The federal government introduced the 5% home deposit scheme on October 1, 2025 as an affordable measure.
However, analysts including myself caution that such demand-side interventions are usually self-defeating in terms of affordability, as they drive up property prices.
Cotality’s latest housing chart pack illustrates this point. As shown below, house prices in the bottom 25% quartile, those within the 5% deposit scheme price threshold, rose the most in the three months to March 2026 across all major capital markets.
Source: Cotality
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In contrast, the most expensive 25% of homes, which are outside the price range, saw the slowest price growth of all capital markets save the ACT.
Cotality has released further research into the impact of the extended 5% deposit scheme on house prices.
During the first six months of the extended scheme, figures from Cotality show that the value of over-valued homes rose by 6.7%, compared to 3.6% for properties with over-assessed value.
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Source: Cotality
As shown below, the sub-price caps market was gaining momentum following the announcement of the extended 5% deposit scheme in late August 2025.
Source: Cotality
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Tim Lawless, director of Cotality Research, believes that the expectation of increased competition and price pressures following the launch of the scheme could increase demand from those who did not necessarily rely on the deposit guarantee, such as investors.
Additionally, with affordability tightening and borrowing capacity increasing, buyer demand is likely to push towards the more affordable end of the market.
Chart by Shane Oliver (AMP)
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After strong price growth of 6.7% over the past six months, the number of submarkets with lower price thresholds has shrunk.
“At the end of September last year, just before the extended deposit guarantee went live on October 1, 48.6% of suburbs nationally had a median price below the price cap, and 92.7% of suburbs had a median unit price below the cap”, Cotality noted.
“By the end of March, this share had fallen to 39.5% and 89.1%”.
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Source: Cotality
As illustrated above, Perth, Brisbane and Adelaide have experienced particularly large declines in the number of suburbs priced below the price threshold.
Clearly, the extended 5% deposit scheme drove up entry-level house prices, ultimately making them more expensive for first-time home buyers.
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Future first home buyers will face the prospect of paying more for housing and taking on bigger mortgages without a 5% deposit scheme.
