How Good Intentions Created Expensive Property
The 5% Deposit Scheme:
How Good Intentions Created Expensive Problems in Australia’s Housing Market
By Albert Waldron, Mortgage Expert
When the Australian government introduced the 5% deposit scheme, they had a simple goal: help more Australians buy their first home. But after watching the housing market closely for years, I need to share an uncomfortable truth. This well-meaning program has actually pushed up prices at the bottom of the housing market, making affordable housing harder to find than ever before.
What Was Supposed to Happen
The idea seemed straightforward. Let first home buyers purchase a property with just a 5% deposit instead of the usual 20%. The government would guarantee the rest, so buyers wouldn’t need to pay expensive lenders mortgage insurance. More buyers could enter the housing market sooner.
On paper, it looked like a winner. But here’s what actually happened.
The Problem Nobody Expected
When you suddenly give thousands of people the ability to buy homes they couldn’t afford before, you create a big problem. All these new buyers started competing for the same entry-level properties. And when more people want the same thing, prices go up. It’s basic supply and demand.
As a mortgage broker, I’ve watched this happen in real time. Properties that sold for $450,000 three years ago are now fetching $550,000 or more. The same houses. The same streets. Just a lot more money.
Who Benefits? Not First Home Buyers
You might think first home buyers are winning because they can get into the housing market with less money upfront. But let’s look at the math.
Before the scheme, a buyer might have needed $80,000 saved for a 20% deposit on a $400,000 home. Now they only need $25,000 for a 5% deposit. That sounds great until you realize that same home now costs $500,000 because everyone else also has access to the scheme.
So instead of saving $80,000 for a $400,000 home, they’re borrowing $475,000 for a $500,000 home. They’re taking on much bigger debt for the same property. And here’s the real problem: bigger loans mean bigger monthly payments for the next 30 years.
The Affordability Illusion
As a mortgage broker who works with dozens of first home buyers every year, I can tell you this: the 5% deposit scheme has created an illusion of affordability. Yes, you can buy sooner. But you’re buying at inflated prices with maximum debt.
The housing market has responded exactly as you’d expect. Sellers know buyers can access more money, so they ask for more money. Property developers know entry-level homes will sell at higher prices, so they build fewer affordable options.
What This Means for Australian Families
The scheme was designed to make affordable housing more accessible. Instead, it’s done the opposite. Entry-level properties in the housing market are now further out of reach for families who can’t access the scheme. And families who do use it are stretching themselves dangerously thin.
I’ve sat across the table from young couples who are thrilled to buy their first home, only to realise their mortgage broker (me) is concerned about their ability to manage the repayments if interest rates rise or if someone loses their job.
The Bigger Picture
The Australian housing market needs more supply, not more demand. We need more homes built, not more buyers chasing the same limited stock. The 5% deposit scheme added fuel to a fire that was already burning too hot.
Government programs should help create more affordable housing, not just help more people borrow bigger amounts for expensive housing. There’s a big difference.
What Should Have Been Done Instead
Instead of making it easier to borrow more money, the government could have focused on:
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- Building more homes to increase supply
- Offering grants for deposits rather than loan guarantees
- Creating incentives for developers to build affordable housing
- Reforming planning laws to allow more construction
- Supporting programs that increase wages so people can genuinely afford homes
These solutions are harder and take longer. But they would actually create affordable housing instead of just moving the affordability problem from the deposit to the mortgage.
My Advice as Your Mortgage Broker
If you’re thinking about using the 5% deposit scheme, please speak with a mortgage broker first. Not just any mortgage broker, but one who will give you honest advice about whether you can truly afford the property long-term.
Ask yourself these questions:
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- Can I still make repayments if interest rates go up by 2%?
- What happens if I lose my job for six months?
- Am I buying at an inflated price because of high demand in the housing market?
- Would I be better off waiting and saving more?
Our First Home Buyer Guide with hints and tips.
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The Bottom Line
The 5% deposit scheme was created with good intentions. But it has made the housing market more expensive at the entry level, not more affordable. It’s helped sellers more than buyers. It’s increased debt levels across Australia. And it hasn’t solved the fundamental problem: we simply don’t have enough homes.
As someone who works in this industry every day, I believe we need to be honest about what’s working and what isn’t. This scheme isn’t working for the people it was meant to help. And until we focus on building more affordable housing rather than just helping people borrow more money, Australia’s housing affordability crisis will only get worse.
Albert Waldron is an experienced mortgage broker based in Australia, helping families navigate the complex housing market for over 20 years.
Contact Albert today to discuss how to protect yourself from rising costs
