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With fanfare, the Federal Government announced on October 1st that it has expanded the 5% deposit scheme.  The rules for the First Home Buyer Guarantee now allow eligible buyers to avoid lender's mortgage insurance and to purchase a property with just a 5% deposit.  And for those previously excluded, the strict income caps will now disappear, providing an opportunity for more potential buyers.  

A win for first home-buyers! Alas no! 

As many of us who have been around longer will know that historically, politically driven economic policy that throws incentives or cash into the property market has led to property prices increasing. 

Already this is happening.  

Bringing forward demand from others that otherwise would not be in the market simply expands demand. More buyers are competing for the same stock. A first home buyer might be saving on paying for lender's mortgage insurance under the scheme, but that saving is offset by rising property prices. 

When supply is a problem, that is the number of houses for purchase, prices go up. It’s economic policy #101, supply & demand. 

If you follow the property market, you will see it is complex and complicated, with many factors affecting it. It is peppered with a history of cycles, booms and busts. As a commodity in a capitalist free market, housing is at the mercy of the invisible hand of economic policy, which produces winners and losers.  

Takeaway: If you are a first home buyer with a low deposit, do your homework, and seek professional advice if needed.  For most, this is a major decision with huge financial implications.  

Check all the finer details of the scheme before acting. Check also as individual States may offer concessions, such as stamp duty costs.