Expanded First Home Guarantee: Risks and Opportunities for Buyers

The RBA’s boss, Michele Bullock, has been warning that the expanded First Home Guarantee (or Home Guarantee Scheme) lets buyers enter the market with just a 5% deposit and no lenders’ mortgage insurance (LMI). In simple terms, you can borrow 95% of the price. Bullock told senators this pushes many loans to high LVR levels – and that is risky. “They still have a much higher loan-to-valuation ratio… if housing prices decline, [the deposit] may not cover the loan,” leaving the borrower in negative equity.

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Removing income caps also encourages bigger loans and higher debt-to-income ratios. In other words, monthly repayments jump up, so buyers must be sure they can handle them. The RBA insists that while it’s not on the hook (the government guarantees these loans), the individual still faces the risk if prices fall. As buyer’s agents at Prowealth, we see this as a signal to be very careful – but also as a chance for smart buyers who plan well.

Broker Tips: Borrow Wisely

• Assess LVR and repayments. A 95% loan may seem great, but we stress the risk. If prices fall, you could end up in negative equity. We check your budget so that repayments fit your income.
  

• Use 5% deposit smartly. Skipping LMI saves money upfront. We remind clients, though, that removed income caps can push up debt levels. We match loan size to what you can truly afford, not just what you’re allowed.
  

• Mind your debt-to-income. Even without formal caps, we guide buyers to safe debt levels. A higher debt-to-income ratio means big housing payments. We calculate borrowing power and leave room for living costs.
  

• Understand who bears the risk. The government now guarantees these loans, but if you default the cost is yours. We educate buyers on worst-case scenarios – for example, how to avoid falling behind on repayments.
  

• Plan for comfort and equity. The RBA notes many home buyers “were not comfortable allocating that much of their income into repayments”, and neither are we. We help you choose properties and loan terms that build equity, so you’re not overstretched.

Investors exit, opening doors for new buyers

RBA data on dwelling investment (new home building) highlights the tight supply of housing. Despite these risks, Prowealth believes there’s a silver lining. Bullock admits Australia has a “chronic housing undersupply” that could last years. With few new homes coming, prices stay high. But here’s the opportunity: many long-standing investors who bought at the peak are now selling up. Rising costs (land tax, maintenance) and policy changes mean some feel the risk outweighs the reward, so they’re offloading properties. That adds homes to the market and can soften competition. It’s a good time for new buyers, as experienced investors step back.

Bullock also notes that investors tend to be the first to re-enter the market. So keep an eye on that – but remember, the current scheme specifically helps owner-occupiers and can give first-timers a leg up. As buyer’s agents at Prowealth, we guide you through these changes and keep your goals front and centre.

Ready to take advantage? Our expert buyer agents will help you use the expanded Home Guarantee Scheme safely. Call Prowealth Properties on +61 433 853 248 or send us a message to discuss your goals. You can also book a free consultation on our site to check your borrowing power and start your shortlist. Let us turn today’s rising market into your best purchase.