Five per Cent Home Deposit Scheme Fuelling Price Hike, Report Suggests

Why It Matters

The scheme’s demand‑side stimulus is inflating entry‑level prices, eroding the very affordability it aims to improve and raising systemic risk for first‑time buyers with minimal equity buffers.

Key Takeaways

• Eligible homes rose 6.7% vs 3.6% for higher-priced homes
• Sydney’s low‑price market up 4.1% while premium homes fell 1.1%
• 40% of mortgage demand in Q4 came from investors
• First‑home buyers face higher serviceability risk with 95% loans

Pulse Analysis

The First Home Guarantee was introduced as a short‑term fix to Australia’s chronic housing shortage, letting buyers secure a mortgage with just a 5% down payment. By removing lender‑imposed borrower limits, the policy opened the market to a wave of new entrants in late 2025. While the immediate effect was a noticeable uptick in home‑ownership rates, the data from property analytics firm Cotality reveal a side effect: price acceleration for the very segment the scheme targets. This price pressure is especially acute in Sydney’s lower‑price bracket, where a 4.1% rise outpaced the broader market, highlighting how demand spikes can outstrip the modest supply of affordable units.

Beyond the scheme itself, broader macro forces are amplifying the trend. Rising interest rates have nudged buyers toward cheaper properties, while investors—accounting for roughly 40% of mortgage applications in the fourth quarter—have intensified competition in the entry‑level segment. The combination of tighter credit conditions and heightened investor activity squeezes first‑time buyers, who now face a 95% loan‑to‑value exposure. Such high leverage magnifies the risk of negative equity if house prices stall or fall, a scenario that could destabilize household finances and dampen consumer confidence.

Policymakers face a dilemma: the guarantee helps immediate access but does little to address the underlying supply deficit. Sustainable affordability will likely require coordinated measures—zoning reforms, increased construction of affordable units, and targeted incentives for developers—to expand the housing stock. Until supply catches up, schemes that rely on low deposits may continue to push prices higher, undermining long‑term market stability and the goal of broader home ownership.