Is the 5 per cent deposit scheme really pushing property prices higher?

Much fanfare has surrounded the supposed impact of the federal government’s 5 per cent deposit scheme on property prices at the affordable end of the market.

To borrow from Britpop titans Oasis, who have been rocking Australia, the most accurate answer is a firm Definitely Maybe.

It’s definitely true that property prices below the varied price caps around the country have risen but it’s maybe the case that the Home Guarantee Scheme isn’t the sole, or even primary, driver of those price gains.

On 1 October, the expanded Home Guarantee Scheme started. The original incentive model, which began as the First Home Loan Deposit Scheme, was launched on January 1, 2020, and has now been expanded to include unlimited places, no income caps, and higher property price caps to assist more first-home buyers with a deposit of as little as 5 per cent. The low-deposit loan also comes without the obligation to pay for lender’s mortgage insurance.

Here is what we do know about property prices since its relaunch six weeks ago.

Last month, according to Cotality, dwellings that fell within the price caps of the 5 per cent deposit scheme increased 1.2 per cent, compared to a slightly more modest 1.0 per cent for those above the threshold.

But any causal link is not yet clear.

That price trend has been evident for a long time. Lower-value properties have outperformed the higher end of the market for the best part of two years now.

Every city but Hobart and the ACT showed property values below price caps had stronger capital growth than those above the caps in October.

The affordable property markets that have seen the biggest price gains were a mixed bag too.

They comprised a mix of lower value pockets within high-end housing markets and popular regional centres. Sub-markets of Melbourne’s Inner East topped the list, where values of homes below the price caps rose 1.7 per cent, 130 basis points above the 0.4 per cent growth for home values above $950,000. This was in the top 9 per cent of differential with values above $950,000.

Also on the list were the lower value segments across high-end markets of Sydney, with Northern Beaches properties below $1.5 million rising 0.9 per cent compared to a flat result for higher end properties in the market.

Geelong and the Central Coast are also in the top 10 for outperformance and were also areas that had the capital city price thresholds for the scheme of $950,000 and $1.5 million respectively.

The Cotality data shows there has been a stronger uplift in property markets below the price caps of most regions through October.

Quantitative Analyst Thomas Clarkson said historic growth trends suggest this was happening in recent months before the expansion of the 5 per cent deposit scheme.

“A causal relationship is difficult to establish, but it’s useful to have this perspective.

“It is also worth noting that it might be too soon for the full impact of the expanded scheme to show up in price growth, and the numbers are worth reviewing over time.

“Ultimately the expansion of the deposit scheme is one of many factors influencing strong growth at the lower-to-middle end of the market.”

In the regions, Victoria, Western Australia, South Australia and Queensland had notably strong outperformance in the low-end of markets in October, with growth differentials sitting in the top 30 per cent of historic results, Eliza Owen, Head of Research, Cotality, noted.

“Interestingly though, outperformance of values below the new price caps of the scheme was even stronger in the month prior, suggesting there are other factors that are driving lower-to-middle market values.

“Perhaps most surprisingly, regional NSW saw a 1 per cent increase in home values both above and below the caps.

“The 1 per cent uplift in home values is unusual for NSW, which had been averaging monthly performance of 0.4 per cent a month through 2025 before October.”

Where are prices heading in 2026?

National home values have accelerated through 2025, with the October lift of 1.1 per cent in the Cotality Home Value Index marking the highest monthly gain since June 2023.

Rate reductions so far this year were likely a key driver, with lower debt costs boosting the availability of credit for housing purchases.

Cotality estimates an affordable purchase price for the median income household has increased by almost $65,000 from the end of 2024 to the end of September.

The median dwelling value in Australia has increased around $43,000 in the same period, suggesting increased purchasing power is being quickly priced into the market.

With listings still low around the country, an easing of the pressure on property prices appears to be a distant prospect.

Inflation remains the biggest obstacle to continued price gains.

Should the sticky CPI cause the Reserve Bank more concern in 2026, there is the possibility that the next interest rate movement could be upwards. If borrowers are hit in the hip pocket, a long overdue pause in the property market’s trajectory could come to fruition.

RBA Governor Michele Bullock has emphasised the high level of uncertainty, noting that “anything's possible" regarding the next rate move (up or down). Economists broadly agree there is "considerable uncertainty” about the future path of rates.

EQ Economics Managing Director, Warren Hogan, has said that rate cuts would imperil the economy.

He added that strong messaging from the RBA “would get rid of all of those (rate cut) expectations because the message is that the next move in rates could well, and may likely, be up.”

“That's the big reality that people are dealing with.”

“To cut from here is a real problem and they’re not going to do that,” Mr Hogan said.

“If the RBA wants to do that, then this is going to all end in tears.”