Higher-earning Australians flocking to 5% first home deposit scheme with some borrowers earning over $200,000 | Housing

In Australia, most first home buyers use the government’s 5% deposit scheme; One in three new participants earns more than the program’s previous cap for high-income earners.

Economists warn that the influx of high-income earners into the first home warranty scheme is pushing up property prices by increasing the purchasing capacity of people who would buy anyway.

The former Coalition government introduced a scheme under which low-income first-time buyers could borrow 95% of a property’s value and have lenders pay for their mortgage insurance.

Labor made good on its pre-election promise last year by removing income limits of $125,000 for single borrowers and $200,000 total for joint borrowers.

Housing Australia data prepared for Senate estimates and seen by Guardian Australia shows the scheme supported 15,924 single borrower loans and 23,790 joint loans from October 1, when the income cap was removed, to April 30.

The 39,704 government-backed loans include 13,979 above the eliminated income caps: 6,812 single borrowers with income over $125,000 and 7,167 joint borrowers with income over $200,000.

At the higher end, around 1,000 single Australians earning $200,000 or more and 1,251 couples earning a combined $275,000 or more benefited from a government-backed 5% deposit.

Amy Auster, chief executive of the Australian Policy Institute, said removing the caps meant support would flow to people in better financial circumstances.

“This is always important because…government support traditionally goes to the people who need it the most,” Auster said.

“There are increasing efforts to financially support first-time homebuyers, and I understand why, but ultimately it hasn’t solved the problem.”

Independent economist Saul Eslake said the scheme was likely used by people who would still buy a home while inflating their debt.

“The way it was expanded by Albanese also explains the housing problems we have,” Eslake said.

“When governments do things that allow people to spend more on housing than they otherwise would, they end up spending more on housing.”

A borrower with $50,000 in savings would only be able to borrow $200,000 if he or she had to put down a 20% deposit. They will be able to borrow $1 million under the 5 percent deposit plan.

Prices have increased since the program was expanded. Labor has raised hundreds of thousands of dollars to cover homes under $1.5 million in NSW cities, to varying levels across regions, south-east Queensland at $1 million, Melbourne and Geelong at $950,000, Perth at $850,000, Adelaide at $900,000 and Hobart at $700,000.

Homes below these levels saw slower price increases in early 2025 than homes above these levels, but rose much faster when the scheme was expanded, Cotality data shows.

Labor backed the scheme in a bid to reduce the deposit barrier and boost home buying, but data shows most existing first home buyers have embraced it.

The government supported an average of 5,670 5% deposit loans each month from October to April.

According to Australian Bureau of Statistics data, first home buyers across Australia took out an average of 10,181 loans each month from October to March.

This was less than a 3% increase over the previous six months, averaging 9,900 per month; This suggests that the program has not yet significantly impacted home ownership.

First home buying activity has fallen since then as the housing market entered a downturn.