With the First Home Guarantee Scheme expanding this week, new research highlights how rising rents are changing the value proposition for first-home buyers.
Since the scheme’s introduction in January 2020, rents have surged by $200 per week to a national median of $669, adding more than $10,000 per year in costs for would-be buyers stuck in the rental market.
Cotality’s head of research Eliza Owen (pictured) noted that while the scheme helps buyers leap the deposit hurdle, it comes with a trade-off.
“The real cost of a 5% deposit is a 95% loan-to-value ratio, meaning tens-of-thousands in extra interest over the life of a 30-year loan,” Owen said.
Meanwhile, separate analysis from Cotality highlights how the scheme’s upcoming expansion will broaden access. From Oct. 1, the scheme will remove income and place limits while lifting property price caps nationwide. Under the old caps, only one-third of the 4,848 house and unit markets analysed had a median value below the thresholds. With the new settings, that proportion rises sharply to 63.1% – including 51.6% of house markets and 93.7% of unit markets.
Under the scheme, eligible buyers can purchase a home with just a 5% deposit, avoiding lenders mortgage insurance (LMI) which often runs into the tens of thousands. However, the higher debt load means borrowers pay substantially more in interest compared to a traditional 20% deposit loan.
Over 30 years, the difference can be in the tens-of-thousands, or even hundreds-of-thousands of dollars. Yet, for renters in high-cost cities, the maths may still favour the scheme.
In Sydney, for example, entering the market with a 5% deposit could reduce the time to save by six years, equating to around $251,000 in rent savings at $801 per week.
Owen said the rental savings often outweigh both LMI and additional loan costs: “Even bigger than LMI savings are the time first-home buyers could save in the rental market. Big increases in rent values mean a scheme that cuts down time to save a deposit becomes more desirable.”
Analysis from Cotality found that, in many cases, the upfront rental savings far exceeded the long-term cost of higher loan interest.
While the scheme has helped more than 168,000 Australians into homeownership since 2020, critics note its role as a demand-side measure.
“A bigger scheme is a bigger boost to demand,” Owen said. “The policy helps individuals buy sooner, but it’s ultimately a demand-side stimulus that does little to address why deposits – and now rents – are so unaffordable in the first place.”
With the expansion of places, price caps and income thresholds, more buyers will be able to access the scheme – a shift likely to fuel demand, particularly in Sydney, southeast Queensland and Adelaide, where caps are rising sharply to $1.5m, $1m and $900k respectively.
For mortgage brokers, the scheme is both an opportunity and a conversation starter. Rising rental costs make the speed to market a crucial selling point, but clients must also understand the trade-offs of higher debt levels. Education around budgeting, repayment resilience, and refinancing options will be essential.
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