The expansion of the First Home Guarantee Scheme in Australia has been brought forward, with major first home buyer changes taking effect from 1 October. These reforms aim to give more Australians a faster, easier path into homeownership.
The revised First Home Guarantee will allow eligible buyers to purchase a property with just a 5% deposit, without having to pay lender’s mortgage insurance (LMI). From October, the scheme will also:
• Remove caps on the number of places available
• Abolish income limits
• Lift property price caps
These changes deliver on the federal government’s election promise to make the 5% deposit loan pathway more accessible.
The upcoming reforms are designed to address several barriers first home buyers currently face:
1. Unlimited scheme places
There will no longer be a limit on the number of applicants. Previously, 50,000 places were allocated each year – now, any eligible first home buyer with a 5% deposit can apply at any time.
2. Income caps removed
High-earning individuals and couples were previously locked out of the scheme due to income thresholds. Removing these limits reflects the reality of rising incomes and property prices, particularly in capital cities.
3. Higher property price caps
The federal government has updated price caps to better reflect today’s market conditions. This makes the scheme viable in more suburbs and will help more first home buyers purchase a home that suits their needs, rather than compromising on location or size. (See image below for updated thresholds.)
4. Simpler access across regions
The separate Regional First Home Buyer Guarantee will be folded into the First Home Guarantee, streamlining the process and eliminating confusion around eligibility.
Saving a 20% deposit remains the biggest hurdle for many aspiring homeowners. With the
national median home price now at $844,000, a 20% deposit equals nearly $170,000 – a daunting figure for most first-time buyers. Under the revised scheme, just $42,200 is needed – the same level of deposit required back in 2002.
This dramatically reduces the time it takes to enter the market.
It also eliminates lender’s mortgage insurance (LMI), which can cost tens of thousands. Government modelling estimates first home buyers could collectively save $1.5 billion in LMI over the first year of the expanded scheme.
Examples provided by the government highlight just how significant the change can be:
• A Brisbane buyer can purchase a $1 million property with a $50,000 deposit, saving $42,000 in LMI and cutting up to a decade off their deposit timeline.
• A Bendigo, Victoria buyer could purchase a $600,000 property with a $30,000 deposit, saving $25,000 in LMI and up to six years of deposit time
Housing Industry Association (HIA) managing director Jocelyn Martin said the expanded First Home Guarantee Scheme in Australia would make homeownership more accessible to those who may have previously been locked out of the market.
“To date the scheme has helped more than 210,000 Australians get into a home of their own.”
Martin welcomed the removal of income caps and scheme place limits, along with the uplift in property price caps, noting they would allow more Australians to benefit and get into housing sooner.
However, not all feedback has been positive. Some experts warn the scheme doesn’t alter bank lending rules, which still rely on strict serviceability calculations.
For example, Canstar modelling shows that a single buyer earning the average NSW salary of $106,997 would only be able to borrow around $560,000 – well short of the scheme’s $1.5 million purchase cap. This suggests the higher caps will mainly benefit dual-income households or those earning above-average incomes.
The scheme will clearly reduce barriers to homeownership – but its broader impact on the market may be more complex.
In the short term, many analysts expect the changes to increase buyer competition, particularly in affordable suburbs where first home buyers are most active.
The Housing Industry Association expects this will place “tangible” upward pressure on prices in those locations immediately following the October changes.
Over the longer term, however, the scheme could help moderate price growth by boosting housing supply. About a third of all new homes are purchased by first home buyers, so greater access to finance is likely to increase new construction activity. Treasury estimates it could take up to six years for the boost in supply to offset the short-term price pressures, while HIA forecasts the adjustment could occur in as little as three years.
Economists also warn that while the policy reduces barriers to entry, it does not solve structural affordability challenges. AMP deputy chief economist Diana Mousina said house price-to-income ratios remained more than double what they were 50 years ago, suggesting affordability pressures would persist regardless of government support.
Thinking about using the 5% deposit home loan pathway to enter the market sooner? Speak to the expert team at Shore Financial. We’ll help you assess your borrowing power, compare the right loan options, and make the most of the First Home Guarantee scheme. Call us on 1300 416 700, email info@shorefinancial.com.au or fill in this online form.
We appreciate your message and a Shore Financial Adviser will respond to you within a few short days. In the meantime, here’s a few links to keep you occupied.
We appreciate your message and a Shore Financial broker will respond to you within a few short days. In the meantime, here’s a few links to keep you occupied.
