Is the Proposed Expanded Home Guarantee Scheme Already Driving Up House Prices?

UPDATE: REPOSTING THIS FROM EARLIER THIS YEAR - THE GOVT ANNOUNCED OVER THE WEEKEND THAT THIS CHANGE IS BEING BROUGHT FORWARD TO 1 OCTOBER. Get in touch if you would like to discuss.

For many years, purchasing a home traditionally required saving at least a 20% deposit plus additional transaction costs. For example, on an $800,000 property, this would amount to approximately $190,000, allowing the buyer to borrow 80% ($640,000) and avoid Lenders Mortgage Insurance (LMI).

However, to enter the market sooner, first home buyers can opt to pay LMI and proceed with a smaller deposit. Under current lending practices, if a buyer has saved just 5% of the purchase price plus costs, roughly $70,000 in this scenario, they can still purchase an $800,000 home. With LMI adding around $30,000 (paid by the buyer to protect the lender), the total funds needed increase to $100,000, and the mortgage would be approximately $760,000.

What Does the First Home Guarantee Scheme Do?

The First Home Guarantee (FHBG), a federal government initiative, removes the need for eligible buyers to pay LMI. Effectively, the government (and by extension, taxpayers) takes on the insurance risk. This reduces the upfront requirement to around $70,000 instead of $100,000, enabling eligible buyers to enter the market sooner.

The current FHBG includes limitations on:

• Property price caps (e.g. $900,000 in Sydney)

• Income eligibility (maximum $125,000 for individuals or $200,000 for couples)

These restrictions have ensured the scheme remains targeted toward lower- and middle-income earners purchasing modestly priced homes.

What’s Changing in January 2026?

The Labor Government has announced significant changes to the scheme:

• The Sydney property price cap will increase from $900,000 to $1.5 million

• Income limits will be removed entirely

Let’s break this down:

Example:

A family with a $300,000 household income currently looking to buy a $1.4 million home would need:

• 5% deposit: $70,000

• Transaction costs: $60,000

• LMI: approx. $60,000
  Total required: $190,000
  Loan required: $1.33 million (95% LVR)

This family is currently not eligible for FHBG due to income and price limits.

Come February 2026, the same buyers will be eligible. With the same $190,000 saved, they no longer need to pay the $60,000 LMI, giving them more buying power or improving their borrowing capacity. And since there’s no income cap, virtually all first home buyers can now access the scheme, not just low or moderate income earners.

So Why Are Prices Rising Now?

In practice, this policy shift is already influencing the market, particularly in Sydney.

Now we find that our first home buyers are well informed and highly motivated. They spend hours studying these schemes and I have to have my wits about me with their knowledge in this area. They are all aware of this rule change coming.  Agents, brokers, and buyers agents are mentioning it to them as well.  They talk about it at backyard barbeques. It’s in the media. Even Mortgage Professional Australia noted recently:
“Removing or relaxing income caps provides a ‘free kick’ to those who could already afford to enter the market, increasing demand and driving up prices.” – MPA, 14 May 2025

We are seeing our buyers are stretching their budgets now to secure homes before next year for this reason. We’re now regularly seeing clients miss out on properties up to $1.5 million, even with professional buyer’s agents assisting. This increased competition before the policy even takes effect is contributing to upward price pressure across the board.

The Unintended Consequences

While the intention behind the FHBG is to help first home buyers, particularly those on lower incomes, access the market, these latest changes may be having the opposite effect. Increased buying power for higher-income households is intensifying demand in an already undersupplied market, pushing prices up and pushing some genuine first time buyers further out of reach.

In short: government intervention in the housing market, though well meaning, can lead to unintended consequences.

In Summary

The expanded Home Guarantee Scheme, due to commence in January 2026, is already having a market impact:

• It removes income limits, widening access to high income buyers

• It raises purchase price caps, allowing access to more expensive homes

• It reduces entry costs by eliminating LMI

• It is contributing to price increases now, ahead of implementation

If you’re navigating the market and want strategic advice tailored to your situation, we’re here to help. Contact us via:

📧 [email protected]
📱 0403 397 060
🌐 Or through any of our online channels

TL;DR?
The Labor Government’s expansion of the Home Guarantee Scheme removing income caps and increasing price limits is already pushing up property prices, making it harder for many first home buyers to compete.

The Team at Thunderbolt Lending