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From 1 October, Australians buying their first home can enter the market with a 5 per cent deposit instead of the traditional 20 per cent, under the government’s expanded First Home Guarantee scheme. 
Analysis from Domain shows the change could save households years of saving time — likely saving up for a deposit seven years quicker in Sydney for example.

But some experts warn that while the policy aims to get young buyers into the market sooner, it could drive up prices to the point where it cancels out any benefits of the scheme.

How much time could first-home buyers save?
Domain’s modelling shows the difference in deposit saving times under the new scheme is dramatic.

In Sydney, a household that once faced more than 10 years of disciplined saving will now only need about three — cutting almost seven and a half years.

In Melbourne, the wait drops from almost eight years to just over two, trimming almost six years.
In Brisbane and Adelaide, households would see their savings time cut from nearly eight years to just over two, while in Perth and Hobart, the wait falls from six years to under two.
Darwin buyers could be ready in just 11 months, down from three and a half years. In Canberra, the wait drops from four and a half years to just over twelve months.

The analysis used the property price caps set under the scheme in each city, along with the average gross disposable income for a two-person household. It does not include stamp duty or transaction costs.

A graph showing estimated housing deposit saving time frames.

Those in Sydney could shave off seven years of saving with the government’s new First Home Guarantee scheme, according to Domain analysis. Source: SBS News

‘Fast entry’ for buyers

The expanded first-home buyer guarantee scheme will allow eligible Australians to secure a loan with a 5 per cent deposit, without paying lender’s mortgage insurance — a cost that typically adds thousands upfront.
Eligibility has also been expanded: all first-home buyers can now apply, with no income caps, and the property price caps have been lifted to reflect the current market conditions.
Nicola Powell, chief of research and economics at Domain, said the scheme will “shave years off the time it takes to save [for a deposit], irrespective of what capital city you are in”.
“It’s fast entry for first-home buyers,” Powell told SBS News.
“This opens up opportunities for more Australians. There are no caps on places, and there are no income caps.

“More Australians will be able to benefit … it opens up choice … [and] higher caps open up more opportunities.”

Rising rental costs have further enhanced the value proposition of the scheme to first-home buyers, Cotality’s head of research, Eliza Owen, said.
“Even though a smaller deposit means paying more interest over time, it could still work out cheaper for renters,” she said.
Housing Minister Clare O’Neil said the scheme would help young Australians start building equity in their own home rather than paying off someone else’s mortgage.

“That’s life-changing,” she said.

But experts also caution that while a smaller deposit can get you into the market sooner, it also means higher repayments and, without a clear plan to pay down the loan quickly, significantly more interest over time.
“If I were a first-time buyer taking on this thing, you need to build in a buffer to ensure that you can meet those mortgage repayments, particularly if we eventually see the cash rate going up, which is not in the foreseeable next 12 months, but I think a buffer is absolutely necessary,” Powell said.

“And if you’ve only got 5 per cent equity in a home, that is quite a bit of risk. There is that risk that you could fall into negative equity, particularly if prices pull back.”

A ‘backwards step’ to solving the housing crisis

But others say the scheme risks backfiring.
Stephen Smith, partner at Deloitte Access Economics, said policies like this address demand rather than supply — and that’s where the meat of the problem lies.
“A lot of the government policy with respect to housing has been to support housing demand — that is, to make it easier for people to buy properties,” Smith told SBS News.

“But the problem is that ultimately, if you are just pushing up demand but not increasing the supply of properties, then you’re just pushing up the price of property.”
Treasury modelling suggests the scheme will add only about half a percentage point to house prices over six years.
But Smith said the real impact is likely to be greater in the lower-priced segment of the market, where buyers are using the scheme.
In these markets, Smith anticipates a 3 to 5 per cent increase in prices — enough, he argues, to wipe out much of the intended benefit.
“This is very likely to push up property prices more or less by the amount of support that is being provided,” he said.
“The net impact will be that it’s not really much easier for people to get into the property market at all.

“The way to address the housing market is to boost supply, not to add to demand.

“This, unfortunately, is not a policy that will improve the housing crisis. It will add to demand. It’s a bit of a backward step in terms of solving the housing crisis.”
Powell cautions that while the smaller deposit makes entry easier, it doesn’t change the reality of mortgage repayments.
“We have to remember that if you’re getting a 95 per cent loan, some first home buyers just won’t be able to borrow enough to purchase, even with this home guarantee scheme,” she said.
For those considering the scheme, Powell said caution is key. She says people risk over-leveraging themselves if they borrow too much and may also be eligible for other state grants and concessions.
— With additional reporting by the Australian Associated Press
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