What if a well-meaning housing policy is actually making homes harder to afford? The First Home Guarantee has helped thousands of Australians step onto the property ladder by removing the cost barrier of Lenders Mortgage Insurance (LMI). But with recent changes increasing income caps for eligibility, there’s growing concern that it’s also driving more competition into a market with limited supply, pushing property prices even higher.
In this blog, we unpack how the scheme works, explore its hidden risks, and explain how to use it wisely if you’re entering the market.
What Is the First Home Guarantee and How Does It Work?
The First Home Guarantee in Australia is a government-backed initiative that supports eligible buyers with a 5% deposit while avoiding LMI. The government guarantees up to 15% of the loan, effectively bridging the gap for first-time purchasers (Housing Australia).
Eligibility and Recent Changes
According to Housing Australia, recent updates have lifted income eligibility to:
- $125,000 for individuals
- $200,000 for couples
This has widened access to higher-earning buyers, shifting the scheme from an affordability support tool to a potential price pressure catalyst.
Does Increasing Borrowing Power Drive Up Property Prices?
In short: yes, it can.
When more buyers enter the market with bigger budgets, competition rises. Higher-income buyers using the scheme can bid more aggressively—especially at auctions—causing price lifts that outpace what lower-income buyers can afford.
The challenge is that housing supply isn’t rising at the same pace, so this policy-driven demand creates more heat in already tight markets.
How Does the First Home Guarantee Affect Housing Demand?
While its goal is to support buyers, the scheme affects market dynamics:
- Expands the pool of eligible buyers
- Increases competition in entry-level price brackets
- Drives urgency as people try to use the scheme before conditions change
These factors put pressure on prices, especially when stock is limited.
What’s the Smart Way to Use the First Home Guarantee Right Now?
The scheme still offers real advantages—but only if used with caution.
Here’s how to avoid overcommitting:
- Stick to your needs-based budget, not your maximum pre-approval
- Plan for future interest rate increases, not just today’s repayments
- Work with a broker who understands your goals, not just your borrowing limits
Using the First Home Guarantee wisely means thinking long-term, not just getting in fast.
First Home Guarantee: A Closer Look at Action
Want a quick breakdown of how the First Home Guarantee could be affecting property prices? This short breakdown brings the issue into focus so you can decide if the scheme fits your financial strategy.
Check this video to get more insights:
Conclusion
The First Home Guarantee is a helpful tool, but when paired with rising income caps and flat supply, it risks increasing demand without solving affordability. More buyers with bigger budgets means more competition, and in a low-stock environment, that often leads to higher prices.
If you’re a first-time buyer, now is the time to be strategic. Understand how borrowing power impacts the market—and make sure your loan plan is built for more than just today’s approval.
Thinking of using the First Home Guarantee? Build a borrowing strategy that works for your future, not just the auction floor.
Read Next: Mastering Debt: How to Build Wealth with Smart Borrowing
TL;DR
- The First Home Guarantee allows first-time buyers to purchase with just 5% deposit, without LMI.
- Higher income caps mean more buyers now qualify, often with stronger borrowing power.
- With supply tight, more demand can lead to increased property prices.
- First-time buyers should use this opportunity carefully, not by borrowing to their limit, but by planning for long-term affordability.
FAQ
It’s a federal scheme allowing eligible first-time buyers to avoid LMI with a 5% deposit.
More borrowing power allows buyers to offer higher bids, which drives prices up if supply doesn’t increase.
It broadens access, but may also push property prices higher by increasing buyer competition.
It increases the number of eligible buyers, which can intensify demand in an already tight market.
Use it conservatively—don’t borrow to your limit and prioritise long-term loan sustainability.
About LiveInvest
LiveInvest works with buyers and helps them use opportunities like the First Home Guarantee wisely, balancing access with long-term affordability. With tailored loan strategies and access to over 50 lenders, we guide clients toward smart, sustainable homeownership in a market where borrowing power can influence price.
