Yea it would seem like it, and worse you may drive users to adopt a 'less secure' passphrase because the first 5 characters of the hash of their super complex/long passphrase might collide with the first 5 characters of the hash of 'password1', so they may pick a weaker passphrase just to get the system to accept it?
Note that the returned hashes omit the first 5 characters, since that would be a waste of resources.
You should also note that ALL possible combinations of 5 characters return at least 300 results. So it doesn't make sense to use this API any other way.