RBA Tips Property Boom. This Could Trigger a 15% Upswing | EP107

The Reserve Bank was forced by the parliament to release a forecast: the 5% deposit scheme that goes live today will sharply increase credit and buying demand, pushing prices higher. The lift could reach 15%. History backs this up—three past rounds of first-home buyer incentives all drove prices up a lot.

But this time is different. Not every property type or price point will rise purely because of the 5% deposit scheme. And the upswing may not last as long as in previous rounds. So, what exactly did the RBA say? What’s the logic behind it? Which suburbs are first-home-buyer grant users rushing into right now? And what's most important is that no one realises the window to get on board is only six months.

The 5% deposit scheme goes live

On the day this episode releases—Wednesday, 1 October—the government’s new 5% deposit scheme officially lands. This policy will change the rules of the Australian housing market. Put simply, from today, a first-home buyer only needs a 5% deposit to buy a property worth up to $1.5 million, and they won’t pay lenders mortgage insurance. Sounds hard to believe? The government has not only brought the start date forward, but it has also made four big changes: scrapping the cap on the number of places, removing the income limit, lifting the price caps substantially, and streamlining the application process.

The government’s “one-stop” setup is straightforward. A first-home buyer applies through any of the 38 participating lenders. The bank assesses your ability to repay, and the government provides a 15% guarantee on the purchase price, so you’re exempt from paying LMI. The whole process is simplified to four steps: check your eligibility, contact a bank or mortgage broker, submit your application and get pre-approval, then buy within 90 days. Houses or apartments, new or established—both are fine, as long as it’s owner-occupied and within the city’s price cap. The buyer still holds 100% ownership. The government isn’t a shareholder; it’s just the guarantor. There are no restrictions when you sell, which is very different from some state-based guarantee programs.

What’s even more exciting is that the higher price caps genuinely give people hope. Sydney jumps from $900,000 to $1.5 million, Melbourne from $800,000 to $950,000, and Brisbane from $700,000 to $1 million. In this range, you can already buy a decent entry-level detached house in the capitals. Take Sydney, for example: on a $1.5 million home, a 5% deposit is $75,000. Compared with the old requirement of $300,000 deposit, it’s a world apart. The government estimates that in the first year alone, first-home buyers using this scheme will save a combined $1.5 billion in LMI.

That said, the timing is sensitive. It coincides with three RBA rate cuts and a rebound in market confidence. Commonwealth Bank data shows home-loan pre-approvals are up 12% so far this year. Add the removal of the income cap, and, in theory, someone earning $1 million a year could apply. The opposition didn't like it, calling it an “uncapped program” that even “billionaires’ kids can use.” But for first-home buyers who genuinely need help—especially those pushed out by fast-rising prices—this is a lifesaver.

There’s one catch: can first-home buyers actually borrow that much? For example, in Brisbane, a $1 million purchase under the scheme means a $50,000 deposit and a $950,000 loan. What income do you need to support that? Here’s a guide. In Brisbane, a single applicant needs an annual income of $167,000; for a couple, each person needs $94,000. Across Australia, if you’re aiming for the top of the price cap, the lowest income requirement for a single applicant in Darwin is $110,000, and the highest is in Sydney at $260,000. Even Darwin’s threshold sits above the national average and well above the median. So buyers who can reach the cap are already upper-middle among wage earners. This policy can help those with lower incomes and smaller deposits, but as prices rise quickly, their window will close fast. My view: they’ve got about six months. For those on relatively higher incomes who still haven’t bought their first home, don’t overthink it—go straight to the cap. You’ll secure slightly better homes in better areas, and the long-term growth is more stable.

The RBA warns the 5% deposit scheme will push prices higher

The Reserve Bank of Australia predicted a market rise due to the 5% deposit scheme, but its stance is cautious.

At the House Economics Committee hearing on 22 September, Governor Michele Bullock and Assistant Governor Brad Jones agreed that this expanded guarantee program will “marginally” lift overall housing credit by 1–2% and put clear short-term upward pressure on prices. In plain terms, the central bank believes this policy will make prices rise faster in the near term. They chose the softer word “marginal,” but anyone paying attention can hear the warning bell.

The government clearly sees it differently. Federal Housing Minister Clare O’Neil quoted Treasury modelling that says the new scheme would lift prices by only about 0.5% after six years, adding that this isn’t a big number and several rate changes by the RBA would have a larger impact. That forecast has been widely challenged by industry economists. AMP’s Diana Mousina countered that prices could be an extra 3% higher over six years—roughly 0.5% more each year. Louis Christopher from SQM Research warns the policy could drive prices up as much as 15%.

These reports and forecasts all point to the same conclusion: entry-level properties in the major cities are likely to rise more than those in surrounding areas. Why? Because the price caps were lifted much more for the big capitals—Sydney jumped from $900,000 to $1.5 million, a 67% increase—while many regional caps rose less. Over the next 12 to 18 months, entry-level homes in Sydney, Melbourne and Brisbane are set, in percentage terms, to outpace nearby regions.

There’s a detail worth watching: the Housing Industry Association acknowledges the scheme may push prices up in the short run, but predicts new-home supply will start to catch up in about three years, at which point price growth could ease. That sounds promising, but the question is: how much will prices have risen by then? For people still saving for a deposit, those three years could be exactly when they’re pushed out of the market. The reality is harsh—the policy’s intention is to help first-home buyers, but it may end up leaving more of them priced out.

In my words, this policy is “like handing a stack of first-home buyers a credit card, letting them enter the market years early” The result is a surge in demand against limited supply, and prices are naturally forced up. This impact is most pronounced in the first few years of the rollout, as a large group who previously couldn’t buy suddenly rushes in. I’m more inclined to agree with SQM Research: the 5% deposit scheme could lift prices by 15%. Why? Because history has already set the precedent.

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The past and present of first-home grants

To understand the potential impact of the 5% deposit scheme, we need to look back at the history of Australia’s first-home buyer grants, because every time the government steps in to “help” first-home buyers, the outcome has been unexpected. The classic example is the First Home Owner Grant launched on 1 July 2000. The government gave eligible buyers a $7,000 payment, roughly 2.5% of a typical house price at the time. The original intent was to offset the pressure of the GST on young buyers, but the actual effect was a direct lift in prices—the national market rose 3% within three months.

What happened after the Global Financial Crisis in 2008 is even more interesting. To stimulate the economy, the government sharply increased the grant. A single buyer could receive up to $21,000—about 8% of Sydney’s prices back then. And the result? Instead of plunging during the crisis, Australia’s housing market enjoyed a strong upswing. The logic is simple: when buyers are handed more cash, they can bid higher, and that pushes up the entire market’s price level. Over 18 months, the national index rose 9%.

The most recent parallel came during the pandemic, when the government rolled out a suite of building and renovation incentives, such as HomeBuilder. These policies quickly lit a fire under demand and became key drivers of price growth. Within two months, prices flipped from falling to rising, and in the cycle, the market climbed 25% over 18 months. We all lived through that. In early 2024, Queensland doubled its first-home grant from $15,000 to $30,000, which immediately added fresh upward price pressure locally.

About 12 million Australians own their home, while only around 110,000 first-home buyers enter the market each year—a small share. For most voters, ongoing price growth better serves their interests, so whichever party is in power tends to back policies that support higher prices. That’s the political logic of housing policy here: it looks like help for first-home buyers on the surface, but in practice it protects existing owners. The current 5% deposit scheme is essentially a continuation of that same logic. The question is, can we use the trend it creates to accelerate our own wealth accumulation? Let’s look at which areas buyers are now targeting under the 5% deposit scheme—places that may have more room to run in the short term.

Analysis of the hottest first-home zones

Melbourne has become the battleground for first-home buyers—seven of the top ten hotspots are here. Dandenong takes first place, with the share of first-home buyers nearly double the national average, followed by Brunswick and then Moreland. This ranking is based on search activity from first-home buyers and their concentration relative to other buyers, and nearly half of the hotspots sit in Melbourne’s outer suburbs.

There’s an interesting twist: Melbourne’s appeal to first-home buyers comes from its weaker performance in recent years. Over the past five years, Melbourne’s prices rose only 17.1%, far below Brisbane’s 80.7% and Adelaide’s 80.9%. Now, as the market starts to recover, many first-timers want to seize this “value gap” and get in before prices climb further.

Sydney tells a very different story. First-home buyers mainly go to the west and south-west, where prices are more accessible. Mount Druitt, Parramatta, Liverpool, Blacktown and Campbelltown are among the most-searched areas. What stands out is the jaw-dropping growth in some first-home hotspots: South Wentworthville jumped 37.2% in a year—from $911,000 to $1.25 million; Kingswood apartments rose 24.4% to $509,000; Mount Pritchard houses climbed 20.3% to $1.1 million. These numbers make it clear that the influx of first-home buyers is indeed pushing prices up in these suburbs.

In Brisbane, first-home hotspots concentrate on the outer areas—established suburbs and growth corridors around Logan and the edges of Ipswich. In Queensland and Western Australia, 48% and 52% of first-home buyers, respectively, are considering or have already purchased new house and land packages. That’s much higher than in New South Wales and Victoria, suggesting policy incentives and relatively lower price points in those two states are drawing more first-home buyers toward new homes.

These first-home hotspots share several traits: relatively affordable prices, solid transport links, decent schools and community amenities, and meaningful upside potential. Especially after the new policy takes effect on 1 October, Melbourne’s lifted cap of $950,000 will make 64% of homes eligible—up sharply from 51% under the old cap. Suburbs like Coburg could see a fresh burst of activity.

I do want to add this: the areas I’ve just mentioned are hot right now, but this is not advice to buy there. Do these suburbs actually fit your goals? Are you investing or buying to live in? Are you a deep-value bargain hunter, or is your aim to earn steady long-term returns around the market average—letting time and compounding do the work? Have you looked at different states and territories, the right ownership structures, entry and exit strategies, tax implications, and whether your cash flow can support the plan? There’s a lot to weigh up before you decide to buy, and only you can judge what’s truly suitable.

RBA pauses on rate cuts

Just as we were about to finish writing the episode, the Reserve Bank decided to pause its rate-cut cycle, holding the cash rate at 3.60%. This is the first “pause” since the last cut in August. But the data behind that choice is a little unsettling. The August inflation number released on 24 September shows the monthly CPI jumping from 2.8% in July to 3.0%—the highest since last July. That 3.0% figure lands right at the top of the RBA’s 2–3% target band, and the market is reassessing the future of interest rate cuts.

Our monthly webinar the “APS Market Insights” series is happening tomorrow, 2nd October at 8 PM Sydney time. In this live session, we’ll break down everything that’s been happening in the Australian housing market throughout September, including key trends, local economic fundamentals, and what’s happening globally that could affect property prices in Australia. We’ll wrap up with a live Q&A. Seats are limited, so make sure to register now on our website — or just click the link in the description below.

Watch the video version of the blog on YouTube.

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