The expanded Home Guarantee scheme has continued to lift first-home buyer activity through 2026. Many of those buyers are entering with 5 per cent deposits, often in the major capitals, where median prices have softened but remain at multiples of household income that would have been unthinkable a decade ago. The May rate hike to 4.35 per cent layers a third risk onto the already-known affordability problem: the chance of being in mortgage stress and negative equity at the same time.
For most FHBs, buying is still the right call eventually. The question is whether buying this month is the right call, or whether waiting two to six months for clarity on the rate path materially improves the household's position. Below is the stress-test framework, with state-specific reference points.
The three-question stress test
- If your variable rate moved from 6.55 per cent today to 7.30 per cent over the next twelve months (the path implied by current bond pricing), can you still service the loan without changing lifestyle? Run our borrowing power calculator at the higher rate.
- If your property's value fell 5 per cent in the next twelve months (the soft-end forecast for Sydney and Melbourne in several recent reports), would you still be above 80 per cent LVR after that fall, given the equity you walk in with?
- If both happened, do you have enough liquid savings outside the deposit to absorb three months of mortgage repayments without selling the home?
Two yeses out of three is usually enough for the buy-now decision to remain reasonable. One yes, or zero, is a signal to either reduce the borrowing amount, save a bigger deposit, or wait for a clearer rate picture.
What does the stress test look like, by state?
Sydney. Median dwelling value is around $1.16 million. A FHB buying at $900,000 (a typical FHG-eligible price point) with a 5 per cent deposit is borrowing $855,000. At 6.55 per cent over 30 years, the monthly repayment is about $5,425. A 0.75 per cent further increase pushes that to about $5,945. A household needs roughly $185,000 of gross income to service that comfortably under standard lender stress tests, before lifestyle. A 5 per cent fall in dwelling value puts the LVR back above 99 per cent within twelve months. The double-bind is real for this cohort.
Melbourne. Median dwelling value is around $830,000, FHG-eligible price points around $750,000. Repayments and stress arithmetic look similar in pattern but smaller in dollar terms; the negative equity risk is comparable to Sydney but with a slightly more forgiving baseline.
Brisbane and Perth. Median dwelling values are around $700,000 to $740,000, with FHG eligibility intact at most realistic price points. Income required to service is correspondingly lower. Negative equity risk is lower than Sydney/Melbourne; the relevant test is mostly question 1 above (servicing under further hikes), not question 2 (negative equity).
Adelaide, Hobart, Canberra, Darwin. Markets and price points vary; the framework holds. Use the local median, the FHG cap (regional caps are higher than capitals in some categories), and run the same three questions against your specific borrowing scenario.
The right benchmark for an FHB in May 2026 is not "can I afford the loan today?" It is "can I afford the loan today, under another 0.75 per cent of variable-rate increase, with no equity buffer if prices fall?"
When is waiting the right call?
For an FHB whose stress test fails on either servicing or negative equity, three options rank above buying this month. First, save another 5 per cent of deposit. The shift from 5 to 10 per cent loan-to-deposit cuts the borrowing amount, the LMI, and the repayment, and gives a buffer against price falls. Second, reduce the target purchase price by 10 to 15 per cent. The same household can often buy a smaller property, or in a slightly different suburb, that passes the stress test. Third, wait for the rate path to be clearer. A "clearer" picture means the RBA delivers (or skips) the next hike priced in by the market, which the August Statement on Monetary Policy will broadly resolve.
What does the FHG actually do for you in this environment?
The Home Guarantee Scheme removes the need for LMI and lets eligible buyers purchase with a 5 per cent deposit. The economic value of removing LMI on a $900,000 purchase is $30,000 to $45,000 of upfront cost saved. That is meaningful. What the FHG does not do is change the underlying serviceability of the loan, the interest-rate exposure, or the price-fall exposure. It is a deposit-acceleration tool, not an insurance policy against the rate cycle.
For a FHB whose deposit is the binding constraint, the FHG remains the most powerful single tool in the kit. For a FHB whose servicing is the binding constraint, the FHG does not change the servicing maths; the only useful response is a smaller borrowing amount or a larger income.