee tranches. In a broker‑dominated distribution model, lenders that automate eligibility checks and evidence capture see higher conversion and lower processing cost per settled loan.

Results: volume, share and conversion effects

The headline outcome is mix: nearly one in three new GSB mortgages now originate from FHBs. At a market level, growth is robust—125,220 FHB loans in 2024 and a projected 133,308 in 2025. With the broader owner‑occupier market projected at 216,210 loans in 2025, each 1 percentage point of share equates to roughly 2,162 loans. For a challenger bank, gaining 2–3 points of FHB share through faster approvals and guarantee fluency can be the difference between flat and high‑single‑digit book growth.

Conversion is the second win. Lenders reporting sub‑10‑day FHB time‑to‑approval via digital pre‑assessment typically see materially higher broker preference. Industry feedback suggests that where HGS eligibility is assessed up‑front, approval rates increase and settlement leakage falls. Finally, portfolio quality to date has remained resilient: arrears have ticked up from historic lows industry‑wide, but guarantee‑backed LVRs and conservative serviceability buffers have contained early‑stage delinquencies, according to analysts tracking the segment.

Market implications: competition, pricing and policy risk

GSB’s pivot intensifies competition for a finite pool of HGS places. Expect tighter pricing bands around high‑LVR loans for eligible customers, while non‑eligible FHBs may face higher rates or stricter serviceability. If interest rates continue to ease, demand could overshoot available guarantees, pushing borrowers into LMI‑backed routes and re‑widening the affordability gap. Economists remain split: some view the FHB surge as a healthy stimulus; others warn of distortion without supply‑side reform.

Lessons: a playbook for lenders, brokers and policymakers

- Lenders: Treat FHBs as a designed experience. Build HGS rules into product decisioning, expose policy logic to brokers, and measure end‑to‑end cost per settled loan by cohort. Balance growth with tight ECL triggers and post‑settlement support to reduce early hardship.

- Brokers: Lead with eligibility clarity. A clean HGS application with verified income and deposit sources cuts cycle time and boosts first‑choice placement with lenders investing in this segment.

- Policymakers: Guarantees lift demand; supply still constrains affordability. Calibrate place volumes and eligibility while pressing on planning reform and build‑to‑rent to avoid overheating entry‑level stock.

- Developers: The FHB buyer is back. Stock mix that targets sub‑threshold price points, regional hubs and smaller footprints will move faster if paired with lender pipelines fluent in guarantees.