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According to the regulator’s quarterly authorised deposit-taking institution statistics, $5.3 billion of home loans were written with deposits below 5 per cent, taking the total to $15.6 billion over the nine months since the Home Guarantee Scheme was uncapped in October 2025.
The share has risen steadily over recent quarters, from 4.03 per cent in December 2025 to 4.26 per cent in March and 4.31 per cent in June.
The value of low-deposit lending also increased sharply following the expansion of the scheme, rising from $3.3 billion in September 2025 to $5.4 billion in December, before reaching $5.3 billion in June 2026.
The government’s 5 per cent Deposit Scheme has been a key driver of demand in low-deposit lending, with more than 300,000 Australians now having bought their home through the scheme.
Analysis from Cotality published earlier in the year found homes priced below the revised property price caps have recorded stronger price growth than higher-priced properties since the October changes, with under-cap markets outperforming across almost nine in 10 regions.
More recently, however, mortgage applications among first home buyers have fallen amid higher interest rates, budgetary changes, and a more uncertain economic outlook.
Could negative equity become a concern?
As low-deposit lending proliferates, a softening housing market and falling property values could leave some borrowers more exposed to negative equity.
Indeed, Cotality’s August data shows that house prices have fallen in 93 per cent of capital city suburbs, with its national Home Value Index falling 0.9 per cent over the month and 3.1 per cent over the quarter.
Nonetheless, Costa Arvanitopoulos, broker for Finni, said that this issue was not currently a game-changing concern.
“From the conversations I’m having with clients, the focus is generally more on whether they can afford the repayments and whether buying now makes sense for their individual circumstances, rather than worrying about what might happen to the value of the property in the short term,” he said.
Likewise, Chris Dodson, director and principal of Mortgages Plus, said that while fears remain, those low-deposit buyers who are still active in the market are taking a longer-term approach.
“There’s a lot of doom and gloom and that does rub off on sentiment,” he said.
“But most are buying with a long-term view. The fundamentals still remain that there’s a shortage of housing supply within Australia, and the supply and demand is still strong.
“Those that are prepared and are okay with a market going across, if not backwards, for a short amount of time, to be able to secure an asset with a long-term view, they’re okay to transact.”
Payment arrears rise again
The value of mortgages 90 days or more past due reached $25.9 billion in the June quarter, with the proportion of mortgages in this category rising to 1.01 per cent.
The figure marks a second consecutive quarterly rise and puts the share above its post-2019 historical average of 0.93 per cent.
Arrears between 30 and 89 days also increased for the second consecutive quarter, reaching 0.54 per cent of total credit outstanding.
The rise in arrears comes as borrowers continue to adjust to higher borrowing costs following three cash rate increases this year, with further rate rises possible before the end of the year.
Arvanitopoulos said that he had seen financial stress beginning to edge into his clients’ lives, but it had not yet flowed through to missed mortgage payments.
“It’s more that their repayments have increased, and naturally that puts some pressure on household budgets,” he said.
“Whether a client can comfortably afford the repayments is always something we discuss, regardless of what is happening in the market or where interest rates are sitting.”
Arvanitopoulos said he had also spoken with lender representatives who indicated that some of the increase in arrears was coming through low-doc lending, particularly where income has been projected by an accountant.
“As a result, some lenders appear to be tightening their approach to low-doc lending and looking more closely at how that income is being assessed,” Arvanitopoulos said.
APRA’s broader data shows the value of residential credit outstanding reached $2.56 trillion in June, up 7 per cent from a year earlier.
Offset balances fall as interest-only lending climbs
Money held in residential mortgage offset accounts fell by a record $8.6 billion in the June quarter, although balances remained close to record highs.
Total offset balances stood at $340.5 billion at the end of June, down 2.5 per cent from the previous quarter, but still $38.6 billion, or 12.8 per cent, higher than a year earlier.
Meanwhile, interest-only (IO) loans have edged upwards, with 24 per cent of new mortgages written on an interest-only basis in the June quarter, up from 21 per cent a year earlier.
While the increase brings interest-only lending closer to the 30 per cent cap previously imposed by APRA and removed in December 2018, it remains well below the peak of 46 per cent recorded in mid-2015.
Across the entire residential mortgage book, 12 per cent of lending was on an interest-only basis.
APRA’s June data also shows that new loans with a debt-to-income ratio of six times income or higher accounted for 5.6 per cent of new lending, up slightly from 5.5 per cent a year earlier.
Serviceability exceptions hit record high
The value of new residential mortgages processed as exceptions to standard serviceability requirements also reached a record high in the June quarter.
A total of $11.6 billion in new mortgages were processed as serviceability exceptions, equivalent to 5.8 per cent of all new lending.
The value increased by $2.3 billion, or 24 per cent, from the previous quarter.
These loans are processed where a borrower does not meet the standard 3-percentage-point serviceability buffer, but meets other eligibility checks and requirements.
The value of lending processed as serviceability exceptions has increased by almost 400 per cent since June 2019.
[Related: Broker proposition undiminished as borrowers embrace AI lending]
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