The Inconvenient Truth About the 5% Deposit Scheme: Why Property Prices Will Rise
The government’s 5% Deposit Scheme was designed to help first home buyers (FHBs) enter the market without the burden of saving a huge deposit or paying Lenders Mortgage Insurance (LMI). On the surface, it looks like a dream come true. But here’s the inconvenient truth: this scheme is going to push property prices higher than they should be.
Why? Because the fundamentals of supply and demand never lie.
When more people are suddenly able to buy (higher demand) and there aren’t enough properties being built (limited supply), the result is simple: prices rise.
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What’s Changing in January 2026?
From 1 January 2026, the scheme changes dramatically, and this is where the pressure builds:
1. No more income limits – Today, individuals earning over $125,000 (or couples over $200,000) are excluded. In January, that barrier disappears. Suddenly, households earning $250,000, $400,000, or even $500,000 can compete in the same pool with just a 5% deposit.
2. Higher price caps – In NSW, the property cap jumps from $900,000 to $1.5 million. That turns the scheme from “entry-level starter” into “serious family home territory.” This will pull demand upward into higher price brackets.
3. Bigger borrowing capacity – With multiple rate cuts expected and borrowing power projected to jump at least 15%, buyers will be able to stretch further, fueling competition and bidding wars.
4. Market momentum – If interest rates fall below 3%, confidence will flood back, and momentum alone could accelerate prices sharply.
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I’ve Said It Before — And It’s Happening Again
When I spoke with ABC News four years ago, and again just last year, I shared a message that still holds true today:
👉 Property prices in Australia will keep increasing — not because of interest rates, but because of supply and demand.
High interest rates slow down the economy and hurt everyday Australians who don’t have investments. But they don’t stop the property market from rising in the long run. Those who own quality assets are usually insulated and continue to build wealth, while those waiting on the sidelines face an even steeper entry point later.
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Here’s where responsibility comes in.
Yes, the scheme removes the 20% deposit hurdle and avoids LMI. But that doesn’t mean you should rush into buying any property just because you can.
Think of it like the share market. You wouldn’t buy any share just because you had the money — you would research and choose quality. Property is no different. Buying the wrong property in the wrong location could cost you far more than waiting for the right one.
So, be a responsible borrower:
• Focus on quality assets that will hold and grow in value.
• Look beyond the obvious hotspots to find hidden opportunities.
• Remember: the right investment builds wealth, the wrong one traps you.
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Final Word
The 5% Deposit Scheme is both a blessing and a curse. It lowers barriers for buyers, but it also fuels demand in a market where supply is already struggling. That means property prices will likely rise higher than they should.
I’ve said it before and I’ll say it again: property prices are inevitable to rise — and no interest rate change can stop that.
The key is not just to buy — but to buy well.
👉 Let’s have a conversation: How are you preparing to secure a quality property investment before the January rush?
