Australia’s Housing Market: Navigating the First Home Guarantee Scheme
Australia’s Housing Market: Navigating the First Home Guarantee Scheme
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The Albanese government's new First Home Guarantee scheme, effective from Wednesday, aims to assist first-time home buyers by enabling them to purchase property with just a 5% deposit.
This means buyers won’t need to pay lenders’ mortgage insurance, as taxpayers will underwrite 15% of the mortgage.
This initiative has generated a lot of interest among potential buyers.
Research from Lateral Economics projects that this scheme could lead to a national house price increase of 3.5% to 6.6% by 2026, with sustained growth expected thereafter. However, in segments specifically targeted by first-home buyers under the scheme’s price caps, prices are anticipated to rise more sharply, ranging between 5.3% and 9.9%.
Sally Tindall from Canstar warns that the scheme is likely to amplify demand in an already heated property market, especially given the recent series of cash rate cuts. She suggests that banks see the scheme as an opportunity to expand their lending portfolios.
Cotality highlights a potential downside, noting that buyers using the scheme could pay over $130,000 more in interest over a 30-year loan at a steady 5.5% interest rate, compared to traditional mortgages.
Mortgage brokers, like Nathaniel Truong from Sydney, have observed heightened competition among buyers who can now borrow more due to the scheme. Truong shares examples where clients have increased their property budgets significantly, questioning whether savings on mortgage insurance translate into actual savings when overall spending climbs.
Eliza Owen from Cotality cautions that while early adopters of the scheme might benefit, subsequent first-home buyers could face challenges. As prices inflate, future entrants will confront a tougher market with higher prices and mortgages leading to greater debt burdens.
Owen raises concerns that small deposit requirements could lead to negative equity if the market experiences a downturn. Moreover, she posits that the government might be compelled to maintain policies that foster rising property values to safeguard their guarantee investments.
This intertwining of public policy and housing market dynamics suggests a move toward a state-backed property market, which could complicate efforts to stabilize or reduce prices in the future.
Published:Tuesday, 7th Oct 2025 Source: Paige Estritori
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Tax Deferral: A situation where a taxpayer is allowed to delay paying taxes on income until a future date, commonly seen in retirement accounts.