The federal government’s expanded 5 per cent deposit guarantee has been a genuine door-opener for first home buyers, letting them buy with a small deposit and no Lenders Mortgage Insurance. But it’s having a second effect that gets less attention: it’s driving up prices at the affordable end of the market, the very segment it’s meant to help buyers into. Here’s the plain-language guide to how the scheme is reshaping the bottom of the market. [PUBLISHING NOTE: scheme details and price caps change; confirm current settings before publishing and keep figures current.]
What the Scheme Does
The expanded Home Guarantee Scheme lets eligible first home buyers purchase with as little as a 5 per cent deposit, with the government acting as guarantor for the rest, so buyers avoid paying Lenders Mortgage Insurance. Since it expanded (with unlimited places and higher price caps) it has brought a wave of additional first home buyers into the market, concentrated at the affordable end where the price caps apply.
For eligible buyers, it’s genuinely powerful, it can cut years off the time needed to save a deposit and get people into a home far sooner. But more buyers competing for the same affordable homes has a predictable effect on prices.
The Effect on Affordable-End Prices
Here’s what the data shows. Cotality analysis found that since the scheme expanded, properties valued below the scheme’s price caps have recorded stronger growth than higher-priced homes. In other words, the extra demand from deposit-guarantee buyers has pushed up prices specifically at the affordable end, faster than the broader market.
The clearest sign of this is how the pool of eligible suburbs is shrinking as prices rise. The chart below shows the share of suburbs with a median value below the price caps, and how it’s fallen as those affordable areas have grown in price.
Why This Happens
It’s straightforward supply and demand. When you give more buyers the ability to purchase, but the supply of affordable homes doesn’t increase to match, those extra buyers compete for the same limited stock, and prices rise. Because the scheme’s price caps target the affordable end, that’s exactly where the extra demand concentrates, and exactly where prices feel the upward pressure.
It’s a genuine policy tension: a scheme designed to help first home buyers afford a home can, by boosting demand without boosting supply, make that same affordable housing more expensive. The buyers who get in early benefit; those who come later face higher prices and a shrinking pool of eligible properties.
What It Means If You’re a First Home Buyer
The practical implications are real. The scheme is a genuine opportunity, if you’re eligible, it can get you into a home years sooner, so it’s well worth understanding and using. But be aware you’re buying into a more competitive affordable segment, so be prepared: have your finance and application ready, and act decisively when the right property appears. Watch the price caps for your area, since rising prices are pushing some suburbs above the caps, shrinking your eligible options over time, which is an argument for acting sooner rather than waiting.
At the same time, don’t let the scheme push you into overpaying or overstretching. A small deposit means a larger loan and higher repayments, so stress-test your budget against higher interest rates, and buy something you can genuinely afford to hold, not just to buy.
The Bigger Picture
The scheme sits within a broader truth: Australia’s core housing challenge is supply. Demand-side measures like deposit guarantees help individual buyers get in, but without enough new homes being built, they can add to price pressure at the affordable end. That’s not a reason to avoid the scheme if you’re eligible, it’s a genuine leg-up, but it’s useful context for understanding why affordable housing keeps getting more expensive even as governments try to help. This is general information, not financial advice.
The Bottom Line
The 5 per cent deposit scheme is quietly reshaping the bottom of the market: it’s helped many first home buyers in, but by boosting demand for affordable homes without boosting supply, it’s pushing up prices at that end and shrinking the pool of eligible suburbs. If you’re eligible, it’s a real opportunity worth using, just act promptly, watch the price caps, and don’t overstretch. Understand both the leg-up and the competition it creates, and you’ll use the scheme wisely. This is general information, not financial advice.
Epik Wire covers property and housing in plain language for buyers, owners and families. Subscribe to our newsletter to stay informed.
