5% Deposit Scheme doesn't help affordability, just 'shuffles the deck': Expert
- The extended 5% Deposit Scheme has created new winners and losers, a mortgage broker claims
- Home values under the scheme's price caps have grown faster than those above it since the scheme's launch on 1 October
- The broker says the policy has changed who gets to buy and how fast they have to move
Sydney-based mortgage broker Brett Sutton said first home buyers have been split into 'winners and losers' after the overhauled Home Guarantee Scheme launched on 1 October 2025.
See also : 5% Deposit Scheme: A guide to the first home guarantee
Mr Sutton, a broker with Two Red Shoes agency, said now the dust has settled, the reality on the ground is a far cry from any 'affordability' ambitions.
The expansion saw income caps and expanded property price caps previously imposed on those accessing the scheme removed, effectively opening it up to the vast majority of first-time home buyers rather than a somewhat select group eligible before.
"The policy didn't actually make housing cheaper. It just reshuffled the deck," Mr Sutton said.
"It changed who gets to buy and how fast they have to move.
"From where I'm sitting, we aren't seeing a market cooling, we're seeing a high-stakes game of musical chairs."
5% Deposit Scheme: Winners & Losers
He said the clearest winners under the scheme aren't just the people who qualified for it, but who acted with "strategic timing".
The Winners: speed and serviceability
- The early birds: The buyers who jumped the second the ink was dry on the October changes, dodging the massive spike in competition and securing lower loan balances.
"They're already sitting on equity that today's buyers are still chasing," Mr Sutton said.
- The 'income-rich' renters: The "overnight winners" were professional couples and stable earners in capital cities who previously earned "too much" to qualify under the old scheme but couldn't save a 20% deposit while paying record-high rents.
"Now, they've flooded the market with strong serviceability, effectively jumping the queue," he said.
- Growing families: With the scheme's price caps finally reflecting 2026 reality, families are no longer being forced into 'starter' apartments.
"They're buying forever homes, solving a major 'fit' problem for the longer term," he said.
The Losers: the squeeze is on
- The 5% Savers: For those still scratching together their 5% deposits, the goalposts "are on wheels".
"The surge in demand has pushed 'entry-level' prices higher, turning the saving process into an exhaustive moving target," Mr Sutton said.
- Solo buyers: Single-income households are now competing directly for the same properties against high-earning professional couples who were previously excluded from the scheme.
"It's a tough math problem," he said.
- The late entrants: Those trying to buy now are walking into a crowded room with higher prices and paper-thin [serviceability] buffers.
"The scheme removes the need for LMI [lenders mortgage insurance] but doesn't remove the risk," Mr Sutton said.
"A 95% loan in a peaking market means you're incredibly sensitive to any future rate tweaks or life changes."
See also : What is a low deposit home loan?
5% Deposit Scheme trade-off
Mr Sutton said while the scheme has solved the deposit hurdle for a lot of people, the trade-off is the competition hurdle.
"In this market, your eligibility for a guarantee is only half the battle," he said.
"Your serviceabililty and your speed are what actually close the deal. The door is open, but you'd better be ready to run once you step through it."
Property market data since October 2025
Since the extended 5% Deposit Scheme launched, Cotality's monthly home value index has recorded 3.5% national growth, kicking off with the largest monthly rise recorded in two years (1.1%) in October 2025 - the first month of the scheme's expansion.
Last month, a Cotality analysis showed prices had grown at a greater rate for properties under the scheme's price caps than for those above it during the December quarter.
This trend held for every Australian capital city, except the ACT, and for 90% of regional markets with the effect most pronounced in Sydney where the property price cap to qualify for the scheme is set at $1.5 million.
Sydney home values below the benchmark jumped 2.3% in the quarter while those above it fell 0.1%.
Cotality's research director Tim Lawless said the trend of stronger growth conditions at lower price points looks to continue.
"[It's] supported by intense competition for more affordable houses,” he said. “This is where first home buyers, investors and, progressively, mainstream demand is most concentrated.”
How will the cash rate hike affect the property market?
Mr Lawless said the market would likely see demand side pressures gradually ease in 2026 with the hike in interest rates playing a part.
"Affordability and serviceability constraints are likely to naturally dampen demand but also renewed cost-of-living pressures...[and] slowing population growth," he said.
Cotality's latest monthly home value index noted Australia's home values have risen significantly relative to incomes while interest rates are now more than one full percentage point above their pre-COVID decade average.
"As a result, both the deposit hurdle and ongoing serviceability assessments continue to present substantial barriers for prospective buyers," the report said.
Investor activity wildcard
Property prices have also been fuelled by record investor activity with the Australian Bureau of Statistics' last lending data showing investor loans accounted for 41% of all new home loans in the September quarter.
Much of this activity has been concentrated in the lower-priced quartiles of the market.
The banking regulator APRA acted in November to impose limits on riskier investor lending but these took effect from 1 February.
As such, the measures will have had little effect on investor activity during the December quarter, with that lending data due out next week.
What may give investors pause is federal Treasurer Jim Chalmers refusing to rule out changes to the capital gains tax (CGT) discount on the sale of investment properties.
Dr Chalmers has not addressed the speculation directly but said [the government] should be capable of "having a discussion about the intergenerational issues in housing".
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