First Mortgage Australia 2025: Rates, Rules & Tips

For many Australians, securing a first mortgage is a pivotal step toward homeownership or property investment. But with 2025 bringing fresh lending rules, evolving rates, and new government incentives, understanding the nuances of a first mortgage has never been more important. Whether you’re a first-time buyer, a seasoned investor, or simply mortgage-curious, here’s what you need to know to make informed decisions in today’s dynamic market.

What Is a First Mortgage – And Why Does It Matter?

At its core, a first mortgage is a loan secured against a property that holds the highest repayment priority if the borrower defaults. It’s called ‘first’ because, in the event of repossession, the lender with this mortgage gets paid back before any other creditors (such as a second mortgagee or other debt holders). This makes first mortgages less risky for lenders and, as a result, often comes with more favourable interest rates and terms.

Key features of a first mortgage include:

• Priority security: Lender has the first claim on the property in default situations.

• Lower rates: Typically attracts lower interest rates compared to second or caveat loans.

• Common use: Standard for owner-occupiers and most residential property buyers.

For example, if you buy a home in Sydney with a 20% deposit and borrow the rest from a major bank, that’s a classic first mortgage arrangement. If you later take out an additional loan secured against your equity, that becomes a ‘second’ mortgage, subordinate to the first.

2025 Updates: Lending Rules, Rates & Policy Shifts

This year, Australian mortgage lending is undergoing significant changes, driven by both regulatory shifts and economic forces:

• APRA’s serviceability buffer adjustment: In early 2025, APRA reduced the minimum serviceability buffer from 3% to 2.5% above the loan rate, making it slightly easier for buyers to qualify for their first mortgage.

• RBA interest rate outlook: The Reserve Bank of Australia is signalling potential rate cuts in the second half of 2025, which could lower variable and some fixed mortgage rates from their recent highs of 5.8–6.4%.

• First Home Buyer Guarantee expansion: The federal government expanded the scheme, allowing more buyers to access a mortgage with as little as 5% deposit and no Lenders Mortgage Insurance (LMI), provided they meet eligibility criteria.

• Credit assessment tightening: Despite the buffer change, lenders continue to scrutinise living expenses and secondary debts more closely due to ongoing cost-of-living pressures.

Case in point: A couple in Brisbane, both on moderate incomes, recently secured a $650,000 first mortgage under the expanded First Home Buyer Guarantee. With a 5% deposit and no LMI, they locked in a 5.9% fixed rate for three years, benefiting from the government’s push to support new buyers amid affordability challenges.

Getting a First Mortgage: Tips for 2025 Borrowers

With market conditions in flux, here’s how to boost your chances of getting approved and nabbing a competitive rate:

• Know your borrowing power: Use updated online calculators that factor in 2025’s lower buffer rates and changes to government schemes.

• Cut secondary debts: Lenders are increasingly wary of applicants with multiple buy-now-pay-later or credit card debts. Pay these down before applying.

• Consider fixed vs variable: With rates expected to drop later in 2025, weigh the stability of a fixed rate against the potential savings of a variable loan.

• Check scheme eligibility: If you’re a first-time buyer, see if you qualify for the First Home Buyer Guarantee or state-level stamp duty concessions.

• Document your income and expenses: Lenders now require detailed evidence of income, spending, and even subscriptions. Get your paperwork ready early.

Don’t forget: property valuations, your credit score, and the type of property (house, apartment, off-the-plan) can all influence your approval odds and loan terms.

The Fine Print: Risks, Rights & Refinancing

While first mortgages are the most common and lowest-risk property loans, there are still pitfalls to avoid:

• Default risk: If you can’t meet repayments, the lender can repossess and sell your home. Always factor in potential rate rises and unexpected expenses.

• Break costs: Fixed-rate loans often carry penalties for early repayment or refinancing. Check the loan agreement for details.

• Refinancing options: As rates change, refinancing your first mortgage can unlock savings or let you access equity, but may involve fees and fresh credit checks.

With 2025’s evolving policies and more digital lenders entering the market, it pays to review your mortgage regularly—even if you’re already locked into a first mortgage. Competition is driving sharper rates and more flexible features for savvy borrowers.