Labor’s expanded low deposit homebuyer scheme set to drive up the prices by as much as $90,000
Anthony Albanese’s accelerated first home buyer scheme could send house and apartment prices surging next year, a new report has warned.
Struggling first home owners rushing to enter the market under the Prime Minister’s expanded low deposit scheme are set to drive up the prices by as much as $90,000 next year.
A new report for the insurance industry prepared by Lateral Economics has warned that the reforms could temporarily increase prices over the next year by up to 9 per cent for some homes and apartments.
That’s much more than the figures forecast by the Albanese Government which predicted it will only have a modest impact on prices over time.
Based on a Lateral Economics prediction of a 6 per cent jump, prices could increase up to $90,000 in the short-term in Sydney as a result of an expanded free government guarantee on first home loans.
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Treasury has previously advised the Albanese government scheme will have a very minor upward impact on home prices of about 0.5 per cent over six years.
But a new 60-page report by Lateral Economics for the Insurance Council of Australia warns the expanded government scheme will increase other costs for home buyers and taxpayers.
It predicts the scheme could increase prices by 3.5 per cent to 6.6 per cent in the first year before that settles down because the majority of buyers would have entered the market eventually anyway.
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“The proposed removal of income caps and significant increases in property price caps would substantially boost demand among First Home Buyers,’’ the report states.
“It is estimated this could increase annual demand by approximately 20,600 to 39,100 buyers (this is 3.8% to 7.1% of annual home sales), potentially driving national property prices up by 3.5% to 6.6% in 2026 and for several years afterwards.
“This would mean that a home valued today at $800,000 would cost a FHB an additional$28,000 to $52,800.
“In specific market segments targeted by FHBs (typically homes below price caps), price impacts can be expected to be even greater—around 5.3% to 9.9%.
“Remarkably, for the first few years of the expanded HGS, the impact on the price of homes most likely to be bought by first home buyers will in most cases exceed the amount the Home Guarantee Scheme saves them.
“This is because the HGS will bring forward demand but the supply of new homes will continue to be inelastic.
“Ironically, if one asks who is most likely to be priced out of the market in the upshot of the scheme driving up house prices, it is lower-income first home buyers, who have the lowest capacity to pay
The Prime Minister announced on Monday that the government had brought forward by three months an election commitment to expand the home guarantee to all workers regardless of income. It will now commence on October 1.
By abolishing the $125,000 income limit for eligibility ($200,000 for couples), Treasury estimates that an additional 70,000 people will become eligible for the scheme.
The new guarantee will become available for all first purchases worth up to $1.5 million in Sydney, $950,000 in Melbourne, $1 million in Brisbane and Canberra, $850,000 in Perth, $900,000 in Adelaide, and $700,000 in Hobart.
‘Running scared’: Labor hits back
Housing Minister Clare O’Neil accused the insurance companies of “running scared” about how much homeowners will save.
“Under our plan - first home buyers will save $1.5 billion in mortgage insurance over just the next 12 months,” she said.
“It’s no wonder insurance companies are running scare campaigns about our plan.
“This is completely at odds with Treasury advice.”
Treasury advice indicates that the impact on house prices will be very minor, around half a per cent after 6 years.
News.com.au has asked the Albanese Government to clarify exactly how much it is forecast to increase in the first year given that the new report suggests prices will spike in the early years.
Other factors expected to have a much greater influence on house prices, according to Treasury, include interest rates and supply.
How the scheme will work
Australian workers will be able to buy a house with a deposit of just five per cent from October 1 after the federal government fast-tracked a new home ownership scheme.
The huge move is not means tested and is designed to help young couples and singles who have a good income but are locked out due the size of the deposit required.
Prime Minister Anthony Albanese has announced that the government will now launch the expanded five per cent deposit housing plan promised at the last election within weeks.
It had been expected to commence on January 1, 2026.
“We want to help young people and first home buyers achieve the dream of home ownership sooner,’’ Mr Albanese said on Monday.
“Bringing the start date of our five per cent deposit scheme forward will do just that.
“Getting more Australians into their own home quicker, while saving them money along the way.”
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The Coalition was quick to take aim at the scheme.
“This is an uncapped scheme which is available to billionaires or the children of billionaires if they want to use a government program,” opposition housing spokesperson Andrew Bragg said on ABC’s RN Breakfast radio.
“I think we’re getting to a point where Australia is becoming a ridiculous nation where the taxpayer is underwriting mortgage insurance schemes for extremely wealthy people.
“I think it’s bizarre and ridiculous.”
Under the expanded five per cent deposit scheme, the government will guarantee a portion of a first homebuyer’s home loan, so they can purchase sooner with a lower deposit and save thousands by not paying lenders mortgage insurance (LMI).
There are no caps on the number of people who can access the scheme and no income limits. There are property price caps however, that will now increase in line with average house prices.
Income limits to go
The Albanese government’s First Home Guarantee already allows eligible first home buyers to purchase a home with a deposit of as little as five per cent without needing to pay LMI.
This is because the guarantee provided by the Australian government covers up to 15 per cent of the loan value.
However, to be eligible to access the existing scheme you need to be earning under $125,000 for individuals or $200,000 for joint applicants.
Those income caps will be out the window under the new scheme.
Loan mortgage insurance savings
The expanded scheme will be extended to all first home buyers to give them a chance to access the five per cent deposit scheme.
The Albanese government will guarantee a portion of a first homebuyer’s home loan, so they can buy a home with a five per cent deposit and not pay LMI.
The Prime Minister predicted the move will cut years off the time it will take to save for a deposit and will save tens of thousands of dollars on LMI.
First home buyers using the scheme are expected to avoid around $1.5 billion in potential mortgage insurance costs over the next year.
Under the reforms:
– A first home buyer can buy a $844,000 home (at the median home price in Australia) with only a $42,200 deposit. They could save up to eight years off the time it takes to save for a deposit, save about $34,000 in mortgage insurance, and could pay up to $250,000 towards their own loan instead of paying rent.
– A first homebuyer in Brisbane can purchase a $1 million home with only a $50,000 deposit. They could save up to 10 years off the time it takes to save for a deposit, save about $42,000 in mortgage insurance, and could pay up to $350,000 towards their own loan instead of paying rent.
– A first homebuyer in Bendigo could purchase a $600,000 home with only a $30,000 deposit.
They could save up to six years off the time it takes to save for a deposit, save about $25,000 in mortgage insurance, and could pay up to $126,000 towards their own loan instead of paying rent.
Housing, Homelessness and Cities Minister Clare O’Neil said the reforms will help tens of thousands of first home buyers get into home ownership.
“It’s just not right that an entire generation of young Australians have been locked out of the housing market – saving for decades while paying off someone else’s mortgage. So Labor’s changing it,’’ she said.
“We’re going to do it earlier than we promised. This will help tens of thousands of more young people enter the market every year.”
