The Albanese government expanded the Australian 5% Deposit Scheme in October last year. Picture: Josh Chadwick
The Albanese government’s flagship housing policy has plunged first-home buyers into pricier loans and saddled them with lifetime costs that eclipse the upfront savings offered by the scheme.
Primara Research analysis of ABS data revealed the average first-home buyer loan has risen by nearly $50,000 since the Australian Government 5 per cent Deposit Scheme was expanded in October 2025.
Growth in first-home buyer debt was twice as fast as the rise in non-first home buyer debt, with the sharpest rise in loan sizes recorded in the first three months after the scheme expansion.
First-home buyer debt growth over the December quarter was the single largest quarterly rise since the ABS began tracking loan data in 2002, the analysis revealed.
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Housing Australia reported about 102,000 Australians used the scheme after the expansion, representing roughly half of first-home buyer loan commitments over the period.
The scheme, which allows participants to purchase with deposits as low as 5 per cent while avoiding costly lender’s mortgage insurance, was widened with the removal of salary caps and raising of price limits.
Kent Lardner, head of research at property analytics group FoundIt, said the benefits of the scheme had been eroded by the inflated prices that came with it.
“It simply stimulated demand at a time of housing shortages,” he said.
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Larger debts mean a much higher repayment increase each time RBA govenor Michele Bullock has announced another rate hike. Picture: Nikki Short
“When you factor in the higher long-term cost of the debt, it means the buyers are paying more even if the scheme helped get them a home sooner.”
The scheme was estimated to have saved first-home buyers an average of $96,000 in upfront purchasing costs, but this was outweighed by the $211,000 in extra costs over the life of a larger loan.
The analysis found that an extra $50,000 in borrowing would add about $587 a month to repayments, based on recent interest rate increases.
Shadow Housing Minister Andrew Bragg said Labor’s expansion of the scheme was flawed, accusing it of turning a targeted scheme into “an uncapped free-for-all”.
Expanding the scheme without addressing housing supply had the initial effect of “pumping up entry level prices”, Senator Bragg said.
This was followed by interest rate hikes and reforms on negative gearing and capital gains tax in the Budget that pulled down home values in the period after many of the scheme users bought their homes, he said.
“First home buyers paid more to get into the market, took on enormous mortgages and are now facing the very real prospect of owing more than their home is worth,” Senator Bragg said.
A spokesperson for the Minister of Housing Clare O’Neil defended the scheme by pointing out that it allowed first-home buyers to clear the deposit hurdle, which remains a significant challenge for buyers.
“Without this scheme, many wouldn’t be able to get in at all,” the spokesperson said.
“Saving for a deposit is one of the biggest barriers to home ownership, with some purchasers saving up to 11 years for a deposit.
“The 5 per cent Deposit Scheme means first home buyers can buy sooner and get out of the rent trap and into their own home.”
Critics of the policy have noted that housing supply should have been prioritised. Picture: Brook Mitchell
Peter Drennan, head of research at Primara, commissioned by Temple and Webster, said getting into the market with lower deposits and more debt made scheme users more vulnerable to rate hikes.
“An extra $587 a month changes how a new homeowner budgets, and rising rates only make that harder to plan around,” he said. “The extra $587 a month comes out of an already tight budget.”