High-Income Borrowers Increasingly Using 5% Deposit Scheme
Most Australian first home buyers are utilizing the government’s 5% deposit scheme, with approximately one in three new participants earning above the scheme’s previous income cap for high earners.
Economists have raised concerns that the influx of higher-income earners into the first home guarantee program has contributed to rising property prices by increasing the purchasing power of individuals who would likely have bought homes regardless.
Background of the Scheme and Income Cap Removal
The scheme was initially introduced by the former Coalition government to assist lower-income first-time buyers by allowing them to borrow 95% of a property’s value with the government guaranteeing the loan and waiving lenders’ mortgage insurance.
In 2023, the Labor government removed the income caps, which were previously set at $125,000 for single borrowers and $200,000 combined for joint borrowers, fulfilling a pre-election promise.
Data from the Australian Housing and Urban Research Institute (AHURI), prepared for Senate estimates and reviewed by Australia, indicates that from 1 October 2023 to 30 April 2024, the scheme backed 15,924 single-borrower loans and 23,790 joint loans following the removal of income caps.
Of the 39,704 government-backed loans during this period, 13,979 exceeded the former income caps: 6,812 single borrowers earning over $125,000 and 7,167 joint borrowers earning above $200,000.
At the higher income levels, nearly 1,000 single borrowers with incomes of $200,000 or more and 1,251 couples earning combined incomes of $275,000 or above benefited from the government-backed 5% deposit scheme.
Expert Opinions on the Impact of Cap Removal
Amy Auster, chief executive of Policy Institute Australia, stated, "It always matters because … government support traditionally goes to the people who need it the most." She added, "There’s been an ongoing expansion of efforts to financially support … first home buyers, and I understand why, but in the end it hasn’t solved the problem."
Independent economist Saul Eslake commented, "The way it was expanded by Albanese goes to the heart of why we have the housing problems that we have." He further explained, "Whenever governments do things that allow people to spend more on housing than they would have otherwise, they end up spending more on housing." Eslake noted that the scheme has likely been used by individuals who would have purchased homes anyway, but who increased their debt levels as a result.
Effect on Borrowing Capacity and Property Prices
For example, a borrower with $50,000 in savings, if required to make a 20% deposit, would only be able to borrow $200,000. Under the 5% deposit scheme, however, the same borrower could access loans up to $1 million.
Since the expansion of the scheme, Labor has increased the price caps by several hundred thousand dollars to include homes priced below $1.5 million in New South Wales cities, $1 million for south-east Queensland, $950,000 for Melbourne and Geelong, $850,000 for Perth, $900,000 for Adelaide, and $700,000 for Hobart, with varying caps in regional areas.
Data from Cotality reveals that homes priced below these caps experienced slower price growth than those above the caps in early 2025, but prices rose more rapidly after the scheme was expanded.
Scheme Adoption and Market Impact
Labor has promoted the scheme as a means to lower the deposit barrier and increase home ownership; however, data suggests that most existing first home buyers simply adopted the scheme rather than new buyers entering the market.
On average, the government backed 5,670 loans with a 5% deposit each month from October 2023 to April 2024.
Across Australia, all first home buyers took out an average of 10,181 loans per month from October 2023 to March 2024, according to Australian Bureau of Statistics data. This represents less than a 3% increase compared to the previous six months, which averaged 9,900 loans per month, indicating the scheme has yet to significantly affect overall home ownership rates.
First home buyer activity has declined as the housing market enters a downturn.
