RBA rate warning raises the stakes for buyers with 5% deposits

Australians who recently bought with a small deposit face a more difficult combination of risks: falling property values, high mortgage repayments and the possibility of another interest rate increase.

Broker Daily reported on Monday that Reserve Bank deputy governor Andrew Hauser had described the inflation outlook as materially worse than the RBA expected in August. His comments were made at a Citi investment conference on 21 October, ahead of the central bank’s November monetary policy meeting.

Hauser did not announce or promise another increase. He said the board was still completing its forecasts and faced a hard choice between acting against persistent inflation and avoiding unnecessary damage to economic activity and employment.

For property buyers, the distinction matters. A further rise is a risk to prepare for, not a confirmed outcome. But with the cash rate already at 4.60 per cent following four increases during 2026, even the possibility of another move affects borrowing capacity, buyer confidence and household budgets.

That pressure is most immediate for recent buyers who began with little equity.

Why low-deposit buyers are more exposed

A separate report published by realestate.com.au on Monday detailed FoundIt modelling of locations where buyers using the Australian Government 5% Deposit Scheme may be vulnerable if they need to sell.

A 5 per cent deposit provides only a narrow initial buffer against a decline in value. If a home purchased for $700,000 falls by 5 per cent, its value drops by $35,000 — equal to the original deposit before allowing for principal repayments, purchase costs or selling expenses.

That does not automatically mean the owner has lost the home or cannot meet the loan. Negative equity simply means the outstanding mortgage is greater than the property’s current value. It becomes particularly important when an owner needs to sell, refinance or use the property’s equity.

FoundIt’s analysis identified pockets of Sydney’s apartment market and outer Melbourne housing markets as carrying elevated risk. According to the realestate.com.au report, average unit values in the Carlingford area fell 9.7 per cent between October 2025 and September 2026. Its modelling estimated that a representative buyer who entered with a 5 per cent deposit could face a shortfall of about $45,000 after selling.

The result is not an estimate for every owner or every apartment in Carlingford. Individual outcomes depend on the purchase price, current loan balance, specific building, property condition, selling costs and any money held in an offset account.

The same caution applies to FoundIt’s forecasts. A projected regional price movement is not a guaranteed change in the value of a particular home.

The broader mortgage market remains resilient

The Reserve Bank’s October Financial Stability Review provides important context. It estimated that less than 1 per cent of Australian mortgage borrowers were in negative equity, although recent buyers and people with high loan-to-value ratios were more likely to be affected. The RBA specifically included participants in the 5% Deposit Scheme among the more exposed groups.

Even under an RBA scenario involving a uniform 20 per cent decline in housing prices, only about 5 per cent of mortgages would fall into negative equity.

The RBA also stressed that negative equity alone is not enough to cause a default. A borrower who continues making repayments can generally remain in the property while gradually reducing the debt. The more serious danger arises when negative equity is combined with lost income, depleted savings and an unavoidable need to sell.

Scheme participants were still required to pass lenders’ serviceability assessments, including the Australian Prudential Regulation Authority’s interest-rate buffer. The government guarantee also protects participating lenders against part of a loss; it does not compensate the homeowner for a decline in their property’s value.

What buyers can do now

Recent buyers should avoid treating a suburb-wide median or forecast as a valuation of their own home. Comparable recent sales within the same building, street and property type will generally provide more useful evidence.

Households concerned about another rate rise can review their budget using repayments above their current rate. Directing spare funds into an offset account or the loan, where appropriate, may simultaneously improve the cash buffer and reduce interest.

Anyone expecting difficulty should contact their lender before missing repayments. Banks can discuss options such as changing repayment arrangements or providing temporary hardship assistance, although these measures may increase the total interest paid.

Prospective 5% deposit buyers should also remember that the scheme removes the usual need for lenders mortgage insurance, but it does not remove market risk. The purchase still needs to work at higher repayments and over a long enough ownership period to withstand ordinary property cycles.

What it means for you

• Another November rate increase is possible, but the RBA has not made its decision.
• Negative equity is concentrated among recent, highly leveraged buyers rather than the mortgage market as a whole.
• Falling values matter most if you must sell or refinance soon; owners who can keep repaying have more time to rebuild equity.
• Before buying with a 5 per cent deposit, test the budget against higher rates and allow for purchase, ownership and eventual selling costs.