First home buyers in Australia are continuing to take out loans in significant numbers, supported by government backing, even as property investors retreat from the market.
New entrants are now the only borrower group applying for more loans than they were in June, according to new data from mortgage broking company Loan Market.
Home buying had slowed broadly after interest rates rose three times and the Labor government abolished negative gearing for most investment purchases. Prime Minister Anthony Albanese said the reform was intended to "level the playing field" for first home buyers.
Loan Market reported that first-timer applications dropped 3% in July before rising 10% into the first half of August on a weekly average basis. Applications from other owner-occupiers and investors were roughly steady in August compared to June.
Home loan demand had been falling across the board by June, down 5.4% compared to the prior quarter, according to the Australian Bureau of Statistics.
While the number of investor loans fell by 8.6%, first-time buyer mortgages fell only 2.9% on a seasonally adjusted basis, the bureau reported.
First home purchases remained higher in New South Wales and the Australian Capital Territory than at the same point the previous year. They rose to their highest level since 2021 in South Australia and Tasmania.
Peter Esho, chief executive of property finance firm 13x, said new entrants to the market had become more visible in recent months.
"First home buyers, I think, now feel like the sentiment has swung in their favour, and investors feel like the sentiment swung against them," Esho said.
"There's been a lot of buyers on the sideline for a long time ... so that pent-up demand is going to keep it for the next few years and policy is obviously a big driver."
Esho said demand was concentrating on properties priced close to the eligibility caps set by the government's 5% deposit scheme.
The program allows first-time buyers to borrow up to 95% of a property's value, with the government guaranteeing the loan and waiving costly lenders' mortgage insurance (LMI).
While prices have fallen across Australia, properties eligible for the guarantee have seen slower price declines than homes outside the scheme, according to data company Cotality.
Homes qualify if they fall below $1.5 million in New South Wales cities, $1 million for south-east Queensland, $950,000 for Melbourne and Geelong, $850,000 for Perth, $900,000 for Adelaide, and $700,000 for Hobart. Labor expanded the scheme and scrapped income caps for applicants in October 2025.
Housing Australia, which administers the scheme, found that applicants typically saved more than $15,000 in LMI based on the median deposit paid on the median home purchased under the program.
More than 320,000 people have become homeowners through the scheme since it was established in 2020.
Housing Minister Clare O'Neil said scheme participants had collectively saved more than $2.5 billion in LMI by the end of July.
"We know that for too long the housing market has been stacked against young people and without this scheme many wouldn't be able to enter the market at all," O'Neil said.
More than 5,000 new guarantees had been issued each month since February. Housing Australia said that figure slipped just below 5,000 in July, which was still more than had been issued in any single month before Labor expanded the scheme.
Australia's leading LMI company, Helia, estimated the scheme's expansion cost it nearly $9 million in first home buyer business in the first half of 2026. Its remaining customers were typically people buying above the price caps or through non-participating banks, a spokesperson said.
ANZ, which began offering the 5% scheme in March, was the only one of the four major banks to maintain a steady value of mortgage applications in the June quarter. The influx of first home buyers offset a drop in lending to other groups, with scheme participants now accounting for one in every 20 new loan applications at the bank.
