Major cities cut years from deposit timelines with expanded deposit scheme
The expansion of the First Home Guarantee, effective from tomorrow, is set to significantly reduce the time required for Australians to save a home deposit, according to a report from property platform Domain.
Under the revised scheme, eligible buyers can now purchase with a 5% deposit, with the government guaranteeing up to 15% of the property’s value. This change eliminates the need for lender’s mortgage insurance (LMI), removing a substantial upfront cost for many households.
The new policy also removes previous income caps and place limits, broadening access to the scheme. Updated property price caps now better reflect current market conditions, particularly in Sydney, Brisbane, Adelaide, and Perth.
Analysis of the scheme’s impact reveals a marked reduction in the time needed to save a deposit. In Sydney, a two-person household previously faced a wait of more than a decade to accumulate a 20% deposit. With the new 5% threshold, this period drops to under three years – a saving of over seven years. Melbourne buyers see a similar benefit, with the saving period reduced from nearly eight years to just over two.
Other capital cities also experience significant reductions. In Brisbane and Adelaide, the time to save falls by more than five and a half years. Perth and Hobart buyers can expect to save over four years, while in Darwin and Canberra, the wait is shortened by more than two and three years, respectively.
The revised scheme offers several advantages. Households can enter the property market sooner, begin building equity earlier, and avoid the cost of LMI. The removal of income caps and place limits means more buyers are eligible, and higher price caps bring a wider range of properties within reach.
However, the changes also introduce new considerations. While the deposit barrier is lowered, banks will continue to assess borrowers’ ability to service loans, meaning repayments may remain a challenge for some. Increased demand at the entry level could place upward pressure on prices if supply does not keep up. Buyers with smaller deposits may be more vulnerable to negative equity if property values decline, and larger mortgages increase exposure to interest rate changes.
The government’s expanded guarantee also means greater exposure to housing market risks. If a borrower defaults and the property sells for less than the outstanding loan, the government will cover the guaranteed portion, shifting some risk from lenders to taxpayers.
“The expanded First Home Guarantee is a real game-changer – helping buyers get into the market years sooner and saving thousands in Lender’s Mortgage Insurance,” said Nicola Powell (pictured top), chief of research and economics at Domain. “But, it’s not a magic fix.
“Buyers will still face bigger mortgages and the risks that come with rising interest rates and potential property price drops. “We also expect a fresh wave of demand, which could ramp up competition and push prices higher in more affordable areas, especially if supply doesn’t keep pace.”
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