A significant new housing policy has been proposed in the lead-up to the 2025 federal election. Prime Minister Anthony Albanese has unveiled Labor's plan to address housing affordability during their campaign launch in Perth today. Let's analyse what this proposal could mean for first home buyers if implemented.
The 5% deposit scheme: open to everyone
The headline announcement is Labor's plan to expand their existing First Home Guarantee scheme to all Australian first home buyers - with no income caps or limits on available places. This is huge.
Here's what you need to know:
- First home buyers can purchase with just a 5% deposit
- The government will guarantee up to 15% of the loan value
- No more lenders mortgage insurance (LMI), saving the average buyer around $23,000
- Higher property price caps tailored to each city and region
- Implementation starts January 2026, if Labor is re-elected
For perspective: the median home price in Australia is now $820,000. A 5% deposit on that is $41,000, compared to the traditional 20% deposit of $164,000. The last time $41,000 was enough for a 20% deposit was back in 2002. That's the scale of change we're talking about.
New price caps: city by city breakdown
The policy includes significantly higher property price caps for each capital city and region. Here's what you could potentially buy with a 5% deposit:
Regional centers will have the same caps as their respective capital cities, while other regional areas will have lower thresholds.
What this means for borrowers
- Faster path to home ownership: Saving a 5% deposit instead of 20% could cut years off your home buying timeline.
- No more LMI: Lenders mortgage insurance can add tens of thousands to your costs - this policy eliminates it for first home buyers.
- Parents can keep their money: The policy could reduce the need for the "Bank of Mom and Dad" to chip in for deposits, allowing parents to focus on their own retirement.
- Accessible in all price ranges: The higher price caps mean even buyers in expensive markets like Sydney can benefit.
- Normal lending criteria still apply: You'll still need to meet regular home loan requirements - the policy just removes the deposit hurdle.
Market analysis: potential impacts and considerations
This proposal represents a significant intervention in the housing market. If implemented, a universal 5% deposit scheme would substantially change how many Australians approach home buying.
The policy attempts to address both demand (through deposit guarantees) and supply (via new housing construction). However, housing market interventions often come with complex economic effects.
Housing Minister Clare O'Neil claims Treasury modeling suggests the plan won't significantly impact house prices, targeting "a pretty narrow band of new first home buyers." However, economists have varied opinions on such interventions, with some suggesting government guarantees could potentially contribute to price inflation in certain market segments. Others note that the increased supply element could help balance any inflationary pressure.
100,000 new homes exclusively for First Home Buyers
The Labor party unveiled the announcement as part of a wider policy to address housing accessibility - with a $10 billion investment to build 100,000 homes exclusively for first home buyers.
Construction would begin in 2026-27, with the first buyers moving in from 2027-28. The rollout will involve partnerships with state governments, developers, and community housing providers.
Competing proposals
Both major parties are putting forward housing policies ahead of the May 3 election:
Labor's approach focuses on government guarantees for smaller deposits and direct investment in housing supply specifically for first home buyers.
The Coalition's alternative, announced by Peter Dutton on the same day, would allow first-time buyers of newly built homes to deduct mortgage payments from income taxes. This tax-based approach aims to make mortgage repayments more affordable rather than focusing on the initial deposit hurdle.
These competing policies highlight how housing affordability has become a central issue in this election campaign, with different approaches to addressing the challenges.
The bottom line
These proposed policies could significantly impact how Australians approach home buying. The 5% deposit scheme, if implemented, would address the initial deposit hurdle many face, while the supply initiative aims to create more housing stock specifically for first-time buyers.
Any major housing policy changes will depend on the election outcome and subsequent implementation, with potential benefits and economic impacts still to be fully analysed.
Want to understand how these proposed changes might affect your personal home buying journey? Our team can help you navigate the current market while planning for potential policy shifts after the election.
Disclaimer: All proposals discussed are election commitments that would require the respective party winning government and successfully implementing their programs as outlined. This analysis is provided for informational purposes only and does not constitute financial advice.
Need help navigating the current mortgage market while understanding how potential policy changes might affect you? Book a consultation with one of our mortgage specialists today.
