First home buyers: Labor’s five per cent deposit scheme ‘will make housing even more unaffordable’

Labor’s first-home buyer scheme allowing property newcomers to enter the market with a five per cent mortgage deposit is only going to worsen housing unaffordability by pushing up prices at the lower end of the market, a New York-based analytics firm says.

Since October 1, the fast-tracked scheme has spared first-home buyers from having to pay costly lenders’ mortgage insurance which borrowers had to pay if they had an equity stake under 20 per cent.

Without having to spend as long saving up, more people are entering the market earlier than they otherwise would have.

More affordable suburbs in Brisbane and Perth are seeing house prices soar by more than 20 per cent in just a year.

S&P Global feared prices would continue soaring at the lower end of the market, with 50 per cent of first-home buyers expected to take advantage of the program in 2026.

“An expanded scheme in Australia fueling demand among first-home buyers will make house prices unaffordable for many of them,” it said.

“An expanded Australian government scheme for first-time buyers of homes could distort the housing market.

“Further, such aid could price out the first homebuyers it aims to help.”

Last year, 40 per cent of first-home buyers took advantage of a five per cent deposit scheme even before it was expanded.

The universal scheme for all first-home buyers no longer includes an income limit.

Price caps for capital cities and regional areas reflect median house prices late last year.

“Property prices at the lower end of the market may rise and plateau because of borrower capacity constraints,” S&P Global said.

“Without further government policy initiatives such as upward indexing of state-based property price thresholds, first-home buyer demand will also likely slow after two years, reflecting current government price caps.”

Brisbane has a price cap of $1 million but in the year to the end of February, the city’s mid-point house price has soared by 16.7 per cent to an even more unaffordable $1.18 million, Cotality data showed.

In more affordable markets like Goodna, in eastern Ipswich, the mid-point house price has soared by an even more dramatic 21.1 per cent over the year to $768,567, in a segment of the market more likely to attract first-home buyers on a six-figure salary or in a dual-income relationship.

Perth has a price cap of $850,000 but its median house price is now $1.03 million following a 21.8 per cent annual increase.

But more affordable suburbs like Midland, in the city’s east, has seen its mid-point house price soar by an astounding 24.1 per cent to $779,862.

Adelaide’s middle house price has surged by 10.9 per cent to $980,915, putting it further above the $900,000 price cap.

In more affordable areas like Salisbury in the city’s north, house values have soared by 16.3 per cent over a year to $774,637.

A five per cent deposit scheme debuted under the previous Coalition government in 2020 but with an income cap of $125,000 for singles and $200,000 for couples.

But under Labor’s scheme, with no income caps, S&P Global fears banks are at greater risk should risky borrowers default on a loan.

“We believe banks will receive less protection against credit losses under the scheme, compared with what they receive under lenders’ mortgage insurance,” it said.

“On the surface, the deposit scheme protects loans through government credit quality in place of that of insurers, which have weaker creditworthiness.

“However, it only provides protection against credit losses of up to 15 per cent of the mortgage; lenders’ mortgage insurance provides 100 per cent cover.”