Australian First Home Guarantee Scheme Under Scrutiny for Driving Entry-Level Price Inflation

The Australian federal First Home Guarantee scheme is facing renewed criticism as data indicates the programme is exacerbating property price inflation at the entry level and significantly increasing household debt. Since its inception in 2020, approximately 300,000 Australians have utilised the scheme nationally to enter the property market with a deposit as low as 5%. In New South Wales alone, the number of participants has reached 84,000, highlighting the scale of the intervention in the nation's most expensive property market.

Following a radical expansion of the scheme on October 1, 2025, which removed income caps, eliminated annual place limits, and increased property price thresholds, the market has seen a distinct divergence in price growth. Properties eligible for the scheme experienced a 6.7% increase in value nationally in the six months following the expansion. This growth significantly outpaced the 3.6% increase recorded for homes that did not qualify for the guarantee. This disparity suggests that the influx of buyers supported by the Australian Government is placing disproportionate upward pressure on the lower end of the market.

Market Divergence and Price Caps

The impact of the scheme is most visible in major metropolitan centres where price caps dictate buyer activity. In Sydney, homes priced below the scheme's cap saw a 4.1% rise in value over the six-month period ending in April. Conversely, properties priced above the cap saw a decline of 1.1%, representing a 5.2 percentage point difference in market performance. This trend indicates that the policy is effectively creating a price floor and driving competition in a narrow segment of the market, often to the detriment of the very buyers it intends to assist.

While the scheme provides estimated Lenders Mortgage Insurance (LMI) savings of up to $30,000 for participants, these gains are being offset by the rapid appreciation of entry-level stock. The concentration of demand in the sub-cap segment has allowed sellers to command higher prices, effectively absorbing the financial benefit provided to the buyer by the Treasury Department.

Rising Debt and Financial Vulnerability

As property prices rise, the level of debt taken on by first-time buyers is reaching record levels. The average national first-home buyer loan size surged by 12% to a record $608,574 in the December 2025 quarter. Projections indicate this figure could reach $679,653 by the end of 2026. This increase in leverage comes at a time when the Reserve Bank of Australia (RBA) has overseen a period of rising interest rates, further straining household budgets.

Average mortgage repayments now consume 49.2% of median family income, placing many new homeowners in a position of significant financial stress. Furthermore, a 7.5% reduction in borrowing capacity due to interest rate hikes in 2026 has limited the options for those not using government support, while those within the scheme are entering the market with minimal equity. chief economist has described the deposit policy as totally ridiculous, arguing that demand-side subsidies in a supply-constrained market inevitably lead to higher prices rather than improved affordability.