The 5% deposit scheme was introduced to help more first home buyers enter the market, but it is already contributing to rising prices in entry-level suburbs where affordability is most critical. Property prices in areas under the scheme's price thresholds are increasing more quickly than those in higher-priced areas, which suggests that the policy may be intensifying competition at the lower end of the market.
From 1 October, the revised First Home Guarantee removed income caps and raised price limits across all major cities. This means more buyers can now purchase property with just a 5% deposit and also avoid paying lenders mortgage insurance. While the aim was to improve access to the market, the added demand in the affordable range is beginning to push prices higher.
Data from a national property research group shows properties under the deposit cap rose in value by 1.2% in October, compared to a 1% increase for higher value dwellings. Some areas, including Melbourne’s inner east and northern Brisbane, recorded even wider gaps, with eligible suburbs growing up to 97 basis points faster than the rest. Perth’s city fringe reported the strongest growth among lower-priced suburbs.
This broader trend has raised concerns that the extra buying power offered by the scheme, combined with shrinking housing supply, could cancel out its intended benefits. National home values rose 1.1% in October, the fastest monthly increase in two years. Entry-level suburbs continue to outperform the market compared to premium suburbs which remain relatively flat.
Mortgage application data shows clear hotspots for first home buyers. In Sydney, the focus is on Parramatta, Castle Hill and Marrickville, which offer city access while still meeting current price caps. In Melbourne, Richmond and Southbank are leading choices. In Queensland, buyers are drawn to suburbs like Southport, Pimpama and West End in Brisbane.
However, rising prices are pushing first home buyers further out, up to 60 kilometres from central business districts. Suburbs such as Leumeah in western Sydney, Melton South in Melbourne and Chapel Hill in Brisbane are attracting more interest, though these areas involve longer commutes. Some buyers appear to be rentvestors who purchase in outer areas while continuing to rent nearer to the city.
It remains uncertain whether this trend will shift the market in the long term, but early indicators suggest more people feel ready to buy. While some are still cautious to act, growing momentum could lift activity in the next quarter or highlight that affordability continues to be a major barrier, despite new assistance entering the market.
