Unlock the Secrets to Housing Affordability in Australia

Housing affordability remains one of the most pressing challenges for Australian buyers, but the combination of federal schemes, state-based concessions and strategic lending approaches has opened new pathways to ownership.

How the Australian Government 5% Deposit Scheme Changes the Affordability Equation

The Australian Government 5% Deposit Scheme allows eligible first home buyers to purchase with a 5% deposit and no LMI, and single parents with as little as 2%. Housing Australia guarantees up to 15% of the property value for first home buyers and up to 18% for single parents, bringing the combined contribution to 20% without the borrower paying insurance premiums that can run into tens of thousands of dollars. No income caps apply, and there are no annual place limits. Applications are made through participating lenders, which now include over 30 institutions across major banks and smaller ADIs.

Property price caps vary by state and location. In NSW, the cap is $1,500,000 in Sydney, Newcastle, Central Coast and other regional centres, and $800,000 in other areas. In Victoria, the cap sits at $950,000 in Melbourne and Geelong and $650,000 elsewhere. Queensland buyers face a $1,000,000 cap in Brisbane, Gold Coast and Sunshine Coast, and $700,000 in other regions. Western Australia applies an $850,000 cap in Perth and $600,000 outside the metro area. South Australia has a $900,000 cap in Adelaide and $500,000 elsewhere. Tasmania's cap is $700,000 in Hobart and $550,000 in regional areas. The ACT applies a single $1,000,000 cap territory-wide, while the NT applies $750,000 in Darwin and $600,000 elsewhere.

Consider a buyer in Brisbane with $50,000 saved who is looking at a property priced at $950,000. Under the scheme, they would meet the 5% deposit requirement without paying LMI, which would otherwise add another $30,000 or more to their upfront costs. The scheme can be paired with state stamp duty concessions, which in Queensland would reduce duty to nil on a new home at that price point.

Help to Buy and Shared Equity Pathways

Help to Buy opened in December and allows the Australian Government to contribute up to 40% of the purchase price for a new home and up to 30% for an established home in exchange for an equivalent equity stake. A minimum 2% deposit is required. From July, income limits are $103,000 for individuals and $165,000 for joint applicants or single parents, assessed on the previous year's ATO Notice of Assessment. Up to 10,000 places are available this financial year. Tasmania joined the scheme in June, completing the national rollout.

Applications are made through participating lenders, not directly through Housing Australia. The scheme cannot be combined with the 5% Deposit Scheme, but buyers can generally use state grants and stamp duty concessions alongside it. In a scenario where a Sydney buyer purchases an established apartment for $850,000, the government would contribute up to 30%, or $255,000, in exchange for that proportion of equity. The buyer would need to contribute a minimum 2% deposit of $17,000, with the remaining 68% funded by a home loan.

State-Based Stamp Duty Relief and How It Stacks Up

Stamp duty remains one of the largest upfront costs for property buyers, and state-based concessions vary widely. In NSW, first home buyers receive a full duty exemption on homes valued up to $800,000, with a sliding concession on properties between $800,001 and $1,000,000. Victoria offers a full exemption up to $600,000 and a concession up to $750,000, applying to both new and established homes. Queensland provides a duty reduction for established homes and a full concession on new homes and vacant land with no price cap for eligible buyers. South Australia restricts its duty relief to new homes and vacant land only, with no cap for contracts entered into from June last year. Western Australia now applies a single statewide threshold for all transactions, with no duty on homes valued up to $600,000 and a concessional rate on homes between $600,001 and $800,000.

The ACT removed both its property value limit and income threshold from July, meaning all eligible first home buyers now receive a full duty exemption regardless of the property price or their household income. Tasmania's duty exemption for established homes ended in June and has not been replaced. The Northern Territory offers the Territory Home Owner Discount, which provides up to $18,601 in duty relief for buyers who have not owned a home in the territory for at least 24 months.

For buyers comparing locations, these differences can shift affordability significantly. A buyer in Canberra purchasing a home valued at $1,200,000 would pay no duty under the current HBC, whereas a buyer in Melbourne purchasing at the same price would pay the standard rate with no concession.

First Home Owner Grants and Build Incentives Across Australia

First home owner grants continue to favour new builds in most jurisdictions. The NT offers the highest grant at $50,000 for new homes purchased or built under contract between October last year and September next year, with no price cap. Queensland offers $15,000 for new homes valued under $750,000. South Australia, Western Australia, Victoria and NSW each offer $10,000 for new homes, with varying price caps. Tasmania increased its grant to $20,000 for new homes from July, subject to legislative assent.

No grants are available for established homes in most states. Queensland previously offered a $30,000 grant for new homes under contracts signed before the end of June, but this has reverted to $15,000. The grants can typically be used in combination with federal schemes and state duty concessions, allowing buyers to layer multiple forms of assistance.

In practice, a first home buyer in Adelaide purchasing a new townhouse could access the $15,000 SA grant, full stamp duty relief with no cap, and the Australian Government 5% Deposit Scheme, reducing both the deposit and upfront costs substantially compared to purchasing an established home in a state with fewer concessions.

How Loan Structure Affects What You Can Afford

The structure of a home loan influences both serviceability and long-term cost. Lenders assess new borrowers' capacity to service a loan at an interest rate that is at least 3.0 percentage points above the product rate, a buffer set by APRA. A buyer applying for a variable rate loan at 6.0% would need to demonstrate they could service repayments at 9.0%. This buffer applies to new borrowers only and is not applied to existing loans when rates change.

From February, APRA activated DTI lending limits, restricting each ADI to lending no more than 20% of new owner-occupier loans and 20% of new investor loans to borrowers with a total DTI ratio of six times or greater. A buyer with a household income of $120,000 would face closer scrutiny if applying for a loan above $720,000. Bridging loans for owner-occupiers and loans for new builds are excluded from the limit.

Variable rate loans offer flexibility and allow borrowers to make additional repayments without penalty, which can reduce the loan term and total interest paid. Fixed rate loans provide certainty over repayments for a set period, typically between one and five years, but may come with restrictions on additional repayments and break costs if refinanced early. A split loan allows buyers to divide their borrowing between fixed and variable portions, balancing certainty with flexibility.

An offset account linked to the loan reduces the interest charged by offsetting the balance in the account against the outstanding loan amount. In practical terms, a buyer with a $500,000 loan and $30,000 in an offset account would only pay interest on $470,000, reducing both the monthly repayment and the overall term if repayments are maintained.

What First Home Buyers Should Know About Borrowing Capacity

Lenders assess borrowing capacity using a range of factors including income, existing debts, living expenses, employment stability and credit history. The serviceability buffer means that buyers approved for a loan today are being assessed as though rates were 3.0 percentage points higher than the current product rate. This creates a buffer against future rate rises but also restricts how much buyers can borrow.

Buyers with irregular income, such as self-employed individuals or those on variable commission structures, may need to provide additional documentation including tax returns, business activity statements and profit and loss statements. Lenders typically assess self-employed income over a two-year period, though some will consider one year of trading history in certain circumstances.

Existing debts such as personal loans, car finance and credit card limits reduce borrowing capacity even if the cards are not being used. Paying down or closing these accounts before applying for a home loan can increase the amount a lender is willing to approve. In some cases, reducing a credit card limit from $20,000 to $5,000 can add tens of thousands of dollars to a buyer's borrowing capacity.

Getting pre-approval before making an offer provides clarity on how much a buyer can afford and demonstrates to vendors that the buyer is in a position to proceed. Pre-approval is conditional and subject to final checks, including a property valuation and verification of information provided, but it gives buyers confidence when bidding or negotiating.

How Negative Gearing Changes from Next Financial Year Affect Affordability

From the 2027-28 income year, losses related to established residential investment properties purchased after 12 May last year are deductible only against other income from residential properties, including capital gains. Excess losses can be carried forward to offset residential property income in future years. Properties held at 12 May last year and new builds purchased after that date continue to allow losses to be deducted against all income, including salary and wages.

The changes do not affect owner-occupiers or buyers purchasing their first home to live in. They apply only to investors purchasing established residential property. For buyers considering whether to purchase an investment property or an owner-occupied home, the change shifts the affordability calculation. An investor who previously factored in the tax benefit of deducting rental losses against their salary may now face a longer period before the property becomes cash flow positive, particularly if purchasing in a low-yield, high-growth market.

New builds retain the existing negative gearing treatment, which may make them more attractive to investors and could influence supply and demand in the new construction market. Buyers entering the market as first home buyers remain unaffected and can still access the full suite of federal and state concessions regardless of the investment tax changes.

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