From 1 October 2025, the federal government will expand its Home Guarantee Scheme (HGS), with new changes that promise to make it easier for first home buyers to get on the property ladder.
The headlines sound appealing – unlimited scheme places, no income caps, higher property price caps and deposits as low as 5% without lenders mortgage insurance (LMI).
But when you look at the finer details of a home purchase, does this reform really make the dream of homeownership easier? Or is it more smoke and mirrors?
What’s changing from 1 October?
Under the new rules:
- First home buyers will be able to purchase with just 5% deposit
- They won’t need to pay LMI, which can save thousands of dollars
- The purchase price cap in Sydney will jump from $900,000 to $1.5 million
- There are no limits on places or income thresholds, so anyone buying their first home can apply
The hidden costs
While saving a smaller deposit sounds like a shortcut to the property ladder, it comes with trade-offs:
Borrowing more
A lower deposit means a bigger loan. For example, on a $1.5 million home, a 5% deposit is $75,000. That leaves the buyer borrowing $1,450,000 and paying interest on it for decades. While the scheme removes the cost of LMI, it doesn’t reduce the overall cost of the loan.
Stamp duty remains
Stamp duty hasn’t changed – and it’s still one of the biggest upfront costs. In New South Wales, stamp duty on a $1.5 million property is $64,512. Even a slightly more affordable home at $1.3 million, you will still be required to pay over $53,000 in stamp duty.
While the state government does offer concessions or exemptions for stamp duty, the thresholds for these are well below the HGS property price thresholds, and largely below median Sydney dwelling prices.
A stamp duty exemption is available for homes up to $800,000, and a concession may apply for homes up to $1 million. But, according to Cotality, median dwelling values in Sydney reached $1,224,341 in August.
So, while the government is “helping” by removing LMI, it is also pushing first home buyers into a price bracket where they will be hit with tens of thousands of dollars in stamp duty – a cost that must be paid upfront.
Higher repayments
With interest rates still high by recent standards, monthly repayments on these larger loans will be significant, and first home buyers may find themselves stretched thin. Even if rates ease more in the future, history shows that lower interest rates usually spark more buyer activity and drive property prices higher, meaning first home buyers may still end up paying more overall.
Is this really help?
The expanded scheme may, in practice, benefit banks and vendors as much as first home buyers. With more people able to buy at higher price points, sellers may see stronger demand for homes in the $1–1.5 million bracket. Lenders, too, will see larger loan books.
First home buyers, on the other hand, still face the same challenges:
- Saving not only a deposit but also stamp duty and other costs
- Managing larger loans in a market where affordability is already stretched
- Competing against higher-income buyers now eligible under the scheme
Housing affordability remains one of the biggest issues facing Australians. While the government promotes this scheme as cutting “years” off the time it takes to buy, it doesn’t address the underlying issues: high prices, limited supply and tax burdens like stamp duty.
Thinking about using the new Home Guarantee Scheme? Outwest Legal can help you understand the fine print, from contracts to stamp duty and hidden costs. Get in touch today for clear, practical legal advice before you buy.
