5% Deposit Scheme uptake jumps 50% after income, place caps binned

Almost 5,800 homes were purchased through the scheme last month, a nearly 50% increase from 3,900 in October 2024. 

That saw first home buyers and single parents or guardians turning to the scheme behind roughly one in 10 home purchases.

Deposit scheme uptake surges as caps lifted

The scheme sees the Federal Government essentially acting as guarantor for up to 15% of a first home buyer's home loan, or 18% for single parents.

That allows them to avoid lenders mortgage insurance (LMI) with a deposit as small as 2% or 5%.

As of 1 October, income and place caps were removed, meaning individuals earning over $125,000 and couples earning above $200,000 are now eligible.

Property price limits were also raised and caps on the number of places offered each year (previously 50,000) were removed.

"We made a promise to first home buyers that we would help them and that's exactly what we're doing," Minister for housing, homelessness, and cities Clare O'Neil said.

"This means more people paying off their own mortgage and not someone else's."

House price growth sparks concern

The new figures come amid concern the scheme's expansion was behind house prices accelerating at their fastest rate in two years last month.

The median Australian dwelling value rose 1.1% month-on-month in October, or about $10,000, to reach $872,500, according to Cotality.

The firm noted the strongest gains occurred across the middle and lower end in capital city markets.

For reference, buyers turning to the 5% Deposit Scheme paid a median $710,000 for their home in October.

But while the expansion likely enticed more first home buyers into the market, Cotality research director Tim Lawless said it was only one piece of the price growth puzzle.

"Stronger housing demand at the lower price points is likely a culmination of serviceability constraints eroding purchasing power, persistently higher than average levels of investor activity, and what is likely a pickup in first home buyers taking advantage of the expanded deposit guarantee," he said.

Looking at the market more broadly, an ongoing lack of supply and three RBA rate cuts have also bolstered housing prices in recent months, Cotality noted.

Contrary to popular misunderstanding, the 5% Deposit Scheme doesn't increase a person's borrowing capacity beyond the approximate LMI cost they'd otherwise bear.

Though, LMI can amount to thousands of dollars.

It might also encourage first home buyers into the market sooner or at a higher price point than they'd otherwise consider purchasing, as their deposit hurdle could be greatly reduced.

Ms O'Neil has stated that Treasury modelling suggested expanding the scheme would result in a 0.6% uptick in house prices over six years.

Meanwhile, the 50% increase in borrowers utilising the scheme is in line with the government's estimate that 70,000 would turn to it in the first year of the expansion, up from the 50,000 places avaliable in years gone by. 

The number turning to the scheme in the first month of its expansion is also lower than estimates provided to the Insurance Council of Australia, suggesting the expansion could result in between 20,600 and 39,100 additional buyers entering the market each year.

A Lateral Economics report for the industry body noted such an increase could feasibly drive house prices up by 3.5% to 6.6% from 2026, with prices potentially rising even more - by around 5.3% to 9.9% - in key first home buyer market segments, likely offsetting LMI savings. 

Though, it also stated the majority of home buyers turning to the scheme probably would have purchased anyway, potentially paying for LMI or leaning on the 'Bank of Mum and Dad'.

More lenders could soon participate in the scheme

According to Housing Australia, the organisation behind the scheme's delivery, one in three first home buyers used the scheme in financial year 2024-25.

It's gearing up to open expressions of interest from more lenders willing to participate in the scheme.

Right now, there are around three dozen lenders offering the scheme, including big four banks CommBank, Westpac, and NAB, with homebuyers wanting access to the support forced to take out a home loan through them.

Though, existing lenders appear to be bolstering their involvement in the newly expanded guarantee.

NAB recently announced it plans to fund $30 billion worth of home loans to borrowers using the scheme by 2030, potentially supporting 55,000 households to purchase a home.

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