How the First Home Guarantee Expansion Will Impact Property Markets in 2025-2026

The expanded First Home Guarantee scheme launched on October 1st, 2025, isn't just changing the game for first-time buyers - it's reshaping the entire property market landscape. Whether you're a prospective buyer, current homeowner, or investor, understanding these market impacts is crucial for making informed decisions.

The Price Impact: What the Numbers Tell Us

While Treasury has advised the government that the scheme will increase home prices by approximately 0.5% over six years, independent research suggests the real-world impact could be significantly greater.

Research commissioned by the Insurance Council of Australia estimates that this policy change could:

·         Increase annual home sales by 3.8% to 7.1%

·         Drive up national property prices by 3.5% to 6.6%

·         Push prices up by as much as 9.9% in markets particularly popular with first-home buyers

To put this in perspective, Australia's national median home price has already risen from $815,000 to approximately $855,000 in 2025, driven largely by interest rate cuts. Some forecasts predict the median could reach above $940,000 by the end of 2026 - that's $85,000 higher than current values.

Which Markets Will Feel the Impact Most?

The scheme's effects won't be distributed evenly across Australia. Here's what we're likely to see:

High-Impact Areas

Outer-ring growth corridors in Sydney, Melbourne, and Brisbane are expected to experience the most significant pressure. These areas typically offer:

·         Relatively affordable prices under or close to the new caps

·         Good infrastructure and connectivity

·         New developments attractive to first-home buyers

Lifestyle-driven markets like Geelong, Gold Coast, and Newcastle will likely see increased competition. These cities serve as spillover destinations for buyers priced out of metropolitan hubs while still offering strong lifestyle amenities and connectivity.

Lower-Impact Areas

Affordable regional areas that were already well below the price caps won't see as much change, as first-home buyers have already been active in these markets.

Ultra-premium suburbs with prices well above the scheme's caps will remain largely immune from first-home buyer activity and the associated market pressures.

The Competition Factor

The removal of income caps and participant limits means a substantial influx of new buyers entering the market simultaneously. Research from Domain indicates that while approximately 110,000 people buy their first home each year (with about 50,000 already accessing the previous income-capped scheme), an additional 30,000 buyers are expected to use the expanded version.

As Eliza Owen, head of research at Cotality, has noted, there will almost certainly be a short-term boost to home values up to the scheme's threshold, particularly coinciding with interest rate falls and ongoing tight housing supply. (This is an expert opinion, not Phil's personal analysis).

What This Means for Different Buyer Groups

First-Time Buyers Currently Saving

The good news: The scheme dramatically reduces deposit wait times. Borrowers in Melbourne, Brisbane, and Adelaide who previously would have needed to save for over eight years can now be ready in approximately two years.

The challenge: You'll be competing with many other first-time buyers, potentially driving up prices in entry-level markets and intensifying auction competition.

Strategy tip: Focus on markets slightly outside the main first-home buyer hotspots, or consider properties that need minor cosmetic work (which many first-timers avoid).

Current Homeowners Looking to Upgrade

The impact: If you own property in outer-metro growth corridors or lifestyle markets, you may see stronger capital growth over the next 12-24 months as demand increases.

The opportunity: This could be an advantageous time to sell if you're planning to upgrade to ultra-premium areas less affected by the scheme.

Property Investors

The scheme creates both opportunities and challenges for investors:

Opportunity: Purchasing before the October 2025 launch allowed investors to avoid bidding wars with government-backed first-home buyers. However, for those looking to buy now, understanding which markets will be most impacted is crucial for strategic decision-making.

Challenge: Increased competition in traditional investment areas (particularly outer-metro corridors popular with renters) may drive up acquisition costs and compress yields.

Strategic consideration: As one industry analysis suggests, the key is not to act fast, but to act strategically. Investors should revisit their investment strategy to determine whether now is the right time to buy in affected markets or whether waiting might allow them to avoid the noise and stay focused on longer-term portfolio goals. (This perspective is drawn from industry commentary, not Phil's personal investment advice).

The Broader Housing Affordability Question

There's an important irony at play: a scheme designed to improve housing affordability may actually contribute to making homes less affordable overall.

Research from Lateral Economics suggests that home ownership rates may only increase marginally - from 66% to 67% - as many guarantee users would have purchased a home anyway through other means (paying LMI or receiving family support).

Meanwhile, people on low incomes who cannot already afford to service a home loan won't see their borrowing power increased. If the scheme significantly boosts house prices as predicted, these potential buyers could actually be worse off.

Looking Ahead: Market Dynamics Through 2026

Several factors will interact to shape the market over the coming months:

Interest rate environment: With three rate cuts already implemented in 2025, further easing is possible. This, combined with the scheme's expansion, creates a powerful demand driver.

Supply constraints: Housing supply remains tight in many markets, meaning increased demand will translate more directly into price growth rather than being absorbed by increased supply.

Price thresholds: The scheme's caps may create "ceiling effects" where properties just under the threshold experience disproportionate price growth as buyers maximize their government-backed borrowing capacity.

What Should You Do?

Whether you're buying your first home, upgrading, or investing, here's what matters:

1.      Understand the timing: We're in a period of rapid market change. Decisions made in the next 6-12 months will occur in a very different context than those made 18-24 months from now.

2.      Look beyond the headlines: The scheme's price caps don't mean you can borrow that much. Your borrowing capacity depends on your income, expenses, and the bank's assessment of what you can afford.

3.      Consider market positioning: If buying in high-impact areas, factor in that prices may already be rising in anticipation of increased demand. In lower-impact areas, you may have more negotiating power.

4.      Think long-term: Short-term market movements matter, but your property decision should align with your longer-term financial goals and life plans.

Getting Professional Guidance

The expanded First Home Guarantee scheme is creating a complex and rapidly evolving market environment. Whether you're entering the market for the first time or making your next property move, professional guidance can help you navigate these changes strategically.

I work with buyers across all these categories and can help you understand how these market dynamics specifically impact your situation. Let's discuss your goals and develop a strategy that makes sense for your circumstances - not just what the headlines suggest.

This blog provides general market analysis and should not be considered personal financial advice. Market conditions can change rapidly, and individual circumstances vary significantly. Please consult with a qualified mortgage broker or financial advisor about your specific situation.