First Home Boost: Dream or Debt Trap?

For years, getting into the property market has felt impossible for many first home buyers. Saving a deposit big enough to satisfy the banks — all while rents skyrocket and living costs keep rising — has been a constant uphill battle. So when the government announces an expansion to its 5% deposit scheme, it sounds like the breakthrough everyone has been waiting for. But is this a dream or a Debt trap?

From October 2025, the scheme gets a major makeover:

• No income cap – meaning high earners can now take part.
  
• No limit on spots – no more racing to secure a place before the allocation runs out.
  
• Higher property price thresholds – Sydney jumps from $900,000 to $1.5 million, Melbourne from $800,000 to $950,000, Brisbane from $700,000 to $1 million, with similar increases across the country.
  

On paper, that looks like a dream deal: smaller deposit, bigger budget, and fewer barriers. But while the headlines sound exciting, there are reasons to be cautious.

The Risk Behind the Reward

Borrowing $1.5 million with just a 5% deposit is a massive commitment. Sure, the scheme is designed to help first home buyers break into the market sooner, but the reality is that it also pushes people to take on huge debts.

Let’s break it down: a 5% deposit on a $1.5 million property is $75,000. That sounds manageable compared to saving $300,000 for a 20% deposit. But it also means you’re borrowing $1.425 million. When interest rates rise — or even stay where they are — those repayments can quickly become overwhelming.

It’s important to remember that this scheme is backed by taxpayers. That means if things go wrong, the government — and by extension, the public — carries the risk. This isn’t just about helping individuals into the housing market; it could ripple across the entire economy if borrowers start struggling in large numbers.

Why the Timing Raises Eyebrows

The concern isn’t just the size of the debt, but also the economic environment we’re in. Inflation ticked up to 2.8% in July, which is right at the top of the Reserve Bank’s target range. That doesn’t scream “all clear” — it’s more like a flashing warning light.

At the same time, the jobs market isn’t as solid as the headlines suggest. Yes, employment figures look strong, but much of the recent growth has been driven by public sector hiring, not private business investment. If you strip away the government’s contribution, the jobs picture looks a lot shakier.

Add record immigration into the mix — which boosts demand for housing and services — and what we’re left with is an economy running on short-term stimulants rather than genuine, sustainable growth.

What Could Go Wrong

Picture this: inflation continues to rise, forcing the Reserve Bank to keep rates high or even lift them further. Meanwhile, major employers follow in CSL’s footsteps and announce job cuts. Suddenly, households who borrowed to the max under this scheme are stretched to breaking point.

If enough borrowers struggle to make repayments, it doesn’t just affect them individually. It puts stress on the entire housing market and the financial system — a dynamic uncomfortably similar to what happened during the U.S. subprime mortgage crisis.

Australia isn’t America, and our lending standards are tighter, but history has shown that when too many people take on too much debt, cracks eventually appear.

How to Approach the Scheme Safely

So, does that mean first home buyers should steer clear of the scheme altogether? Not necessarily. It can still be a valuable stepping stone — but only if you approach it wisely.

Here are a few things to keep in mind:

1. Don’t max out your budget. Just because you can borrow $1.5 million doesn’t mean you should. Stick to a price range where repayments are comfortable, even if interest rates rise.
   
2. Keep a buffer. Unexpected costs happen — job changes, interest rate hikes, medical expenses. Having savings set aside can prevent stress later.
   
3. Think of it as a first step, not the finish line. Your first property doesn’t have to be your forever home. Get a foot on the ladder, build equity, and upgrade later when your financial position is stronger.
   
4. Focus on long-term stability. Buying conservatively means you’re less likely to be forced into selling if the economy hits turbulence.
   

The Bottom Line

The government’s 5% deposit scheme expansion might look like a golden ticket, but it comes with strings attached. For some buyers, it will make home ownership possible sooner — and that’s a positive. But for others, it risks creating a debt burden that’s hard to escape.

If you’re considering using the scheme, approach it with clear eyes. Don’t treat it like a once-in-a-lifetime bargain. Instead, use it carefully as a way to get started without overextending yourself. That way, you’ll be building a future you can actually afford — not signing up for years of financial stress.

Chris Tolevsky is a Specialist Medical Accountant with over 30 years experience in the medical  and allied health fields.  He provides expert guidance on tax strategies, building and protecting wealth . If you’re interested in discussing how we can help you please book a complimentary consultation.

Disclaimer: This article contains general information only . It is not designed to be a substitute for professional advice and does not take into account your individual circumstances, so please check with us before implementing this strategy to make sure it is suitable