5% Deposit Scheme Is Lifting Entry-Level Prices

More than 300,000 Australians have entered the property market using the federal 5% Deposit Scheme (formerly known as the First Home Guarantee) since it launched. The trade-off is now showing up in the data. Research published by Cotality in April 2026 found that homes priced below each state's scheme cap rose 6.7% in the six months after the October 2025 expansion, while homes above the cap rose just 3.6%. If you are still saving for a first home, the program designed to help you may be one of the reasons the finish line keeps shifting.

What the Cotality research actually shows

Cotality (formerly CoreLogic) compared price movements above and below each capital city's First Home Guarantee price cap in the six months following the scheme's October 2025 expansion. That expansion removed income caps and place limits, opening eligibility to an effectively unlimited number of first home buyers. The headline result was nearly a two-fold performance gap between eligible and ineligible properties.

Sydney showed the widest split: eligible homes rose 4.1% compared with just 1.1% for stock above the cap, roughly a four-times differential. Brisbane, Perth, Melbourne and Adelaide all showed eligible stock outpacing ineligible stock by a meaningful margin. Canberra was the only capital where the two bands moved at the same rate.

Why this happens, and why it is hard to design around

The mechanism is straightforward: the scheme adds buyers, not houses. Anyone who previously could not qualify because they lacked a 20% deposit can now compete with a 5% deposit (2% for single parents and legal guardians). Supply of housing in the eligible price band stays roughly the same in the short run, so additional bidders push prices up. Three structural features amplify the effect:

• No income caps: since October 2025, higher-earning first home buyers can use the scheme too, expanding the pool of competing buyers.
• Unlimited places: what used to be a rationed program (around 35,000 guarantees a year) is now open-ended.
• Hard price caps: sellers and agents know exactly where eligibility ends. Properties tend to cluster just under the cap, which is also where competition is most intense.

None of this is an accident, and it is not a design flaw. It is what any demand-side housing support program tends to produce when supply does not keep pace. It also does not mean the scheme is a bad thing. It does mean buyers benefit from understanding the dynamics before they enter.

What this means if you are still saving

Imagine your target property in Brisbane is roughly $600,000 today, and eligible homes in your area are rising at the recent 6.7% pace. In 12 months, that same property is closer to $640,000. Saving an extra 5% deposit on the higher price requires only about $2,000 more. But the property itself moved by $40,000, so your effective gap widened by around $38,000 in a single year. That is the real cost of "saving a little longer" in a price band that is appreciating faster than your savings rate.

This does not mean rushing in is automatically the right answer. It does mean the cost of waiting needs to be modelled honestly. The Borrowing Power Calculator can help you see how a higher purchase price and a higher interest rate combine to change what you can comfortably afford.

The price cap trap

Each state has its own First Home Guarantee cap. In NSW metro areas the cap sits around $1.5 million, in Victoria around $950,000, in Queensland around $1 million for metro plus the Gold Coast and Sunshine Coast, and in WA around $850,000. Because the cap is a hard cut-off, eligible stock tends to cluster just below it. Sellers and their agents price into that demand. A property that might have transacted at $890,000 in 2024 can now be advertised at $945,000 because the full scheme-eligible buyer pool is bidding for it.

Two practical implications follow:

• Properties priced a fraction above the cap may face noticeably less competition. The trade-off is paying LMI, but LMI costs need to be weighed against the price premium and rate of capital growth in the eligible band.
• Outer suburbs and regional centres where the cap covers most of the available stock change the dynamic. In Ipswich, Logan or Craigieburn, the cap is not a ceiling, it sits closer to the midpoint, which can ease the cluster effect.

A balanced view

It is worth weighing the counterargument honestly. Without the scheme, many first home buyers would still compete with investors who hold equity, on the same constrained stock. Demand pressure on entry-priced homes exists with or without a guarantee program. The scheme also saves a typical buyer somewhere in the order of $20,000 to $30,000 in LMI, depending on loan size and deposit. For most buyers, the LMI saving still outweighs the marginal price premium. The gap is narrowing, though, and it is worth running your own numbers rather than assuming the answer.

What this means for you

If you are planning to buy in the next 12 to 24 months, the data suggests a few practical moves:

• Use the scheme deliberately. Do not over-bid just because you can borrow more. Budget discipline still applies, and stress-testing repayments at higher rates matters more than ever.
• Run the maths just above the cap as well. Sometimes paying LMI on a property priced 5 to 10% above the cap costs less over five years than competing into the cluster.
• Target outer growth corridors where the cap covers a larger share of available homes. Competition tends to be less concentrated there.
• Treat timing as part of the decision. Waiting six months to save more may cost more in price movement than the LMI you were trying to avoid.
• Speak with a qualified mortgage broker or your lender about your specific circumstances. Brokers play an important role in matching buyers to the right loan and the right scheme combination.

Run the numbers

Use these tools to see how the eligible price band, scheme caps, and LMI all interact for your situation:

• LMI Calculator - estimate what LMI would cost on a property priced just above the scheme cap, and weigh it against the cluster effect.
• Borrowing Power Calculator - model how scheme participation and your deposit change your effective purchase range.
• Grant Stacker - see every grant, concession and scheme that may apply to you, stacked together in one place.
• Scheme Comparison Tool - compare the 5% Deposit Scheme against Help to Buy and other federal options side by side.