Home buyer competition has been the strongest for properties priced below the caps of the 5 per cent deposit scheme. Picture: Sam Ruttyn
A federal scheme designed to aid first-home buyers has come under renewed fire as new data stirs concerns the scheme may be driving up prices at the bottom end of the property market.
There are also fears the scheme is increasing the number of highly leveraged households at a time of soaring interest rates.
The figures from Australia Housing showed nearly 84,000 people in NSW and 300,000 nationally have used the Australian Government 5 per cent Deposit Scheme, formerly known as the First Home Guarantee Scheme, since its introduction in 2020.
The scheme, which was radically expanded in October, allows eligible buyers to purchase with deposits as low as 5 per cent, with the government guaranteeing part of the loan and removing the need for lenders mortgage insurance.
REA Group economist Anne Flaherty said the high uptake of the scheme showed it was successful in increasing first-home buyer activity, but she added this had come at a cost.
The expansion of the deposit scheme was a key promise of Labor campaign for re-election in 2025. Picture: NewsWire / Nikki Short
“A scheme like this doesn’t do anything to increase housing supply,” Ms Flaherty said. “It’s demand-side policy that pushes up prices, and we have seen that.”
Housing Australia’s breakdown of the users of the scheme showed an uptake different from the “battler” narrative government initially sold it on.
Key workers, those in jobs such as health, education and emergency services, accounted for 19.7 per cent of NSW participants.
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More than half of NSW users were over 30, while single mothers, often cited as a priority cohort in housing assistance policy, made up just 1.3 per cent of state users.
The scheme’s impact on new construction remained limited. It drove around 3,400 new builds in NSW, just 4 per cent of total scheme uptake in the state, according to Housing Australia.
First home buyers Tori Porter and Jaewon Sim said the scheme helped them buy their Western Sydney home. Picture: Glenn Campbell
Nationally, the scheme has contributed to 28,500 new builds, representing about 10 per cent of total participants.
That imbalance is fuelling renewed scrutiny over whether the policy is genuinely increasing housing supply or simply accelerating demand in already stretched markets.
Geographically, uptake in NSW has been highest in growth corridors and more affordable outer suburbs.
The strongest concentrations of scheme uptake were in the Campbelltown region, Liverpool and its surrounds, and western suburb Schofields.
Properties in the Parramatta, Penrith and Blacktown regions were also frequent targets for those using the incentive – along with, outside Sydney, Wyong and Wagga Wagga.
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Listings for home below the $1.5m price caps are getting harder to find in many areas.
Both singles and couples using the scheme bought with razor-thin deposits averaging just 5-6 per cent.
The median purchase price for NSW singles using the scheme was $606,000. For couples, the median price of users was $800,000.
Cohen Handler buyer’s agent Zac Jacobs said the scheme meant a bigger mortgage and buyers paying more interest on their home.
“Buyers get into the market earlier … but they do have to pay off a bigger loan,” Mr Jacobs said.
Mortgage Choice broker Luke Camilleri said the scheme on the whole was a positive as it was making it easier for people to become first-home buyers.
But he added that the next generation of homebuyers may struggle: “It has really increased demand for homes under the price cap ($1.5m). It has pushed up prices,” he said.
REA Group economist Anne Flaherty said the scheme was increasing demand but not stimulating supply.
Tori Porter, 32, and partner Jae-won, 34, used the scheme to buy their first home and are moving into the Whalan property this weekend. Ms Porter said she would ideally have wanted to use a larger deposit but it wasn’t an option.
“Even coming up with a 5 per cent deposit is difficult,” she said. “We make decent money, but it is hard to save at current prices and with all the rises in the cost of living.
“You either have to try and save a bigger deposit and risk the market going up even more, or you just get in now with more debt. It hasn’t been easy knowing we still owe 95 per cent.
“I’d suggest anyone interested in using the scheme use a broker as that made it a lot easier for us.”
– With additional reporting by Nathan Mawby
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