Lower interest rates and expanded government schemes are set to unlock more properties for first-home buyers, though rising prices could soon close this window of opportunity.

The new PropTrack CommBank First-Home Buyer Report, released on Thursday, found that first-home buyers continue to battle against property affordability and mortgage serviceability, but lower interest rates will help put more homes within reach.

However, they may need to move fast to experience the benefits as rising property prices and improved conditions increase competition - particularly in first-home buyer hotspots like Melbourne, where the tide appears to be turning on the market's underperformance.

PropTrack executive manager of economics Angus Moore said despite the headwinds first-home buyers currently face, many are finding a way to enter the property market.

“The good news for first-home buyers is that conditions are improving. Interest rates have already fallen from their peak, and further cuts are expected," Mr Moore said.

"Recent government policies, low deposit loans and Lenders Mortgage Insurance are key enablers helping first-home buyers purchase.

"Many also seek homes in more affordable areas or purchase semi-detached homes or units to overcome affordability challenges."

The report found most first-home buyers were purchasing with a smaller than 20% deposit, taking advantage of government schemes and family guarantors to get into the market sooner.

Where first-home buyers are flocking

Melbourne has emerged as the most popular location first-home buyers are searching, with four of the top five hotspots located in the Victorian capital.

Dandenong took out the number one position with almost twice as many first-home buyers as is typical across Australia. The Brunswick - Coburg region in the inner-northern suburbs ranked second, followed by Darebin and Moreland.

The top 20 hotspots were ranked based on areas with the highest concentration of first-home buyers searching relative to other buyers, with nearly half located in Melbourne's outer suburbs.

Gungahlin and Molonglo in Canberra along with Hobart’s north western region were the only locations outside of Melbourne to make it into the top ten.

In Sydney, the most-searched areas for first-home buyers are all more-affordable areas located in the west and southwest of the city such as Mount Druitt, Parramatta, Liverpool, Blacktown and Campbelltown.

Brisbane's outer areas are first-home buyer hotspots, with the North Lakes region in Moreton Bay, Springwood – Kingston region in Logan, and Forest Lake – Oxley region in Ipswich the most popular overall.

But first-home buyers face looming headwinds as conditions heat up this spring selling season.

The latest PropTrack Home Price Index shows national home prices have risen for an eighth consecutive month in August, with the recent interest rate cuts expected to fuel price growth further.

Amid the increasing competition, some first-home buyers are using buyer's agents to win their ideal home, particularly as investor activity increases simultaneously.

Nelson Alexander real estate agent Damian Ponte said that in Coburg there had been a clear uptick in first-home buyer enquiries.

“It is a competitive landscape, with multiple buyers circling the same homes, particularly those that are well-presented and sit comfortably under the $950,000 threshold,” he said.

Accessible deposits and improved serviceability are key

First-home buyers face two key challenges as they seek to enter the market. The first is saving a standard 20% deposit. The other is serviceability, or borrowing power, which is generally dependent on income and the buyer’s prospective interest rate.

But with savings timelines blowing out to 5.9 years for an average income household - and even more in NSW (6.9 years) and South Australia (7.2 years), most first-home buyers are opting to buy with a smaller deposit. Commbank data shows the average loan-to-value ratio for a first-home buyer is approximately 85%, meaning most first-home buyers typically buy with a deposit of less than 20% and either using a family guarantor, the government's home guarantee scheme, or pay Lenders Mortgage Insurance to get into the market sooner.

From October, an expansion of the federal government’s Home Guarantee Scheme will see property price limits increased across most of Australia, and there will be no limit on the number of places and no income caps.

The higher price thresholds will vastly increase the proportion of homes eligible for purchase through the scheme, the report shows, with Sydney's new price cap of $1.5 million meaning two thirds of homes would be eligible – up from less than a third of homes under the existing cap of $900,000.

Melbourne's new price cap of $950,000 from 1 October will see 64% of homes become eligible across the city, up from half (51%) under the current cap of $800,000.

Mr Ponte said the combination of rate cuts and the expanded federal government Home Guarantee Scheme was expected to drive a “surge of activity” in already in-demand suburbs like Coburg.

“The window of opportunity could be short-lived before prices adjust upwards,” he said.

“Freestanding houses under $950,000 are becoming harder to find, so well-located townhouses, villa units and larger apartments are increasingly on buyers’ radars.”

He says the best time to act is while affordability is still in the favour of first-home buyers, because competition "will only build as confidence returns.”

Due to the competitive nature of entering the market for the first time, the report also indicated that approximately 6% of first-home buyers chose to ‘rentvest’, leasing out investment properties instead of living in them to enter the market sooner.

But many experts suggest that it is essential to do the necessary research before raising a hand at auction. The quarterly Mortgage Choice Home Loan Report, released in August, showed that more than half of borrowers (57%) wished they'd done more research when choosing their first home loan.

CommBank's head of Australian economics Belinda Allen said home prices are expected to lift over 2025 and into 2026 given the RBA is in the middle of an interest rate cutting cycle.

"After cutting the official cash rate in February, May, and August, our current expectation is that the RBA will cut rates again once more and favour November as the next meeting to do so. This will see the cash rate to settle at 3.35% by the end of this year," Ms Allen said.

"Lower interest rates should improve borrowing capacity, helping first-home buyers. However, interest rates will remain well above pre-pandemic levels and challenges of housing affordability persist."