‘Effective immediately’: Bank pauses pre-approvals amid first homebuyer surge
First home buyers looking to use the government’s new 5 per cent deposit scheme to get into the market have been hit with a fresh blow.
An Australian bank has been forced to hit “pause” on its pre-approval process following an influx of first home buyers wanting to use the government’s new deposit scheme.
The email from Beyond Bank was received by Home Loan Headquarters mortgage broker, Dwayne Nicholls, last week, with the change being enacted “effective immediately”.
“Due to a recent surge in application volume, particularly for applications under the Australian Government 5% Deposit Scheme, we are pausing our acceptance of pre-approvals,” the email read.
“Effective immediately, we will not be accepting pre-approval applications (e.g. where a contract of sale has not been entered into) for a temporary period.
“This applies to all application types.”
The bank is still processing in-house loan applications.
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The expanded Scheme came into effect on October 1 of this year, allowing eligible first home buyers the ability to purchase a property with just a five per cent deposit.
The government provides a 15 per cent guarantee to participating lenders, which also eliminates Lender’s Mortgage Insurance.
Income caps have also been removed, along with caps on the number of available spots and property price caps have been increased, meaning more people are able to access the scheme.
In sharing the email to social media, Mr Nicholls said he “wouldn’t be surprised” if more banks follow suit in pausing the pre-approval process.
In fact, when speaking with news.com.au, the mortgage broker said that, while other lenders haven’t paused pre-approvals yet, they have stretched the time of their Service Level Agreements (SLAs) from as little as 1-2 business days to as much as 16-20 business days.
Mr Nicholls has experienced the surge in people wanting to use the scheme first-hand as most of his clients are first home buyers and, for the majority of them, the five per cent scheme is their best option to enter the market.
In light of Beyond Bank’s decision, the mortgage broker advised any first home buyers who need pre-approval to reach out to a broker earlier in order to give themselves as much lead time as possible.
“Alternatively, depending on your personal circumstances, if you discuss your numbers with your broker and have confidence in your borrowing, you could skip the pre-approval stage,” he said.
“This may be suitable for people looking to borrow below their maximum capacity and should only be used sparingly.”
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While blown out pre-approval times is certainly a trend that is being seen across multiple banks, not every lender is following suit.
Earlier this week, Mr Nicholls lodged an application for a client with Regional Australia Bank and had received conditional approval just three hours later.
“As a smaller lender, I assume they have not received the overwhelming volume of applications since the updates to the scheme, which means they’re still able to produce quick turnarounds for their clients,” he explained.
While Albanese’s changes to the First Home Buyer scheme have been praised by many, there have also been concerns that the widespread nature of the scheme will result in house prices being driven up even higher due to increased demand.
And it seems these fears have not been unfounded, with Mr Nicholls saying he believes the introduction of the 5 per cent deposit scheme has already started to have an impact on the housing market.
“The expansion of the scheme made more people eligible. This, along with the 3 rate cuts earlier in 2025, as well as the typical busier spring season has generated extra interest and seen prices rise,” he said.
“I also have had more potential first home buyers inquire about their options or borrowing capacity since the change.”
Despite this, the mortgage broker still thinks the scheme can have a positive impact, as it is, when used responsibly, as an “excellent” way to enter the market for those who may otherwise “hibernate on the sidelines for years” trying to save a full 20 per cent deposit.
“By getting in with 5 per cent, they benefit from the capital growth rather than missing out while saving further,” he said.
“I do hold some concerns that property price increases we’ve been seeing lately will continue and the gap between average wages and housing affordability will continue to grow further apart making it harder for first home buyers to enter the market.”
This comes as first home buyers were issued a grim warning, with new research suggesting house prices will jump across the country, regardless of whether the Reserve Bank of Australia (RBA) holds interest rates.
SQM Research has sounded the alarm on the nation’s housing affordability woes, pointing to the government’s first home deposit scheme and both international and internal migration as the key reasons why house prices are on the rise.
According to the research, even under the most optimistic scenario for first home buyers with no more interest rate cuts and a slower economy, capital city house prices combined will grow by 4 to 8 per cent.
Under this scenario, Sydney and Melbourne house prices will grow by 2 to 6 per cent, while Perth prices will jump by as much as 14 per cent and Brisbane prices are predicted to rise by as much as 12 per cent.
SQM managing director Louis Christopher told NewsWire that for the first time in years, house prices would rise across the country under any modelling scenario.
“There is definitely a scenario where the RBA has to stay their hand and not cut interest rates in 2026,” he said.
“In that scenario, we still think there is momentum in the market from interest rate cuts that have already happened this year, plus the government’s 5 per cent deposit scheme.”
The central bank cut interest rates three times this year, dropping rates by 25 basis points in each of February, May, and August, but has held them over the last three months.
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Originally published as ‘Effective immediately’: Bank pauses pre-approvals amid first homebuyer surge
