Anecdotal evidence from advisers reveals first time buyers are overlooking standard diligence checks like building inspections, covenants, and raising their auction bids beyond financing levels agreed by the banks.
Advisers fear many borrowers aren't seeking the right advice until it's too late.
Hamish Patel of Mortgages Online said the market had reached "fever pitch", with FHBs bidding in auctions above the level set by valuers, which were based on months-old data.
This left FHBs agreeing prices above the price set by their bank.
"First home buyers need an extra $10,000, $20,000 in deposit up their sleeve, in case bidding surpasses the registered valuation," Patel said. "Because if the bank don't like the valuation, they're in trouble."
Patel said first home buyers were getting frustrated after missing out on two or three auctions, so were taking more risks the longer their house hunting went on.
iLender's Jeff Royle said auctions at high LVR "come with a lot of risk" for FHBs.
"People should be getting their building inspections done, and some people aren't, he said. "Once people have been through auctions once or twice they are taking more risks. I heard of one property that a first home buyer agreed to buy, which had all sorts of strange covenants, limiting them on how long their grass could grow and where they could put laundry. Banks don't tend to worry but non-banks can be fussy about those things."