Australia’s housing market is entering an unusual phase: investors are retreating while first-home buyers are becoming increasingly active.

Fresh lending data shows the shift is not simply about cheaper borrowing or falling property prices. Government policy is playing a growing role in determining who can participate in the market.

Loan Market data shows applications from first-home buyers increased 10% during the first half of August, following a 3% decline in July. By comparison, applications from investors and existing owner-occupiers remained broadly unchanged from June.

Australian Bureau of Statistics figures highlight the wider change. Overall home-loan demand fell 5.4% in the June quarter, while investor lending dropped 8.6%. First-home buyer lending declined by just 2.9% on a seasonally adjusted basis.

The government’s expanded 5% Deposit Scheme appears to be an important factor. Eligible buyers can purchase a property with a deposit as low as 5%, with the government guaranteeing the loan and removing the need for lenders’ mortgage insurance.

More than 320,000 Australians have become homeowners through the scheme since 2020. More than 5,000 new guarantees were being issued each month from February, although this slipped slightly below 5,000 in July.

The scheme is also influencing where buyers are looking. Demand is concentrating around properties below the government’s price limits, which range from $700,000 in Hobart to $1.5 million in NSW cities.

Regional differences are emerging too. First-home purchases in NSW and the ACT remain above year-earlier levels, while South Australia and Tasmania have reached their highest levels since 2021.

The result is a market increasingly divided by buyer type. Investors are facing higher costs and less favourable tax treatment, while first-time buyers are receiving stronger policy support.

Rather than a broad-based housing boom, Australia may be seeing something more specific: a redistribution of purchasing power towards people trying to buy their first home.