Banks’ shock interest rates for first home buyers revealed

Australia’s biggest banks are under fire for allegedly exploiting first home buyers, as the Federal Government’s First Home Guarantee Scheme launches on October 1.

Instead of delivering a pathway to home ownership, critics claim the scheme is being hijacked by major lenders to inflate profits at the expense of struggling Australians.

The scheme, designed to help first home buyers secure a property with as little as a 5 per cent deposit, has been met with outrage after revelations that three of the big four banks – ANZ, NAB, and Westpac – are charging significantly higher interest rates on low-deposit loans.

This is despite the Government guaranteeing a portion of the loan’s risk.

Figures from the banks’ own websites reveal a stark disparity in interest rates.

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On a $1 million loan, this could cost first home buyers an additional $1037 per month – or an eye-watering $373,407 over 30 years.

NAB, accoridng to bRight, has set its highest interest rate threshold at a 70 per cent LVR, meaning borrowers with smaller deposits are being hit even harder.

Westpac and ANZ have also published rates showing significant increases for loans with higher LVRs, further adding to the financial strain on first home buyers.

Australia’s major banks are gearing up to cash in on first home buyers as the Federal Government’s First Home Guarantee Scheme kicks off on 1 October 2025.

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“This interest-rate disparity is price gouging on a national and generational scale,” Aaron Scott, co-founder of real estate agent comparison service bRight Agent, said.

“The Government is taking on the risk above 80 per cent of the Loan-to-Value ratio, so its real no extra risk to the banks to be loaning up to 95 per cent. But instead of helping new first home buyers get into a home with a manageable rate, the banks are still slugging these Australians with sky-high rates.

“First home buyers are already scraping every cent together to get a deposit. To then be punished with inflated rates on top of their mortgage is nothing short of a national disgrace.”

Where’s the risk? Government guarantee vs bank profits

Traditionally, banks justify higher rates for higher LVR loans by citing increased risk of default.

However, with the Federal Government absorbing part of the risk under the scheme, critics argue the banks have no justification for the inflated rates.

Instead, they claim the banks are using taxpayer-backed support as a profit buffer, leaving young Australians to shoulder the financial burden.

bRight Agent is now urging the Australian Competition and Consumer Commission to step in and ensure fairness.

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Instead of opening the door to home ownership, major lenders have hiked interest rates and charges on 95% loans — the very loans the scheme is meant to support.

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The group is calling for all loans under the First Home Guarantee Scheme with an LVR above 80 per cent to be charged the same interest rates as those at 80 per cent

“It’s a generational debt trap dressed up as a great opportunity,” Scott said.

The controversy comes as Australian households face mounting financial pressure.

Rising interest rates, job cuts, and increasing mortgage stress are creating a perfect storm for first home buyers.

Recent lay-offs by major banks have only added to the uncertainty.

ANZ announced plans to slash 3500 jobs, while NAB is cutting over 400 positions.

These cuts follow similar moves by CBA and other major employers, including BHP.

Adding to the bleak outlook, Roy Morgan’s latest research reveals that 28.4 per cent of mortgage holders are now “At Risk” of mortgage stress – the highest rate since January 2025. Over one million Australians are considered “Extremely At Risk”, a figure well above the long-term average.