Australian Conveyancer recently published an article examining whether first home buyers who entered the market using the federal government’s 5% deposit scheme could find themselves in negative equity as property values soften.

What the Article Covers

The piece, titled “Reaching negative equity is a ‘very real possibility'”, examines the impact of recent federal Budget announcements — including changes to negative gearing and the capital gains discount — on property values and buyer exposure.

Conveyed founder Melissa Barlas was among the conveyancing professionals consulted for the article. Her view: the risk is real for buyers who entered with the minimum deposit, but manageable for those purchasing within their means with a long-term outlook. She recommended buyers maintain an additional savings buffer of at least two per cent on top of their deposit where possible.

The Broader Picture

The article draws on commentary from the Real Estate Institute of Australia, Barrenjoey economists, and the Reserve Bank of Australia. The consensus is that while negative equity is a genuine risk for some recent buyers, the current labour market and years of strong capital growth mean the impact is unlikely to be widespread.

Negative equity becomes a serious problem primarily when a forced sale is required. For buyers who can continue meeting repayments, a short-term dip in values is uncomfortable but not a crisis.

What This Means If You Are Buying Now

Understanding your financial position before signing a contract is essential. A conveyancer can review your contract and advise on your obligations, but knowing your holding capacity and having reserves beyond your deposit are equally important steps before committing to a purchase.