First Home Buyers vs Investors: The Battle for Affordable Homes

First home buyers are back in a big way — but so are investors. ABS data for the December 2025 quarter shows first home buyer loans jumped 6.8% while investor lending hit a record $43 billion, its fastest growth since 2014. The problem? Both groups are competing for the same affordable properties at the bottom of the market, and it's pushing prices in those segments up faster than anywhere else.

The Numbers: Record Lending Across the Board

The latest ABS Lending Indicators data paints a clear picture of a market firing on all cylinders:

Total new mortgage commitments across the entire market hit a record $108.3 billion in the quarter. The average first home buyer loan reached a record $607,624 — up a staggering 8.5% — while the average owner-occupier loan across all buyers hit $736,000 (up $42,000 in a single quarter).

Why the Surge? Government Schemes Are Fuelling Demand

A key driver of the first home buyer surge is the federal government's expanded Home Guarantee Scheme. Launched on 1 October 2025, the expansion allows first home buyers to purchase with just a 5% deposit, with the government guaranteeing 15% — saving buyers $10,000-$30,000 in lenders mortgage insurance (LMI).

The impact was immediate:

• 49% spike in first home buyer mortgage applications in October 2025
• Applications remained 17% above the pre-scheme average through December
• An estimated 20,000 buyers have already used the scheme

As Canstar's Sally Tindall put it: "The expansion of the Home Guarantee scheme has fired up the first home buyer market."

But there's a catch. Making it easier to buy doesn't make properties cheaper. More buyers with more borrowing power chasing the same stock pushes prices up — especially at the affordable end where both first home buyers and investors are shopping.

The Battleground: Affordable Suburbs

This is where the competition gets fierce. First home buyers and investors are typically chasing the same type of property: entry-level homes and apartments under $800,000. Data from Cotality confirms that affordable home values have risen significantly faster than prices in more expensive market segments.

In Western Sydney — the epicentre of first home buyer activity — suburbs like St Marys, Penrith, and Liverpool are seeing intense competition from both groups:

Buyers who have been priced out of inner and premium suburbs are pushing into outer regions, competing more aggressively for a shrinking pool of affordable stock. Infrastructure investment across Western Sydney — including the new airport and metro rail — is adding fuel to the fire by boosting investor confidence.

State-by-State: Where FHB Lending Is Growing Fastest

The ABS data reveals significant variation across states:

NSW saw the strongest growth at 10.9%, largely driven by the Home Guarantee Scheme uptake. Victoria's softer market — with Melbourne prices flat — is actually creating an opening for first home buyers facing less investor competition than in Perth or Brisbane.

The Risk: Bigger Loans, Higher Rates

Here's what worries economists. The average first home buyer loan has hit a record $607,624 — and that was before the RBA's February rate hike to 3.85%. With three of four big banks now predicting another hike to 4.10% in May, first home buyers are taking on record debt at potentially the worst time.

As Sally Tindall warned: "A surge in buyers, a rise in borrowing power... can only mean higher prices and more debt."

Independent housing analyst Cameron Kusher added: "Even though lending to first-home buyers increased a lot, they are likely to face stiff competition" from the record investor activity in the same price brackets.

How First Home Buyers Can Compete

If you're a first home buyer in today's market, here are practical strategies to improve your chances:

1. Get pre-approved before you start looking. In a competitive market, sellers and agents take pre-approved buyers more seriously. It also gives you a clear budget so you don't overcommit. See our guide on pre-approval mistakes to avoid.
2. Use the Home Guarantee Scheme. Buying with 5% deposit instead of 20% gets you into the market sooner, before prices rise further. Check eligibility at our 5% deposit guide.
3. Look where investors aren't. Investors chase rental yield and growth data. First home buyers can look at suburbs with lifestyle appeal but lower rental yields — places investors overlook because the numbers don't stack up for an investment but work great as a home.
4. Consider Victoria. Melbourne is the one major market where FHB growth is modest (+3.5%) and investor competition is lower. Entry prices are the cheapest among major capitals.
5. Move fast at auction. With clearance rates above 70% and volumes up 29%, properties are selling quickly. Have your finance sorted, do your due diligence early, and be ready to bid. See our auction market update.
6. Consider rentvesting. If you can't compete where you want to live, rentvesting lets you buy an investment property in a more affordable area while renting where you want.
7. Talk to a broker. A broker can access 30+ lenders and find the best rate and structure for your situation. We often find deals that beat what the big banks advertise.

Sources: ABS Lending Indicators December Quarter 2025; Canstar; Property Update; Australian Property Update; Cotality; Macrobusiness