Deposit Scheme drives shift in affordability

After improving throughout most of 2025, housing affordability turned down again in the December quarter, the Real Estate Institute of Australia (REIA)) announced this week.

REIA’s latest Housing Affordability Report for the December quarter 2025 shows that affordability declined for the first time since December 2024, driven largely by a significant influx of first-home buyers taking advantage of the Australian Government’s 5 per cent Deposit Scheme introduced in October 2025.

While the scheme has reduced upfront barriers to entry, it has contributed to larger loan sizes relative to income, impacting overall affordability, the report suggests.

The changes, which were instigated on October 1, 2025, included the scrapping of caps on scheme places and annual income, while price thresholds were lifted significantly to more closely match median home values in individual markets around Australia.

REIA President Jacob Caine says while the scheme has helped more Australians enter the housing market, it has also had an adverse impact on affordability, as buyers take on larger and larger loans.

“The expansion of the 5 per cent Deposit Scheme has clearly succeeded in enabling more Australians, particularly first-home buyers, to enter the housing market,” he said.

“However, the consequence has been that many new buyers have been able to commit to larger loans under the scheme, which has increased the proportion of household income required to service a mortgage.”

The REIA measures affordability by comparing the cost of servicing a standard variable-rate mortgage on an average home in different parts of Australia to the combined median household income.

This latest report shows the average home loan repayment now represents almost half (49.2 per cent) of the median family income, reflecting a decline in housing affordability of 2.2 per cent over the quarter.

Despite the quarterly decline, affordability remains 0.7 per cent better than in the December quarter of 2024, when higher interest rates placed greater pressure on borrowers.

Affordability declined in all states and territories, with Western Australia seeing the biggest fall at 3 per cent. There’s also a wide divergence across the country, with households in New South Wales needing 57.3 per cent of household income to cover the mortgage repayments.

That’s nearly double the figure in the ACT, where 32.8 per cent of household income needs to be set aside for mortgage repayments.

The report noted an above-average number of first-home buyers were active in the quarter, clearly reflecting the impact of the enhanced 5 per cent Deposit Guarantee scheme in allowing many prospective buyers to purchase a home sooner.

“Reducing the deposit hurdle is helping more Australians achieve home ownership”, Caine said, adding, however, that ‘policies that stimulate demand must be considered alongside the broader housing affordability picture’.

“Demand-side initiatives (such as the 5 per cent Deposit Guarantee Scheme) can support home ownership, but improving housing affordability ultimately requires supply to keep pace with demand.

“Ensuring Australia delivers enough housing will remain critical to improving affordability outcomes in the years ahead”, he concluded.