New figures have shown that properties that sit below the 5 per cent Deposit Scheme’s price caps are racing ahead, squeezing the pool of eligible suburbs nationwide.
Cotality has warned that the federal government’s expanded 5 per cent Deposit Scheme is supercharging demand at the lower end of the housing market, with cheaper homes recording markedly faster price gains than more expensive properties since the scheme was broadened on 1 October.
Using its estimates of dwelling values against the scheme’s price caps, Cotality found that homes sitting under the thresholds rose 6.7 per cent in the first six months of the expanded program, compared with a 3.6 per cent rise for properties above the caps.
Over that period, Cotality said that values for under‑cap stock were outpacing higher‑priced homes in 81 of 88 SA4‑level markets, underscoring how widespread the divergence had become.
Cotality research director Tim Lawless and his colleague, principal quantitative analyst Thomas Clarkson, said that the turning point arrived even before the scheme formally opened.
They noted that price trends began to separate in late August, around the time the expansion was announced, with momentum in the sub‑cap segment already building in the weeks leading up to 1 October.
“Anticipation of increased competition and price pressure after the scheme’s launch has likely brought forward demand from those who didn’t necessarily need to rely on the deposit guarantee,” they said.
Serviceability squeeze funnels buyers downmarket
Cotality also highlighted the role of borrowing constraints in steering demand towards cheaper stock.
They said that many would‑be purchasers had little choice but to hunt in lower price brackets where their borrowing capacity was still stretched.
“With higher home values and elevated interest rates, serviceability constraints are likely to be pushing demand toward lower‑priced, more affordable properties,” they said.
Investor behaviour is adding another layer of competition, with Cotality pointing out that investors were increasingly active in the same price ranges as scheme‑supported buyers.
Sydney leads divergence as regional pattern broadens
While the broad theme is consistent across almost every capital and regional market, the scale of the divergence varies from city to city.
Sydney showed the sharpest split, with homes under the price cap gaining 4.1 per cent over six months, while those above the cap fell 1.1 per cent, creating a 5.2 percentage point gap between the two tiers.
In Melbourne, dwellings above the caps declined 1 per cent over the period, whereas under‑cap properties rose 1.6 per cent.
In the faster‑growing markets of Brisbane, Adelaide, and Perth, higher‑value properties are still climbing, but cheaper homes are climbing faster.
Brisbane’s above‑cap segment surged 10.1 per cent compared with 13.3 per cent under the caps, Adelaide recorded 7.2 per cent versus 9.4 per cent, and Perth logged 14.6 per cent growth above the caps against 18.2 per cent below them.
Hobart followed the same pattern, with 4.8 per cent growth for pricier dwellings and 7.3 per cent for those within the scheme’s thresholds, while in Darwin, above‑cap homes rose 7.9 per cent versus 10.8 per cent under the caps.
Cotality noted that regional Western Australia and the Northern Territory were the only areas that did not fit the overall pattern of under‑cap outperformance.
Shrinking pool of eligible suburbs
The surge in lower‑priced segments is steadily pushing more areas above the scheme’s limits.
At the end of September 2025, 48.6 per cent of suburbs nationally had a median house value below their local price cap, and 92.7 per cent had a median unit value below the cap.
By the end of March, the share of suburbs with house medians under the caps had fallen to 39.5 per cent, while the unit figure had eased to 89.1 per cent.
Darwin, which did not receive a higher cap in October, has seen the proportion of suburbs with a median house value below the $600,000 threshold tumble from 32.4 per cent in September to just 10.3 per cent in March.
Perth is close behind, with only 11.6 per cent of suburbs now recording a median house value below the caps, down from about a third six months earlier.
Sydney, despite its reputation for high prices, currently has the highest proportion of suburbs where median house values sit under the cap.
Scheme’s power expected to fade
Lawless and Clarkson cautioned that as more markets were pushed beyond the caps, the effectiveness of the guarantee was likely to diminish.
“Overall, it is likely first home buyer deposit guarantee will gradually lose its stimulatory power, with more homes exceeding the price thresholds and a growing portion of prospective buyers running into a finance hurdle that is set to rise further,” they said.
They concluded that house hunters using the guarantee would increasingly be pushed towards the outer edges of the capitals or into regional centres where price points remain lower.
[Related: Market shifts forcing deposit scheme users to compromise]
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