Thanks for nothing, Albo!

"Imagine unlocking the door to your very own home, sooner than you ever thought possible. With the Australian Government 5% Deposit Scheme - now with expanded eligibility - you can own your first home sooner." – Australian Government 5% Deposit Scheme

Sounds amazing, right? Turns out, it's been anything but.

It's been nearly 3 months since the Australian Government made changes to the First Home Buyer 5% Deposit Scheme, which came into effect on 1 October. Previously, the scheme had income limits, a limited number of places, and a property price cap of $600,000. Now, with the changes, you could use the scheme to purchase your first home up to a purchase price of $850,000 in the Perth metropolitan area, or $600,000 in regional WA, with as little as a 5% deposit or only a 2% deposit for single parents and legal guardians – no income limits and no limit to the amount of applicants who could use the scheme. Winner, winner, chicken dinner (apparently)!

In essence, the Australian Government goes guarantor for first home buyers so they don't need to pay Lenders Mortgage Insurance (LMI), which would normally kick in when borrowing more than 80% of the property purchase price. LMI protects the lender if you default on your loan. Borrowers rushed to their brokers and lenders to maximise their borrowing capacity to purchase their first home. Obviously, they still needed to meet servicing requirements for the loan, but it allowed more borrowers into the market who were previously in a holding pattern while trying to save a 20% deposit to avoid paying LMI in an ever-rising WA market, and allowed many to now borrow up to $850,000, with some lenders approving what would normally be considered high-risk loans because the government would be on the hook in the event you defaulted on your mortgage.

Since the start of the changes on 1 October, Cotality's latest home value index showed Perth property values rose 2.4% in November after a rise of 2.7% in October. That equates to a rise of roughly $5,000 a week, or $40,000 in the last 2 months, to be tacked on to Perth's current median dwelling value which is now $914,229.

In their November update, REIWA President Suzanne Brown said, " As our members have told us, anything around or below $850,000 is simply flying out the door." As a Perth-based buyer's agent, I can confirm this is true.

While the 5% deposit scheme may have gotten more first home buyers a foot in the door, the rise in Perth property prices is about to shut that door, and has also made the WA First Home Owner Rate (FHOR) of duty (a reduced rate of stamp duty for first home buyers in WA) practically redundant. Back in the good ol' days (you know, pre-COVID when you could actually buy a house – yes, a house – in Perth for $500,000), the reduced rate of duty meant you paid no stamp duty as a first home buyer on a $500,000 property (compared to nearly $18,000 for a non-first home buyer), or around $14,000 on a $600,000 property (compared to nearly $23,000 for a non-first home buyer). With the lack of stock on market and a property value threshold for the FHOR of $700,000 in the Perth and Peel regions and $750,000 in the rest of WA, it is now a barely noticeable difference for first home buyers who are purchasing at the upper limit given the rise in Perth property values. Now, if you can secure one, a property purchase at $700,000 saves a first home buyer $5 in stamp duty...I kid you not.

The Australian Government was never going to backtrack on their 5% deposit scheme nor admit they made a mistake (Treasury modelling said property values shouldn't rise more than 0.5-0.6% nationally over 6 years as a result of the scheme, but we blew that out of the water in just one month in Perth), but the reality is, what they've actually done, is lock more first home buyers out of the market...and thrown away the key. Now, it's taken 2 short months before APRA – the Australian Prudential Regulation Authority (tasked with ensuring our financial system remains stable and we don't end up in a sub-prime mortgage crisis like the US did in 2007) – did their dirty work for them and gave the Australian Government a 'get out of jail free' card.

APRA announced that, from 1 February 2026, lenders will be required to limit high debt-to-income home lending (ie. lending that is more than 6 times a borrower's income) to 20% of their loan writing. They've done this due to the unprecedented demand for high-debt-to-income home loans, helped in great part by those from first home buyers accessing the 5% deposit scheme. What does this mean? It means, come 1 February 2026, some first home buyers will not be able to get higher lending approved, as many have since 1 October, so, with less borrowing capacity, properties in the under $850,000 (and under $750,000...under $700,000...under $650,000) price bracket are going to become in even higher demand.

With record low listings in the Perth metropolitan area, and very few family homes available in the under $850,000 price bracket, this means if you haven't been able to secure a property yet, and you can't borrow more, then your chances of getting into home ownership in Perth are slowly slipping away. Two bedroom villas in many Perth suburbs are now selling for above $750,000...not exactly where you saw yourself raising your young family, I'm sure. This is seeing many first home buyers move back to new construction house and land packages as a result, but there is limited land available and anecdotal evidence shows land releases are selling in a matter of hours when released, while our construction industry is still struggling under the last federal and state government Covid-era grants, not to mention the recent Iplex plumbing issues. With a lack of trades and a surge of new buyers, I fear for what comes next. How did we find ourselves in this situation where you can't buy a family home as a first home buyer for under $850,000 in Perth? Well, that's a story for another post.

In the meantime, while some, including the Prime Minister, will say anything that gets first home buyers into home ownership sooner is a good thing, we must also be cognisant of the fact that what has actually occurred from the 5% deposit scheme is that many first home buyers have now been pushed out of the market altogether, while those that have managed to purchase a property using the scheme find themselves under immediate mortgage-stress, with most economists, and the Reserve Bank themselves, forecasting likely rate rises in 2026. First home buyers have maxed out their borrowing capacities to take advantage of the scheme but are about to enter 2026, when we should be hopeful of a new year and new beginnings, with a pending gloom about what's to come in an already unbearable cost of living crisis. Owing 95% of their property value, or more, leaves first home buyers greatly exposed should interest rates rise once, twice, or even more in the coming months, and it won't take much before their 5% equity is eaten up by a mortgage that now costs more than their property is actually worth. Sub-prime mortgage crisis, anyone? Nice work, Albo.

Depending on which way you look at it, first home buyers who got in early before the APRA changes take effect on 1 February could be considered the 'lucky' ones,

as those who have yet to secure their lending, particularly those trying to borrow $850,000, will now find it much harder to do so, let alone secure a property once they have.