Will the Government's New Scheme for First Home Buyers Push Prices Higher?

The federal government’s plan to help first home buyers by removing the cost of lenders mortgage insurance (LMI) has sparked fierce debate. Supporters say it will fast-track home ownership for thousands of Australians. Critics, including the insurance industry, argue it could inflate property prices and make affordability worse. So, what does the scheme actually do? And will it help or hurt first home buyers in the long run?

What Is the Scheme?

Currently, if a buyer has less than a 20% deposit, lenders require them to pay LMI, which can run into the tens of thousands of dollars. Under the new policy, launching on October 1, the federal government will cover that LMI cost for first home buyers with deposits between 5% and 20%.

Importantly, there will be no caps on the number of participants, and the price caps for eligible properties will also be increased.

According to the government, this could save eligible buyers up to $30,000 and shave years off the time needed to save a deposit. Treasury modelling suggests it will increase property prices by just 0.5% over six years.

The Pushback

Not everyone agrees. The Insurance Council of Australia commissioned modelling that paints a different picture. It claims the scheme could add up to 6.6% to national property prices in the first year alone, and up to 9.9% for cheaper homes typically targeted by first home buyers. That would mean the benefit of the LMI savings could be wiped out by rising prices.

Buyers would also be taking on more debt. A 5% deposit means a much larger loan and higher monthly repayments. On a $600,000 home, the difference could be hundreds of dollars a month.

The Bigger Picture

Housing Minister Clare O’Neil has dismissed the scare campaign, arguing the modelling underestimates broader housing policy impacts, like the government’s plan to build 100,000 homes and the effect of falling interest rates.

Other experts, including the Housing Industry Association, believe the scheme will stimulate new housing supply and improve affordability over time. In their view, higher demand today will be matched by more construction tomorrow.

But critics argue that demand-side policies almost always result in short-term price increases. If you boost buying power without boosting supply at the same pace, prices go up.

What Does It Mean for Buyers?

For some, the scheme will be a game-changer, particularly those on moderate incomes struggling to save a deposit while paying high rents. But others may find themselves entering the market just as prices rise.

Ultimately, this policy highlights a simple truth: helping first home buyers without addressing supply is only half the battle.

If you’re a first home buyer considering whether to use the scheme, it’s worth getting personalised advice. At The Acquiry, we work with Sydney-based buyers to help them navigate the market with clarity and confidence.

“Whether the scheme works for you depends on more than just numbers. It depends on your goals, timeline, and appetite for risk. Let us help you get it right.”

Source: https://www.smh.com.au/politics/federal/only-quickest-first-homebuyers-to-benefit-from-expanded-5-per-cent-deposit-scheme-20250825-p5mpi8.html