Deposit barrier lowered for first-home buyers, HIA says
The time required for Australians to save a deposit for a home could fall by as much as four years following changes to the Home Guarantee Scheme (HGS), according to the Housing Industry Association (HIA).
The federal government’s expansion of the scheme, announced by housing minister Clare O’Neil and set to commence on Oct. 1, is anticipated to deliver significant relief for first-home buyers.
“The effects of the first two cuts to the cash rate on housing affordability have more than offset the impact of the rise in dwelling prices leading to an improvement in housing affordability,” said HIA senior economist Tom Devitt (pictured top).
The latest HIA Affordability Report, released on Friday, measured affordability in each of the eight capital cities and regional areas every quarter, taking into account current property prices, mortgage interest rates, and wage trends.
According to the report, the index rose by 3.9% nationally in the June quarter of 2025, reaching 58.7. This result means that 1.7 average incomes were needed to comfortably service a mortgage, the lowest level in two years.
The index showed improvement in all capital cities in the June quarter of 2025, with Sydney recording the largest gain at 5%. Canberra followed at 4.9%, then Adelaide (4.6%), Melbourne (4.1%), Hobart (4%), Brisbane (2.8%), Perth (2.6%), and Darwin (0.7%).
Regional areas also saw gains, led by Tasmania at 5.5%, followed by New South Wales (5%), the Northern Territory (4.5%), Victoria (3.8%), Queensland (2.5%), South Australia (2.1%), and Western Australia (1.6%).
“The Australian government recently announced an expansion of the Home Guarantee Scheme, which will allow all first-home buyers (FHBs) to purchase a home without having to pay Lenders Mortgage Insurance (LMI),” Devitt said. “First home buyers pay between $25,000 and $30,000 in LMI to purchase an average home. Because this cost is paid up-front, it is effectively added to the loan and is repaid over 25 years, inflating the real cost of LMI.
“Removing LMI reduces the timeframe to save the deposit for a FHB by up to four years. The real costs of LMI to the economy are significantly higher than the upfront cost to the FHB. Governments place onerous barriers on FHBs.
“This policy announcement will also have downward pressure on home prices over time because it adds to the supply of homes, without adding to demand. Over the medium to long term, demand for housing is only derived from a change in population or the number of people per home. As this policy doesn’t change either of these variables, it has no impact on demand.
“Affordability is improving as interest rates fall faster than home prices are rising. Further structural reforms that reduce the cost of building new homes will make this cyclical improvement as large and persistent as possible.”
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