Australia’s housing affordability remains around record lows in data that goes back to 1995, despite lower mortgage rates.

A new report published by REA Group and the Commonwealth Bank analysing the current situation for first-home buyers has found that conditions remain tough.

“The surge in mortgage rates between 2022 and 2023 has pushed housing affordability to its lowest level for households of all incomes,” the report noted.

“This is especially true for first-home buyers, as they are typically younger than existing home owners, earlier in their careers, and earn lower incomes.”

Prospective first-home buyer households — defined as one aged 25-39 and earning $129,000 per year — could afford the mortgage on just 17 per cent of homes sold last year, according to the report, which is the lowest level on data going back to 1995.

That compares to 33 per cent for existing owners with a mortgage. 

Housing market conditions remain tough for first-home buyers.  (AAP: Lukas Coch)

REA Group senior economist Angus Moore said saving for a deposit was the key hurdle for first-home buyers, along with record-low housing affordability and tough mortgage serviceability.

“Despite these conditions, first-home buyers are finding ways to enter the market,” Mr Moore said.

“There were more first-home buyers in the past year than was typical during the 2010s.”

He added that recent government policies, low deposit loans, and Lenders Mortgage Insurance were key enablers, along with family assistance.

“Many also seek homes in more affordable areas or purchase semi-detached homes or units to overcome affordability challenges.”

Mr Moore said housing market conditions were improving, with interest rates having fallen from their peak, and further cuts expected.

The average loan-to-value ratio (LVR) for a first-home buyer is around 85 per cent, meaning many of them enter the market with a deposit of less than 20 per cent, according to CommBank.

What is a loan-to-valuation ratio (LVR)?

It is the amount you’re borrowing as a per cent of the property’s value. If you bought an $800,000 home and took out a $600,000 loan, the LVR would be equal to 75 per cent.For the same home, having a smaller deposit means you have a higher LVR.

As of June 2025, an average-income Australian household would need to save for the equivalent of 5.9 years to put down a 20 per cent deposit for a median-priced home.

South Australia has the highest deposit hurdles among states, taking around 7.2 years to secure a deposit, followed by what is traditionally the most unaffordable market, New South Wales, where it takes around 6.9 years. 

“This is a new development and reflects the surge in home prices across SA in recent years and SA’s relatively lower average household incomes,” the report noted.

An average-income household would need to save for 5.9 years to achieve a 20pc deposit.  (Sources: PropTrack and ABS)

What to expect?

Home prices in Australia are rising, with expectations of further increases over 2025 and into 2026, said Belinda Allen, head of Australian economics at CommBank. 

“After cutting the official cash rate in February, May, and August, our current expectation is that the RBA will cut rates again once more and favour November as the next meeting to do so,” she said.

“This will see the cash rate settle at 3.35 per cent by the end of this year.”

Ms Allen has called for all levels of government to focus on housing supply in the coming years, particularly for first-home buyers.  

From next month, the federal government’s uncapped Home Guarantee Scheme, which allows people to buy a property with a 5 per cent deposit and avoid paying lenders’ mortgage insurance, will take effect. 

While lifting income limits and caps on participants, the scheme will still be limited to properties below price thresholds, with between 55-67 per cent of homes in the largest capitals falling beneath those limits.

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However, analysts warned that the scheme might hinder long-term affordability at the expense of a short-term rise in first-home buyers, as the surge in demand it is likely to generate could push up the prices of properties that fall beneath the thresholds.

Australian national home values rose 0.7 per cent in August, the seventh consecutive monthly rise, according to property research firm Cotality, formerly known as CoreLogic. 

The national median home value is now $848,858, up 4.1 per cent over the past year.

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