The Australian government’s Home Guarantee Scheme (HGS), launching in October 2025, promises to ease the path for first-time homebuyers by offering a 5% deposit without the burden of lenders’ mortgage insurance (LMI). While the scheme provides a significant opportunity for many, it may also have unintended consequences for the housing market.
Boosting Homeownership Accessibility for First-Time Buyers
With the Australian housing market becoming increasingly unaffordable, the federal government’s Home Guarantee Scheme is designed to assist first-time buyers in securing home ownership with minimal upfront financial commitment.
Set to begin in October 2025, the scheme allows eligible buyers to purchase a property with just a 5% deposit, removing the typical LMI costs. Previously, buyers with less than a 20% deposit were forced to pay LMI, which is added to the mortgage. This initiative will be available to all first-time buyers, with no income caps, and higher property price limits to expand eligibility.
The timing of the scheme aligns with easing interest rates and improving market sentiment, potentially spurring a surge in demand for housing. According to industry experts, the scheme could lead to increased homeownership rates, helping to combat the declining trend seen in previous decades. However, while this appears to be a win for prospective buyers, the scheme’s broader impact on the housing market remains uncertain.
Government Exposure and Unintended Consequences
While the scheme is undoubtedly attractive for first-time buyers, it also places considerable financial risk on the government. By underwriting LMI costs, the government is effectively increasing its exposure to the housing market. This could mean higher taxpayer liability if housing prices fall or if buyers default on their loans. Additionally, the scheme has raised concerns over the long-term affordability of housing in Australia.
According to housing market experts, removing income caps opens the door for higher-income individuals to take advantage of the scheme, potentially driving up demand and pushing housing prices even higher.
For example, those with deposits of 10-15% may now be able to borrow more money by taking advantage of the 5% deposit requirement, which could result in inflated property values. As such, while the scheme aims to make homeownership more accessible, it may inadvertently exacerbate the affordability crisis.
A Demand-Side Stimulus with Long-Term Implications
The Home Guarantee Scheme acts as a demand-side stimulus, encouraging more buyers to enter the market. However, with insufficient housing supply to meet this new demand, it risks pushing prices higher, particularly as interest rates remain low. In such a scenario, future generations may face even greater challenges in entering the market, requiring continued government intervention to make housing affordable.
Critics of the scheme argue that it would have been more effective to focus on increasing the supply of new housing rather than stimulating demand for both new and established properties. While the scheme will likely support construction in the short term, it does little to address the fundamental issue of housing supply.
