Short-term increase expected before supply growth moderates prices
Home prices are set to increase in the short term following changes to the Home Guarantee Scheme (HGS), though this trend is expected to ease as additional housing supply enters the market, official projections from the Reserve Bank of Australia (RBA) indicate.
From Oct. 1, the HGS will remove participant income caps, offer unlimited places, and raise property price caps to better reflect median values across the country.
The scheme enables eligible first-home buyers to secure a mortgage with a deposit as low as 5%, without the requirement to pay lenders mortgage insurance.
On Monday, RBA officials, including governor Michele Bullock (pictured top), appeared before the House Standing Committee on Economics in Canberra to address questions about the expanded scheme’s impact on the housing market. When asked about the potential for higher home values, Bullock referred to assistant governor Brad Jones, who confirmed that the changes would likely result in increased demand and higher prices in the near term.
“[This is] recognising that first-home buyers account for about 20% of the flow of new credit,” Jones said. “Our sense is that it could add to overall housing credit in the order of 1-2%. But Treasury have also done some work on medium term supply response and their sense is that you will see, over time, an uplift in supply in response to that extra demand so that will end up dampening the price effect over the medium term.”
Bullock also said that the underlying issue remains a lack of supply, with current estimates showing demand continues to outpace new housing stock.
While RBA officials did not specify the extent of potential price increases, Treasury modelling suggests a total rise of 0.5% in home prices over six years as a result of the expanded Home Guarantee Scheme. The federal government has referenced this figure, though alternative estimates suggest a more significant impact.
The expanded HGS is likely to increase demand from first home buyers, leading to more enquiries and applications for mortgage brokers. However, higher property prices—especially for entry-level homes—may make it harder for some clients to qualify or afford a purchase, particularly lower-income buyers. Brokers should prepare for increased activity but also advise clients on potential price pressures and eligibility changes.
Research commissioned by the Insurance Council of Australia projects that national property prices could rise between 3.5% and 6.6% in 2026 and in subsequent years. For a home valued at $800,000, this would equate to an additional $28,000 to $52,800 for buyers. In the segment of entry-level homes—typically those below the HGS price caps—the projected increases are higher, ranging from 5.5% to 9.9%.
The same study concluded that, in many cases, the rise in entry-level home prices would outweigh the savings delivered by the expanded HGS, with lower-income buyers most at risk of being priced out of the market. However, it sholud be noted that the Insurance Council, which represents lenders mortgage insurance providers, commissioned the research, raising questions about potential conflicts of interest, as the expanded scheme reduces the need for such insurance.
Industry analysts and researchers have generally refrained from quantifying the likely price increases, but acknowledge that the revised scheme will sustain upward pressure on property values.
The federal government has indicated plans to broaden the HGS lender panel, currently comprising 38 institutions, to foster greater competition.
Want to be regularly updated with mortgage news and features? Get exclusive interviews, breaking news, and industry events in your inbox – subscribe to our FREE daily newsletter. You can also follow us on Facebook, X (formerly Twitter), and LinkedIn.
