Loans with loan-to-value ratios of 95% or more increased from $3.3 billion to $5.4 billion in the December quarter, data shows. The 5% deposit guarantee scheme now accounts for a record 4% of new owner-occupier loans. The Albanese Government overhauled the scheme in October, making it available to almost any first-home buyer regardless of savings and income, after it was introduced by the former Coalition government with limitations aimed at low-income individuals and couples.
Rising prices and affordability pressures are mounting for first-home buyers. The average first-home buyer mortgage reached $607,500 in the December quarter. Homes under the price caps of the 5% deposit guarantee scheme increased in value by 6.7% over the first six months since the scheme's expansion, outpacing the 3.6% rise for properties valued above the caps. The government significantly raised price caps in October, allowing first-home buyers to purchase properties worth up to $1.5 million in Sydney and $950,000 in Melbourne. According to AMP chief economist Shane Oliver, the scheme is increasing competition at the entry-level end of the market, where affordability is already under strain, leading to rising prices that worsen the very issue the government claims to be addressing.
These buyers are getting in with much higher debt levels, and that risks more first-home owners running into trouble down the line.
Critics warn of scheme risks and government responsibility. According to Daily Mail - News, Shane Oliver described the scheme as encouraging inexperienced buyers to take on debt they may not be able to manage. Economist Leith van Onselen argues the scheme institutionalises high-LVR lending and exposes recent buyers to market corrections. According to Daily Mail - News, Leith van Onselen described the Albanese Government as setting many first-home buyers up to fail by encouraging them to enter the market with tiny deposits in a rising interest-rate environment. However, the scheme also helps first-home owners better compete with investors.
The rental market context adds to broader housing pressures. The national rental vacancy rate is at a record low 0.7%. Median rents in capital cities have climbed to $680 a week for houses and $675 for units. Realestate.com.au found median advertised rents are up $30 a week in the first three months of 2026, to $680 a week. According to The Guardian - World, Dr Nicola Powell described vacancy rates as lower than ever and supply as incredibly tight, but noted rent growth is no longer accelerating everywhere, indicating households simply can't stretch any further. It remains unknown what specific measures, if any, the government plans to address the risks associated with the 5% deposit guarantee scheme, or how many first-home buyers have defaulted or are at risk of defaulting due to the scheme.
The banks are fine. The main risk falls on individuals.
We're piling more risk onto first-home buyers.
This scheme is a Band-Aid. The real solution is more housing supply.
By encouraging first-home buyers to enter the market with tiny deposits in a rising interest-rate environment, the Albanese Government has set many up to fail.
Vacancy rates are lower than ever and supply remains incredibly tight, but rent growth is no longer accelerating everywhere. That tells us households simply can't stretch any further.