New Data Shows How the 5% Deposit Scheme Inflated Home Prices

Key Takeaways

• First‑time buyer mortgages rose 16% to AUD 19.31 bn (≈ US$12.7 bn).
• Average loan size hit AUD 607.5k (≈ US$401k), up 8.3%.
• 5% deposit scheme linked to record‑high mortgage volumes.
• Rising loan sizes could push median house prices higher.
• Potential bubble risk may prompt regulatory review.

Pulse Analysis

The Australian housing market is experiencing an unprecedented surge in first‑time buyer financing, driven largely by the 5% deposit scheme introduced to ease entry for new owners. ABS figures reveal that mortgages to first‑time buyers reached AUD 19.31 billion in the December 2025 quarter, a 16% jump from the previous period and the highest since early 2021. Converting to U.S. dollars, that represents roughly US$12.7 billion of new debt, underscoring the scale of government‑backed assistance. At the same time, the average loan size climbed to AUD 607,500 (about US$401,000), an 8.3% increase that sets a new benchmark for borrowing levels.

While the scheme’s intent—to lower the barrier of a 5% down‑payment—has succeeded in expanding credit access, it also fuels price inflation. Higher demand backed by larger mortgages pushes sellers to command premium prices, especially in major cities where supply remains constrained. This dynamic risks creating a feedback loop: as prices rise, borrowers need even larger loans, further inflating valuations. Analysts warn that without careful monitoring, the market could tip toward a bubble, exposing lenders and borrowers to heightened default risk if interest rates rise or economic conditions soften.

Policymakers and regulators now face a delicate balancing act. They must preserve the scheme’s social objective of increasing homeownership while implementing safeguards—such as tighter loan‑to‑value ratios or stricter affordability tests—to curb excessive price growth. For investors and industry stakeholders, the data signals a market that remains buoyant but potentially over‑leveraged, suggesting a need for vigilance in portfolio risk assessments and a watchful eye on forthcoming fiscal or monetary adjustments. The coming months will reveal whether the 5% deposit initiative can be calibrated to support sustainable growth without destabilising Australia’s housing ecosystem.