That is a timely and important topic, as the relationship between housing schemes and property prices is central to Australia’s affordability challenge. Drawing on the recent changes to the First Home Guarantee (FHG), which is part of the broader Home Guarantee Scheme (HGS), and the subsequent market performance, we can examine the immediate and predicted impacts on home values.
The Expanded Scheme and Housing Demand
The expanded First Home Guarantee, implemented starting October 1, 2025, represents a significant shake-up aimed at fast-tracking first-home buyers onto the property ladder. The core mechanism of this scheme allows eligible buyers to secure a property with a deposit as low as 5% without paying Lenders Mortgage Insurance (LMI). This avoidance of LMI saves buyers potentially tens of thousands of dollars, making the pathway to ownership less daunting. For instance, a 5% deposit on a $700,000 home is $35,000.
The expansion introduced three major changes that fueled demand: the removal of the previous cap on application places (now unlimited), the elimination of income caps, and the introduction of higher property price caps to better reflect contemporary market conditions. The new price caps increased significantly in major capital cities, such as Sydney (up to $1.5 million) and Melbourne (up to $950,000).
Immediate Impact on Home Values
The expansion coincided with unusually strong home value increases. National home values rose 1.1% month-on-month in October, marking the fastest pace of monthly growth since May 2023.
Analysis focusing specifically on dwellings that fell below the new scheme price caps showed a notable outperformance in value growth compared to properties priced above the caps. Nationally, dwellings within the price caps increased by 1.2% in October, compared to 1.0% for dwellings above, representing a differential of 22 basis points. This performance gap placed the October differential within the top 16% of differences recorded historically since December 2009.
The strongest outperformance was seen in specific sub-markets, particularly lower value pockets within traditionally high-end housing markets, such as Melbourne’s Inner East and Sydney’s Northern Beaches. Furthermore, properties below the cap generally outperformed, with houses below the caps showing a 32 basis point premium (up 1.3%) compared to houses above the caps.
Causal Debate and Economic Forecasts
While the data shows a stronger uplift in property markets below the new price thresholds in October, experts caution that a causal relationship is difficult to establish directly. They note that the low-to-middle end of the market was already outperforming in the months leading up to the scheme expansion. Nevertheless, the expansion of the scheme is considered one of many factors influencing strong growth in this segment.
Concerns remain that policies stimulating demand without corresponding increases in housing supply will inevitably lead to higher property prices. Economic modeling suggests the expansion, primarily by bringing forward demand, could drive national property prices up by 3.5% to 6.6% in the first year. For market segments specifically targeted by first-home buyers, the estimated price increases are even greater, potentially rising by 5.3% to 9.9%.
This modeled price inflation suggests an ironic outcome: the price increases for first homes in the initial years may exceed the cost that first-home buyers save by avoiding LMI (which is typically 3-4% of the property value). This means that the overall benefit of avoiding LMI could be fully offset by higher purchase prices, with the primary financial benefits flowing largely to existing home owners selling their properties. Furthermore, the resulting higher prices may discourage an estimated 3,500 to 6,500 prospective first home buyers, especially those on lower incomes, in the first year of the expansion.