Housing scheme expansion: Property experts reveal market warning

Australian Prime Minister Anthony Albanese said expanding the scheme would give first-home buyers a boost. Picture: Hagen Hopkins/Getty Images

A decision to expand and fast track the Labor Party’s signature First Home Guarantee scheme will be a gamechanger for first-home buyers but it could also reignite another price boom, experts claim.

The scheme currently allows eligible buyers to purchase homes with only a 2-5 per cent deposit without having to pay pricey lender’s mortgage insurance, but it has strong price and income caps.

The Federal Government has announced it will be bringing forward key aspects of the scheme on October 1, including a removal of income caps and lifting of the price limits to much higher levels.

Caps for buyers in Sydney will rise to $1.5 million, while in Melbourne the cap will expand to $950,000. Brisbane properties will be eligible up to $1 million.

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Couples were previously excluded from the scheme once their combined income surpassed $200,000, while singles had to earn below $125,000 to qualify. Those caps will be removed.

Col Dutton, president of the Urban Development Institute of Australia, said it was a meaningful step towards improving access to home ownership.

“Fast-tracking access to lower deposit home loans will help more everyday Australians buy their first home sooner,” Mr Dutton said.

Mortgage Choice-Dee Why director James Algar agreed that it will bring significantly more first-home buyers into the market, but there would be a huge downside.

“We’d expect a huge amount of extra buyers to come into the market once the income caps are removed,” he said.

“We already have a lot of people asking about the scheme as it is. They’re typically people who earn enough to afford the repayments but they don’t have a deposit.

“Competition for property would become intense. It would be a lot harder than already is. It could get crazy.”

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MCG Quantity Surveyors director Mike Mortlock said supporting more first-home buyers with purchases at a time of still crippling housing shortages would just elevate prices.

He said the scheme, and any further buyer support programs, needed to coincide with meaningful reforms that would radically increase the supply of housing.

“The biggest problem for the housing market is that we are not building enough houses. That is the main thing that needs to be addressed,” he said.

Mr Mortlock said increasing buyer demand through government schemes, without increasing housing supply, had pushed up prices in the past.

Treasury modelling was more optimistic, suggesting the total impact on house prices would be around a half a per cent increase after six years.

The expansion of the Home Guarantee was one of Labor’s signature housing commitments at the last federal election.

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Mortgage Choice mortgage broker James Algar said buyer competition could become ‘intense’. Picture: Britta Campion

Treasury estimated an extra 20,000 guarantees will be issued in the first year after uncapping the scheme.

Prime Minister Anthony Albanese said in a statement that bring forward the start date of the 5 per cent deposit scheme would help aspiring home buyers get onto the property ladder soon.

“We want to help young people and first home buyers achieve the dream of home ownership sooner, Mr Albanese said.

Mr Dutton at the UDIA said boosting housing supply would be vital for making the scheme work.

“Coordinating this initiative with broader housing supply measures is critical to ensuring more people can enter the market and secure a place to call home.”

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A recent auction in Sydney: competition for property is already high after recent rate cuts. Picture: Sam Ruttyn

The Real Estate Institute of Australia (REIA) has welcomed the federal government’s decision to bring forward the expanded First Home Guarantee Scheme to October, describing the move as a timely and practical response to affordability pressures.

“The removal of caps on income and places, along with increased property price thresholds, brings the scheme more in line with current market conditions and ensures broader access for aspiring home buyers across Australia,” Ms Pilkington said. “This is a significant and practical step toward addressing the affordability challenge.”

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Co-founder of Aussie real estate agent comparison service Bright Agent Aaron Scott said first-home buyers should exercise caution when considering any 5 per cent home deposit schemes.

“There is a dangerous flip side to 5 per cent deposit home purchases, and it’s called a 95 per cent mortgage” Mr Scott said.

“Whether it’s a guarantee, or shared equity, or a top-up loan situation, in any case the homeowner doesn’t own that portion of equity. Regardless of the arrangement, the homeowner only owns the 5 per cent, and someone else owns the rest.”

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