One in Three: How Australia's 5% Deposit Scheme Became a High-Income Perk

When the income caps came off the 5% Deposit Scheme last October, the pitch was simple: stop turning away first home buyers over an arbitrary salary line. Nine months on, we finally have a proper accounting of who actually walked through the door - and it isn't quite the story that was sold.

Housing Australia data prepared for Senate estimates shows the scheme backed 39,704 guaranteed loans between 1 October 2025 and 30 April 2026. Roughly one in three of them - 13,979 loans - went to borrowers who would have been ineligible under the old caps. Nearly 1,000 were single buyers earning $200,000 or more. Another 1,251 were couples on a combined $275,000 or above.

That's the number everyone is arguing about on the radio. It isn't the one that should worry you if you're actually trying to buy.

What the Senate estimates data actually shows

Until 1 October 2025, the First Home Guarantee was rationed two ways: an annual quota of places, and income caps of $125,000 for a single applicant and $200,000 for a couple. Both were scrapped. Places became unlimited and the income test disappeared entirely.

The result was a surge in volume - about 5,670 guaranteed loans a month, which now sits behind roughly 56% of all first home buyer loans written in the country. Of the 13,979 borrowers who cleared the old ceilings, 6,812 were singles earning above $125,000 and 7,167 were couples above $200,000.

Amy Auster, chief executive of Policy Institute Australia, put the objection plainly: removing the caps means government support "now flows more broadly than intended". Whether you think that's a scandal or just a simplification depends on your politics. What's harder to argue with is the second number.

The figure that should have moved - and didn't

Over the same seven months, total first home buyer lending rose by less than 3%.

Read that alongside 39,704 guaranteed loans and the picture resolves fast. The scheme didn't create a wave of new owners. It largely re-routed people who were buying anyway onto a government guarantee. Economist Saul Eslake has been making this argument for years, and the data has now handed him the receipts: "policies which let people spend more on housing simply lead to people spending more on housing." His shorter version is sharper - it helps buyers borrow more, not more buyers in.

Why this shows up in the price of the house you're bidding on

Here's the part that matters at an open home rather than in a Senate committee room.

The scheme has price caps: $1.5 million for Sydney, Newcastle, Illawarra and Lake Macquarie; $1 million for south-east Queensland; $950,000 for Melbourne and Geelong; $900,000 for Adelaide; $850,000 for Perth; $700,000 for Hobart. Those caps aren't a ceiling on what buyers pay - they're a magnet. They concentrate a large pool of newly subsidised borrowing power into a narrow band of stock just underneath the line.

Cotality's analysis backs that up. Homes priced below the scheme thresholds had been growing more slowly than dearer properties. Once the caps lifted, that pattern reversed sharply. RBA Governor Michele Bullock has waved off financial stability concerns, while acknowledging what everyone can see in the data: first home buyer credit is up and loan-to-value ratios have risen with it.

And this is all happening while first home buyers are, if anything, retreating. Lendi Group reports first home buyer lodgements down more than 20% since the May Budget; Loan Market puts the June fall at 16%. So the competition you're facing isn't more numerous. It's better armed.

The strategist's view

Two things are true at once, and holding both is the whole trick.

At the individual level, the guarantee is genuinely valuable. Avoiding Lenders Mortgage Insurance on a purchase near the Sydney cap removes a five-figure cost from your setup, and getting in with 5% rather than saving to 20% can be the difference between buying this year and buying in 2030. If you're eligible and it fits, use it. Nobody wins a prize for refusing a subsidy on principle while prices run away.

At the market level, though, you should go in clear-eyed. You are shopping in the single most crowded, most policy-inflated price band in Australia, against buyers who may be earning three times what you do and using the same government backing. That should change how you prepare - not whether you buy.

What to actually do

• Know where the cap sits in your market, and look just above it. The band immediately under a threshold is the most contested. Stock a little over the line often has noticeably less competition.
• Compare the guarantee against Help to Buy properly - they're alternatives, not a stack. Help to Buy expanded on 1 July 2026 with 10,000 places and higher income limits ($103,000 single, $165,000 for couples and single parents). It needs only a 2% deposit, but the government takes an equity share of up to 30% on an established home or 40% on a new build. You own 100% under the guarantee; you don't under Help to Buy.
• Price the third option. A guarantor loan can achieve the same LMI outcome without a scheme, without price caps, and without the crowding - if family support is genuinely available and properly structured.
• Stress-test the 5% itself. A 95% starting position leaves very little equity buffer in a market where Sydney and Melbourne values have been falling. Know what that means for refinancing before you sign, not after.
• Get your real number before you shop. Start with our borrowing power estimator and deposit savings planner, then have the conversation about which path actually suits your income, deposit and timeline. Our first home buyer page walks through each option side by side.

The policy debate about who deserves this scheme will run for years. Your purchase window won't. The useful question isn't whether the subsidy is fair - it's whether you're using the right one, in the right price band, with the right structure behind it.