House prices to climb as expanded first home buyer scheme kicks off

Australian home values rose again in September, with experts warning a surge of first-home buyers using wafer-thin deposits is set to push prices even higher in the months ahead.

National dwelling values climbed 0.8 per cent — the strongest monthly gain since October 2023 — marking the eighth consecutive rise, according to property research firm Cotality.

Over the September quarter, values rose 2.2 per cent, adding an average of $18,215 to the cost of a home

The national median home value is now $857,280.

Darwin led the monthly gains, surging 1.7 per cent in September, followed by Perth, Brisbane, Adelaide, Sydney, Canberra, Melbourne and Hobart. "After averaging half a per cent growth for the first seven months of the year, what we're seeing is not just an increase in value, but that increase really ramping up as we head into the spring selling season," Cotality head of research Eliza Owen said.

Cotality also revised up August growth from 0.7 to 0.8 per cent. PropTrack data mirrored the strength of the market, showing national values rose 0.5 per cent in September.

Interest rate cuts through 2025 and real wage growth have boosted borrowing capacity, while listings remain low.

"There are a couple of other factors playing in at the moment, which is this increase in confidence we've seen for consumers throughout the year and maybe a little bit of anticipated increase in activity from the expanded First Home Guarantee," Ms Owen said. From today, the federal government's Home Guarantee Scheme has no income or place limits and higher price caps.

Buyers can purchase with as little as a 5 per cent deposit, avoiding lenders' mortgage insurance (LMI). The federal government acts as guarantor for the remainder of the 20 per cent deposit.

Experts warn the expanded scheme will fuel price growth. In Sydney, for example, first home buyers will be able to buy a home for up to $1.5 million, when previously the price cap was $900,000.

Treasury modelling suggests the policy will lift values by just 0.5 per cent over six years, but other analysts are sceptical. "What that's likely to do is add demand into a red-hot property market. Without a correlating increase in supply, prices are likely to go up even further, particularly fuelled by the three cash rate cuts we've already had this year," Canstar's director of data insights, Sally Tindall, said. Cotality's analysis shows a 5 per cent deposit means taking on a 95 per cent loan-to-value mortgage, costing hundreds of thousands more in interest over 30 years compared to a 20 per cent deposit. "Now that can still work out if you're going to be paying more in the private rental market, trying to save up a 20 per cent deposit, but it's important to just run the sums on that and understand whether the scheme is right for you," Ms Owen said.

In Sydney, where the median rent is $801 a week, Cotality estimates the scheme can shave six years off the time needed to save a deposit, saving around $251,000 in rent. Sydney mortgage broker Nathaniel Truong said higher-earning first-home buyers, previously locked out by income caps, are now flooding into the market.

"Even existing clients that have looked at property or had pre-approvals, we're reworking from the 1st of October," he said.

Mr Truong said competition is already heating up, with buyers able to borrow more under the expanded Home Guarantee Scheme. 

"I have a client who had a budget of about $1.15 million … but because of this new scheme, the property he ended up buying is $1.3 million.

"Even though he saved about $30,000 to $40,000 in LMI, the property price did go up. So my question is: did you really save, or did you just spend more?"

His client, Saheel Mukadam, is one of those higher earners now able to stretch further.

"For us, the advantages are saving on LMI, and also not draining all of our savings for a 20 per cent deposit — especially when Sydney property prices are $1.2 to $1.3 million," he said.

Mr Mukadam plans to reduce his repayments by keeping extra savings in an offset account.

"Paying 5 per cent means even though you're paying a little bit more for the property, you've still got that buffer in the bank to help with day-to-day expenses and as an emergency fund."

With two children under three, he said buying brings stability.

"It is a bit worrying having a high mortgage, but we're taking a leap of faith and hopefully it all goes according to plan."

With first-home buyers taking on bigger loans and more interest, banks are competing hard. Canstar research shows participating lenders are offering lower variable rates to scheme participants than to other borrowers.

"Certainly, being a member of this Home Guarantee scheme is one strategy to help these banks grow their lending books," Ms Tindall said.

The lowest variable rate on the Canstar database for first-home buyers with a 5 per cent deposit is 4.99 per cent.

A competitive rate for existing borrowers looking to refinance is 5.25 per cent, according to Canstar.

"What we've seen for the first time in a long time is that the lowest variable rates on our database are exclusive to first home buyers," Ms Tindall said.

"Normally those rates are reserved for refinancers with a decent amount of equity."

At a Melbourne inspection, attended mostly by first-home buyers, reactions to the scheme were mixed.

"For me, I'd rather just pay the deposit off now, then have less interest to pay over a long period of time," one buyer said. "It's just a luxury to have really — if you've got enough to put down."

Real estate agent Sophie Huang said even buyers not planning to use the scheme were keen to purchase before it pushed prices higher.

"Most of them are showing me their savings — they already have 20 per cent saved and are ready to get into the market." Most experts agree the expanded Home Guarantee Scheme is a short-term solution that will mostly benefit the current crop of higher-earning buyers.

Average income earners simply would not be able to make the repayments for properties at the upper end of the new price caps.

Ms Owen said while the expanded Home Guarantee scheme is attractive at an individual level, she warned of wider consequences.

"It's encouraging first home buyers to go into more debt and ultimately making it harder for the next cohort of first home buyers," she said.

"It also creates more skin in the game. If you've got this cohort of first home buyers going in with debt levels of 95 per cent on the value of their property, they're going to want home values to go up over time.”

"That makes it harder to influence policy that would actually bring prices down in the future."