In an effective step to help home buyers, a new scheme that allows all first home buyers to purchase a property with only a 5% deposit will begin in October 2025, three months earlier than planned.
Under the scheme, first homebuyers will be able to buy a home with as little as a 5% deposit without needing to pay lenders’ mortgage insurance (LMI), which can add tens of thousands of dollars to the up-front costs of a home.
Significant other changes to the current federal scheme will also be introduced, including eliminating income limits which meant some first home buyers couldn’t assess the scheme benefits.
Purchase price caps will be lifted, with some areas jumping up by more than $500,000 as outlined below.
It seems there was some pushback from State and Territory Governments, as the stamp (transfer) duty caps are yet to be adjusted. This means that some buyers will be required to pay the full stamp duty. For example, in NSW a buyer can purchase a property for up to $1,500,000, but would still be required to pay the full stamp duty as the NSW stamp duty exemption cuts out at $1,000,000.
The table below shows the new purchase price caps and stamp duty exemption caps in each State and Territory.
Market impacts
There’s no doubt the changes will have an immediate impact on pricing for properties that sit under the new lending caps. Competition for properties under these caps will heat up and prices will spring up.
There could be moderation for properties priced above the stamp duty exemption limits but that are still within the purchase caps, however even these properties will bounce in price due to the financial benefits of not needing to use lenders mortgage insurance.
For example – a property in Brisbane has a purchase price cap of $1,000,000, but the stamp duty exemption cuts out at $800,000. This means a first home buyer using the new scheme and only paying 5% deposit would still be required to pay stamp duty of $34,886.
Once again, the home buyer assistance is welcome but trying to navigate between the federal purchase caps and state based stamp duty legislation has just made the purchase process even more complicated.
Estimated time and rent saved to save a deposit
Treasury estimates an extra 20,000 guarantees will be issued in the first year after uncapping the scheme, and its modelling suggests that by reducing the time to save for a deposit and buy a home, those people will also save tens of thousands of dollars in rent.
Treasury figures indicate the 5% deposit scheme can save years off the time the average worker needs to save a deposit.
Considering the savings, the new scheme will certainly provide benefits to first home buyers and provide them with leverage over investors. It will mean they will still need to compete with each other, so price increases will be a certainty until supply can catch up.
Price impacts short and longer term
The Housing Industry Association (HIA) believes there’s no doubt, at least in the short term, that the 5% deposit scheme will see home prices rise. Removing the requirement for LMI provides FHB’s with an extra $25,000 in their deposit and will see more FHB’s active in the market from 1 October 2025. At the same time the supply of homes is fixed. It takes at least six months to build a new home. Therefore a rise in demand, while supply is fixed will see home prices rise.
Furthermore, FHBs are not evenly distributed across the market. They are not typically looking to buy in affluent suburbs and will therefore have minimal or no impact on the higher end of the market. But, they are often purchasing in the same suburbs or types of homes as other FHBs, which means the upward pressure on home prices for FHB’s will be tangible in those markets and locations where FHBs are active – at least in the short term.
The question is, how long does it take for this short-term uplift in prices to be offset by the increase in supply that will lower those prices?
Treasury’s estimate is that this will take six years. HIA’s estimate is that it will be a little more than 3 years. The reason for the difference of opinion between HIA and Treasury is due to differing assumptions. HIA contends that because the change in policy is permanent, it does not have the same ‘draw forward’ impact of the ‘Covid’ HomeBuilder incentive or other short term stimulus policies that would see new households form. Short term stimulus measures typically see the ‘Bank of Mum and Dad’ step in to the market to help their children access once in a generation grant funding.
The removal of the LMI in the 5% deposit scheme however, is a permanent change that will see a more orderly return to market by FHB’s mostly responding to lower interest rates. Also, by moving the policy announcement forward three months, there is insufficient time for FHB’s to make a significant change to the timing of their home purchase decision.
The consequence of this difference in assumptions is that HIA estimates the short-term appreciation of home prices in FHB markets will be relatively small, and that these same markets are the ones that will see the fastest increase in supply, largely through detached homes in greenfields suburbs. Impediments to apartment construction at present will see a quicker response from detached (houses) supply.
Regardless of these assumptions, the HIA believes the scheme is timely. More new home construction, fewer households renting and increased home ownership will all occur because of this policy announcement, eventually. It is also a decision that sees government taking a view on housing policy that extends beyond the next election, and for this, they should be commended.
Author: Debra Beck-Mewing
Debra Beck-Mewing is the Editor of Property Portfolio Magazine and CEO of The Property Frontline. With over 20 years of experience buying property across Australia, Debra is a skilled property strategist and buyers agent known for uncovering tailored opportunities — from family homes to multi-use investments.
She has deep expertise in advanced strategies including renovations, granny flats, sub-division, and development. A Qualified Property Investment Advisor (QPIA®), licensed real estate agent, and holder of a Bachelor of Commerce and Master of Business, Debra combines strategic insight with hands-on experience.
Debra is the creator of the Property Smart Track System™ – a professional property buying system that enables buyers to select, assess and buy property independently in today’s market. She also leads Buy Like A Genius™, a premium end-to-end buyers’ agency service for busy professionals seeking expert property acquisition without the stress.
As a passionate advocate for greater transparency in the property and wealth industries, Debra is a sought-after speaker, author, podcast host, and participates on numerous committees including the Property Owners’ Association.
