S&P Global has become the latest institution to flag concerns about Australia's First Home Guarantee scheme — warning that it risks inflating house prices and leaving buyers in a financially precarious position if the market turns. It's a headline that understandably worried a lot of first home buyers. But here's the full picture.
What S&P Actually Said
S&P's concern is a macro one: by allowing buyers to enter the market with only a 5% deposit, government schemes reduce the natural brake that deposit savings put on prices. When more buyers can enter the market at lower deposits, demand rises — and so do prices. Additionally, buyers with only 5% equity have very little buffer if prices fall even slightly.
S&P noted that in markets like SW Sydney where the scheme is heavily used, median prices in some pockets have risen disproportionately. The warning echoes what the RBA said in 2023 — demand-side subsidies can sometimes drive prices up as fast as they help buyers get in.
S&P's concern — in plain English
"The scheme gets more buyers into the market with tiny deposits — which pushes prices up — meaning the very people the scheme is meant to help have to borrow more to buy the same home."
Should This Change Your Plans?
Probably not — but it should sharpen your approach. Here's a balanced view:
- The scheme still saves you $15,000–$30,000+ in LMI — that's a real saving, regardless of macro debate
- You only need 5% deposit — getting into the market years earlier has historically offset price growth concerns
- S&P's warning is systemic — it's about what the scheme does to markets overall, not an individual buyer's risk specifically
- The risk is real if you overextend — buying at the absolute top of the $900K cap with minimal savings leaves zero buffer
The scheme is a tool. Like any tool, it works well when used correctly and can cause problems when misused. The buyers S&P is most concerned about are those who are using 5% deposit to buy at absolute maximum budget with no emergency fund and no serviceability headroom.
How to Use the Scheme Responsibly in 2026
If you're planning to use the First Home Guarantee, here's what the current environment demands:
- Don't buy at the cap for its own sake. If you can genuinely afford $850K and a good property is available at $820K — buy it. Don't stretch to $900K just because you can.
- Build an emergency fund before you buy. Your deposit covers the purchase; your emergency fund covers the surprises. Aim for 3 months of repayments in reserve.
- Choose suburbs with strong fundamentals. Transport access, employment hubs, school catchments — these underpin values even in flat markets. See our guide to best Western Sydney suburbs for first home buyers.
- Plan to hold for at least 5 years. Short-term property ownership with a 5% deposit is the risk scenario. Long-term ownership means the market has time to recover from any correction.
- Check your buffer rate. Lenders assess you at 3% above the current rate. Make sure your repayments are comfortable at today's rate, not just the minimum.
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The Price Cap Problem: What It Means in Real Numbers
One major market shift S&P flagged: buyers are increasingly being "forced to compromise" because scheme-eligible properties are harder to find. In Sydney's SW corridor, the entry-level townhouse that was $780K in early 2025 is now pushing $870K–$900K — right at the cap. This is the price inflation the scheme partly drove.
| Scenario | Purchase Price | FHG Save |
|---|---|---|
| Townhouse, Leppington | $840,000 | ~$22,000 LMI |
| Townhouse, Edmondson Park | $870,000 | ~$26,000 LMI |
| House, Campbelltown (at cap) | $900,000 | ~$29,000 LMI |
| House, Fairfield | $880,000 | ~$27,000 LMI |
Even in the worst-case S&P scenario, a $22,000–$29,000 LMI saving is significant. The question is whether you're using it to get into a home you can afford, or to stretch into a home you can't. That's the distinction that separates scheme success stories from cautionary tales.
What's Actually Changed for 2026
Here's what's concretely different about using the First Home Guarantee in 2026 vs previous years:
- Interest rates are higher — repayments on a $900K loan at current rates are about $1,100/month more than in 2021. Your budget must account for this.
- Price caps haven't increased — the $900K Sydney metro cap was set in 2023 and hasn't moved. In some suburbs, this cap is now meaningfully below median house prices.
- More competition for scheme-eligible properties — townhouses and smaller homes in the $700K–$900K bracket are hotly contested. Be pre-approved and ready to move.
- Buffer rate assessment is stricter — APRA's serviceability buffer means lenders assess you at 3% above current rates, which reduces borrowing power vs what a calculator shows.
Still Planning to Use the Scheme?
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