Australia’s most affordable homes are now rising faster than the broader market, prompting fresh warnings for 2026 first-home buyers to prepare finances early and secure loan pre-approval before competition intensifies further.
Property expert Moxin Reza, from www.investorpartner.com.au, says demand at the lower end of the housing market is accelerating as high interest rates and reduced borrowing capacity push buyers into cheaper property segments.
“With interest rates still high and borrowing limits tight, buyers need to get finance-ready early if they want to compete for affordable homes,” Mr Reza says. “Investors and first-home buyers are now chasing the same properties, and competition is only intensifying.”
Cheaper Homes Outperform as Policy Shifts Drive Demand
New analysis from property data firm Cotality supports these concerns, showing that since September 2025, properties priced under the expanded First Home Guarantee (FHG) caps have outperformed higher-priced homes across most of Australia.
The findings follow the Federal Government’s expansion of the First Home Guarantee scheme, which allows eligible buyers to purchase a home with a 5 per cent deposit without paying lenders’ mortgage insurance. From October 1, 2025, the scheme was broadened through higher purchase price limits based on location, along with the removal of income caps for participants.
Cotality: Under-Cap Homes Rising 1.5x Faster Than Higher-Priced Properties
Cotality data shows that in the December quarter of 2025, home values for properties under the new FHG caps rose 3.6 per cent, compared with growth of 2.4 per cent for homes above the caps.
This means prices for under-cap homes are rising at roughly one and a half times the pace of higher-priced segments.
Cotality Research Director Tim Lawless says the expanded scheme has had a measurable effect on buyer behaviour.
“The expanded 5 per cent deposit guarantee has sharpened demand at lower price points, with under-cap markets outperforming across almost nine in ten regions,” Mr Lawless says.
“We are seeing a clear shift in momentum, with buyers increasingly targeting homes that fall under the new price caps, particularly in Sydney, where the value gap is most pronounced.”
Sydney Leads the Divergence Between Affordable and Higher-End Markets
Sydney recorded the strongest split of any capital city during the December quarter.
Cotality analysis shows homes below the price cap rose 2.3 per cent, while properties above the cap recorded a 0.1 per cent decline. The resulting 2.4 percentage point gap is the largest among Australia’s capitals.
Mr Lawless notes the trend was already visible before the official start date of the updated scheme.
“This was already visible prior to October 1, suggesting some buyers moved early to secure properties ahead of increased competition,” he says.
Pressure Is Concentrated at the Affordable End
Mr Reza says the data reflects growing pressure on affordability rather than a broad-based housing recovery.
“Lower-priced homes are where demand is being forced, not chosen,” Mr Reza says.
“With interest rates still elevated and borrowing capacity stretched, buyers are adjusting expectations and competing aggressively for anything that fits within lending limits and policy incentives.”
Investors and First-Home Buyers Colliding in the Same Price Bracket
While the First Home Guarantee is a key driver, Cotality notes that it is not the only force reshaping demand.
Higher interest rates and tighter serviceability assessments continue to constrain borrowing power, pushing more buyers toward cheaper properties. At the same time, increasing investor participation is intensifying competition in the exact same price ranges.
Investors accounted for 41 per cent of mortgage demand in the September quarter, while annual investor credit growth is rising at its fastest pace since December 2015.
“There is increased competition from investors in the middle to lower-priced segments, alongside owner-occupiers being funnelled into more affordable options,” Mr Lawless says.
Mr Reza agrees, warning that limited supply is amplifying price movement in these markets.
“Investors are chasing yield and first-home buyers are chasing affordability, and they are meeting in the same segment,” he says.
“When supply is limited, that competition shows up quickly in prices.”
A Competitive 2026 Market Is Already Taking Shape
Cotality’s latest analysis suggests that the combination of government incentives, investor demand, and borrowing constraints is accelerating price growth in the lower-priced housing market and widening the gap between properties under and above the new FHG caps.
Mr Lawless says the expanded scheme has effectively intensified pressure where competition was already high.
“I think it is fair to say the expanded scheme has added fuel to the fire across the lower-priced segment, where competition was already strong and supply persistently scarce,” he says.
Why Pre-Approval May Matter More Than Ever in 2026
With affordable properties now outperforming most other segments, buyers are being encouraged to take a proactive approach to finance preparation.
For 2026 first-home buyers, that means organising documentation early, understanding borrowing limits, and securing loan pre-approval before entering competitive open-home environments.
To learn more about buyer strategy and finance readiness in a shifting market, visit www.investorpartner.com.au.