ASX Trader: Why 5 per cent home deposit scheme will backfire terribly
Albo’s 5 per cent home deposit scheme looks like help, but this signal doesn’t lie. It’s pouring fuel on the fire, inflating the bubble and putting borrowers at extreme risk, writes ASX Trader.
As Australian property prices flirt with record highs and affordability collapses, the federal government has once again stepped forward with a “helping hand” this time through the expansion of the 5 per cent deposit home loan scheme.
Marketed as a measure to improve access for first-home buyers, critics say it’s another case of history repeating itself: government intervention that arrives not when the market needs support, but when it’s already overheated.
Every. Single. Cycle.
When prices tumble and opportunity knocks, there’s silence.
But when they peak, out come the “assistance” packages offering the illusion of help while quietly fuelling the next wave of price inflation.
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Déjà Vu: The ghost of 2008
This isn’t the first time government policy has “helped” Australians into an unaffordable market.
In October 2008, then–Prime Minister Kevin Rudd announced a dramatic boost to the First Home Owner Grant (FHOG) lifting payments from $7,000 to $14,000 for existing homes and up to $21,000 for new builds.
Rudd described it as a way to “stimulate housing activity and give first home buyers a better chance in the housing market.”
The measure was part of his $10.4 billion Economic Security Strategy, designed to counteract the Global Financial Crisis.
The intent was well-meaning, the result, far less so.
Subsequent research, including a Deakin University study, found that the grant boost added tens of thousands of dollars to property prices.
In some regions, the FHOG increase alone contributed an estimated $57,000 to median house prices effectively cancelling out its benefit.
Instead of making housing more affordable, it inflated the bubble.
Once the stimulus faded, many buyers were left with overvalued assets and rising debt burdens.
A familiar pattern returns
Fast forward to 2025, and the same cycle appears to be unfolding again.
The newly expanded 5 per cent deposit scheme, positioned as a lifeline for struggling buyers, lands just as affordability has hit a multi-decade low and household debt remains near record highs.
If conditions were genuinely stable, such policies wouldn’t be necessary. Their very existence signals that the system is under strain.
Governments know people are struggling.
They know wages have stagnated while housing costs have surged.
They know saving a 20 per cent deposit now takes more than a decade for the average household.
Yet, instead of addressing the real problem, chronic undersupply, tax distortions, and planning bottlenecks, they reach for the politically convenient lever: boosting demand.
It’s a short-term sugar hit that wins headlines but worsens long-term affordability.
Each new buyer given a smaller deposit threshold simply bids prices up further, pushing the dream of home ownership further away for everyone else.
The 18-year property cycle: History in motion
Students of economic history know this isn’t random — it’s rhythm.
The property market operates in an 18-year cycle, a pattern that has repeated with uncanny precision for more than a century across developed economies.
Each cycle includes four key phases: recovery, expansion, boom, and bust.
Australia’s last major peak was in 2008, when the Rudd government introduced the FHOG Boost.
The next projected peak? Around 2026, exactly 18 years later.
And right on cue, government policy is again stepping in to “help.”
As the market edges toward its cyclical high, the 5 per cent deposit scheme arrives to pour fuel on the fire.
The alignment is almost perfect.
Just as in 2008, stimulus is being applied at the very moment the cycle dictates caution.
If history is any guide, this phase, the speculative peak is often followed by a correction as credit tightens, rates rise, and confidence wanes.
Interest rates, inflation, and the illusion of relief
The timing couldn’t be riskier.
In 2022, when the Reserve Bank began raising interest rates from record lows, many borrowers were blindsided.
Yet the signals were there for anyone paying attention.
Those who fixed their loans at ultra-low rates under 2 per cent bought themselves breathing space. But the broader market remains exposed.
Now, talk of rate cuts dominates headlines, yet inflation remains stubborn.
Yields and commodities are trending upward, and the Australian dollar’s strength suggests the Reserve Bank will have little room to loosen policy sustainably.
Any cuts are likely to be temporary, not transformative.
The long-term trend for borrowing costs remains upward, not downward.
A “Helping Hand” that hurts
For buyers lured by the 5 per cent deposit scheme, the risks are substantial.
A small dip in prices could erase their entire equity, leaving them owing more than their homes are worth. If rates rise again, a plausible outcome, repayment stress will intensify.
It’s the same trap seen before.
After the 2008 boost, many first-home buyers found themselves stuck with inflated mortgages and stagnant wages.
The lesson? You can’t stimulate affordability.
When governments pump more money into a constrained market, prices don’t fall they rise. Demand-side fixes in a supply-constrained system only make the problem worse.
The cycle never lies
To the untrained eye, the 5 per cent deposit scheme looks like compassion.
To those who’ve watched the property cycle play out time and again, it looks like clockwork.
The Real Estate Cycle doesn’t bend to politics.
It runs its course and right now, all signs point to a peak forming in the next 12 to 18 months.
Government intervention at this stage will only make the eventual correction harder.
Because every time the market peaks, out come the “helping hands.”
And every time it crashes, the silence returns.
The cycle never lies.
Originally published as ASX Trader: Why 5 per cent home deposit scheme will backfire terribly
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