Key points
  • There were 6.8% more loans written for first home buyers from October to December compared with the previous quarter.
  • Home buying activity was strong across the board, up 5.5% through the quarter, with investment growth still strong.
  • It was the first quarter of data that included the expanded 5% Deposit Scheme, while Help to Buy also kicked in on 5 December.

The average size of a first home buyer's mortgage rose by a record 8.5%, cracking $600,000, while 6.8% more loans were written to first home buyers compared to the September quarter.

ABS head of finance statistics Mish Tan said the uptick was in part driven by the expansion of the 5% Deposit Scheme, which kicked off on October 1, 

"[The] 5% Deposit Scheme has increased the eligibility criteria for first home buyers and we are seeing the early effects of this in our data," she said.

The Help to Buy Scheme, which sees the Government make an equity contribution of up to 40% of a participant's property purchase, also launched on 5 December.

It wasn't just first homebuyers driving things, though - homebuying activity rose significantly across the board, with 5.1% more loans written in the December quarter compared to the prior period.

Investment lending also remains strong, with 5.5% more loans written throughout the quarter and the value of investment lending 31.78% higher compared to in the December 2024 quarter.

Could APRA step in on investment lending?

Around 40% of the total value of new loans written from October to December were to investors, marking the second quarter in a row.

Although down slightly from September, that's still the highest proportion since 2016 and may raise questions about whether the Australian Prudential Regulation Authority (APRA) may pull the handbrake on investment lending.

In July, APRA said it was monitoring whether lower interest rates (from last year's 4.35%) would lead to "higher credit growth and leverage, higher house prices and...more risky lending."

"High household debt is a key vulnerability in our financial system, which has more exposure to residential mortgages than any comparable country," APRA chair John Lonsdale said at the time.

APRA has since imposed limits on high debt-to-income (DTI) lending, and curbing investment lending growth is another macroprudential lever it could pull.

In 2014, APRA responded to strong investment loan growth by preventing banks from increasing their investment loan book by more than 10% each year in an effort to reduce high risk lending.

It's been suggested the watchdog may do something similar in the future, given credit growth is so strong - the total value of new loan commitments in the December quarter was 21% higher than in June in seasonally adjusted terms.

However, investment lending through 2025 remained below what it was in 2013 and 2014, and this data doesn't take the February rate hike, which might act as a buffer against credit growth, into account.

Will house prices keep going up?

One of the concerns regarding the 5% Deposit Scheme and other first home buyer assistance is that it may push up property prices in the long run.

According to the Cotality Home Value Index (HVI), the December quarter saw house prices increase by more than 5% in Brisbane, Adelaide, Perth, and Darwin, with particular demand for the "lower and middle" quartile of the market.

Cotality found that homes valued beneath the price caps of the expanded scheme grew significantly more than those priced above it, with research director Tim Lawless saying under-cap markets are outperforming across almost "nine in ten" regions.

"The expanded 5% deposit guarantee has sharpened demand at lower price points," he said.

For now though, the February rate hike may ease demand, and Mr Lawless thinks there are other factors that could also act to soften growth in 2026 at least.

"Affordability and serviceability constraints are likely to naturally dampen demand, but also renewed cost of living pressures ... there is also slowing population growth to consider," he said.