How Property Price Caps Influence Your Borrowing Power in Australia: A First Home Buyer’s Guide

For many aspiring homeowners in Australia, the dream of stepping onto the property ladder is often accompanied by a maze of financial jargon, eligibility criteria, and government initiatives. Among the most crucial, yet frequently misunderstood, elements are property price caps. These caps, set by the government for various first home buyer schemes, directly influence not only the properties you can consider but also, indirectly, how much you can actually borrow from lenders. At InvestorsChoice, we believe in empowering first home buyers with clear, actionable insights to navigate this complex landscape.

With significant changes to the Australian First Home Guarantee (Home Guarantee Scheme) effective October 1, 2025, understanding these caps and their impact on your borrowing capacity is more critical than ever.

Key Takeaways

Property Price Caps are Crucial: These caps define the maximum property value eligible for government schemes like the First Home Guarantee, directly impacting your property search and borrowing limits.
New First Home Guarantee (FHG) from Oct 1, 2025: The expanded FHG removes income caps and limits on available places, making homeownership more accessible with just a 5% deposit.
Increased Property Price Caps: The government has increased property price caps in many areas to align with average house prices, offering more choices for eligible buyers.
Avoid Lenders Mortgage Insurance (LMI): The FHG helps eligible buyers avoid LMI, saving significant costs and making homeownership more affordable.
Lender’s Criteria Still Apply: While government schemes offer support, your borrowing capacity is ultimately determined by your lender’s assessment of your income, expenses, and creditworthiness.
Strategic Planning is Key: Understanding both government schemes and lender requirements is essential for a successful first home purchase. A mortgage broker can provide invaluable guidance.

Understanding Property Price Caps: More Than Just a Limit

Property price caps are not merely arbitrary figures; they are a fundamental component of government initiatives designed to support specific segments of the housing market, particularly first home buyers. These caps serve as a ceiling on the purchase price of a property that can be acquired under a particular scheme. For instance, if a scheme has a property price cap of $700,000, any property you wish to purchase that costs more than this amount will not be eligible for the benefits of that scheme, regardless of your personal financial situation. This is a critical distinction, as it means that even if a bank is willing to lend you $800,000, you might still be restricted to a $700,000 property if you intend to leverage a government guarantee.

The rationale behind these caps is multifaceted. Firstly, they aim to direct government support towards more affordable housing options, preventing the schemes from inadvertently inflating property prices in the higher end of the market.

Secondly, they ensure that the benefits of these programs reach those who genuinely need assistance to enter the market, rather than subsidising luxury purchases. Lastly, they help manage the financial exposure of the government by limiting the value of the properties for which it provides guarantees.

Historically, these caps have been a point of contention, with many arguing that they often lag behind the rapid appreciation of property values in major metropolitan areas, effectively pricing out many first-home buyers from desirable locations. However, the recent announcement by the Federal Government, effective from October 1, 2025, directly addresses this concern by increasing property price caps in various areas to better align with average house prices. This adjustment is a welcome change, offering first home buyers a broader range of eligible properties and, consequently, more realistic opportunities to purchase in their preferred locations.

The Expanded First Home Guarantee (FHG): A Game Changer

From October 1, 2025, the Australian First Home Guarantee (formerly the First Home Loan Deposit Scheme) is undergoing significant expansion under the government’s Housing Australia initiative. These changes are designed to make homeownership more attainable for a wider cohort of first-home buyers. Let’s delve into the key modifications and their implications:

No Income Cap

Perhaps one of the most impactful changes is the removal of the maximum annual income cap. Previously, eligibility for the scheme was restricted to individuals earning up to a certain income threshold. This often meant that many aspiring first home buyers, particularly those in dual-income households or in professions with higher earning potential, were excluded from the scheme, despite facing significant challenges in saving a substantial deposit. The removal of this cap broadens the eligibility criteria considerably, allowing more Australians to access the benefits of the FHG. This change acknowledges that even higher-income earners can struggle with the deposit hurdle in today’s property market, especially in high-cost areas.

No Limit on Places

Another groundbreaking change is the elimination of limits on the number of government guarantees available. In the past, the FHG operated on a limited release basis, with a finite number of places allocated each financial year. This created a highly competitive environment, often leading to a rush for applications and disappointment for those who missed out. The removal of this cap transforms the FHG into a more accessible and predictable scheme, ensuring that all eligible first-home buyers who meet the criteria can access the guarantee without the pressure of a quota system. This provides greater certainty and reduces the stress associated with applying for the scheme.

5% Deposit

The core benefit of the FHG remains the ability to purchase a property with a deposit of just 5% of the property’s value. This is a significant advantage for first home buyers, as saving a 20% deposit, traditionally required to avoid LMI, can take many years, especially with rising living costs and property prices. The government guarantees a portion of the home loan, bridging the gap between your 5% deposit and the 20% threshold, thereby enabling you to enter the market sooner.

Avoid Lenders Mortgage Insurance (LMI)

One of the most substantial financial benefits of the FHG is the avoidance of Lenders Mortgage Insurance (LMI). LMI is a one-off, non-refundable premium that lenders charge when a borrower has a deposit of less than 20% of the property’s value. It protects the lender, not the borrower, in case the borrower defaults on the loan. LMI premiums can amount to tens of thousands of dollars, adding a significant hidden cost to the home-buying process. By guaranteeing a portion of the loan, the FHG effectively removes the need for LMI, translating into substantial savings for first-home buyers. This saving can be redirected towards other essential costs associated with buying a home, such as stamp duty, legal fees, or even towards a larger deposit, further strengthening your financial position.

Higher Property Price Caps

As highlighted earlier, the increase in property price caps is a crucial update. These caps are now set in line with average house prices in metro and lifestyle areas, reflecting the current market realities more accurately. This means that first home buyers will have a wider selection of properties to choose from within the scheme’s parameters, making it more feasible to purchase in areas that genuinely meet their needs and preferences. For example, NSW capital city and regional centres see a jump from $900,000 to $1,500,000, a substantial increase that opens up many more opportunities.

Location	Current Property Price Cap
NSW – capital city and regional centre*	$900,000
NSW – other	$750,000
VIC – capital city and regional centre*	$800,000
VIC – other	$650,000
QLD – capital city and regional centre*	$700,000
QLD – other	$550,000
WA – capital city	$600,000
WA – other	$450,000
SA – capital city	$600,000
SA – other	$450,000
TAS – capital city	$600,000
TAS – other	$450,000
ACT	$750,000
NT	$600,000
Jervis Bay Territory and Norfolk Island	$550,000
Christmas Island and Cocos (Keeling) Islands	$400,000
* Regional centres are (1) in New South Wales – Illawarra, Newcastle and Lake Macquarie, (2) in Victoria – Geelong, and (3) in Queensland – Gold Coast and Sunshine Coast.

Regional First Home Buyer Guarantee Closure

With the expansion of the broader First Home Guarantee, the specific Regional First Home Buyer Guarantee will close to new applications. Its functions are now absorbed into the expanded FHG, streamlining the process and ensuring a unified approach to supporting first home buyers across both metropolitan and regional areas. This simplification reduces complexity and ensures that regional buyers still benefit from the scheme’s advantages under the broader umbrella.

How Property Price Caps Affect Your Borrowing Capacity

While the First Home Guarantee addresses the deposit hurdle and LMI, it’s crucial to understand that property price caps still play a significant role in determining your actual borrowing capacity. Your borrowing capacity is the maximum amount a lender is willing to lend you, based on their assessment of your financial situation. This assessment takes into account various factors, including your income, existing debts, living expenses, and credit history. Even with the FHG, lenders will still apply their stringent lending criteria.

Here’s how property price caps interact with your borrowing capacity:

Scheme Eligibility vs. Loan Approval: The property price cap determines if a property is eligible for the FHG. However, being eligible for the scheme does not automatically mean you will be approved for a loan up to that cap. Your lender will assess your ability to repay the loan based on their internal calculations. For example, if the cap in your area is $1,000,000, but your income and expenses only allow you to borrow $800,000, then your effective maximum purchase price is just over $800,000, even if the FHG would cover a property up to $1,000,000.
Lender’s Valuation: When you apply for a home loan, the lender will conduct their own valuation of the property you intend to purchase. This valuation is independent of the property’s sale price or the government’s price cap. If the lender’s valuation comes in lower than the purchase price, they will typically only lend against their valuation, which can impact your required deposit or borrowing amount. While the FHG helps with a 5% deposit, a significant discrepancy in valuation could still pose a challenge.
Serviceability: Lenders meticulously assess your serviceability, your ability to make regular loan repayments. This involves a detailed analysis of your income (salary, wages, other reliable sources) versus your expenses (living costs, existing debts, credit card limits). Lenders have their own formulas for calculating living costs, and even a seemingly small credit card limit can significantly reduce your borrowing capacity. For instance, a $10,000 credit card limit could reduce your borrowing capacity by $40,000, even if the balance is zero. This demonstrates that while property price caps define the maximum value for scheme eligibility, your personal financial health and a lender’s assessment of it are the ultimate determinants of your actual borrowing power.
Impact of Existing Debts and Expenses: Lenders scrutinise all your financial commitments. This includes personal loans, car loans, and particularly credit card limits, even if they are not fully utilsed. Every $5,000 worth of credit limit on your card can mean approximately $20,000 less in borrowing capacity. This is because lenders consider your potential debt, not just your current debt. Therefore, while the FHG helps with the deposit, managing your overall debt and expenses is paramount to maximising your borrowing capacity within the property price caps.
Credit History and Risk Assessment: Your credit file is a crucial element in a lender’s decision-making process. Lenders assess your creditworthiness based on your repayment history, previous credit applications, and overall financial conduct. A strong credit history can positively influence a lender’s willingness to approve your loan and potentially offer more favourable terms. Conversely, a poor credit history can lead to a reduced borrowing capacity or even loan rejection. Some lenders have automated assessment systems that can decline applications if your credit score doesn’t fit their criteria. This underscores the importance of maintaining a healthy financial profile well before you apply for a home loan.

Navigating the Home Loan Landscape: The Role of a Mortgage Broker

Given the complexities of property price caps, government schemes, and lender-specific criteria, navigating the home loan landscape can be daunting for first home buyers. This is where the expertise of a mortgage broker becomes invaluable. As highlighted by Jane Slack-Smith, the founder of Award winning Investors Choice Mortgages, a mortgage broker acts as your guide through this intricate process. They understand the nuances of different lenders’ policies and can help position your application for the best chance of success.

Here’s how a mortgage broker can assist you:

Understanding Lender Policies: Each lender has unique policies regarding income assessment, expense calculations, and risk profiles. A good mortgage broker is intimately familiar with these variations and can match you with a lender whose criteria align with your financial situation and property goals. This can save you significant time and effort, preventing applications to lenders who are unlikely to approve your loan.
Maximising Borrowing Capacity: By understanding your financial situation in detail, a mortgage broker can help you identify strategies to maximise your borrowing capacity. This might involve advising on debt consolidation, reducing credit card limits, or structuring your finances in a way that presents you most favourably to lenders. They can anticipate how each lender will assess you and position you in the best light. In all things story telling is a skill and spending hours everyday crafting the true story of their clients positions with the knowledge of what lenders are looking for and what is important to them gives them a unique skill that will allow you to be presented in the best way to the lender.
Navigating Government Schemes: Mortgage brokers are well-versed in government initiatives like the First Home Guarantee. They can help you understand your eligibility, guide you through the application process, and ensure you leverage these schemes effectively to your advantage. This includes understanding how the property price caps apply to your specific region and property type.
Pre-Approval Guidance: Obtaining pre-approval is a crucial step in the home-buying journey, giving you a clear understanding of how much you can borrow before you start seriously looking for properties. A mortgage broker can facilitate this process, ensuring your pre-approval accurately reflects your borrowing capacity and is obtained from a suitable lender. However, it’s important to note that pre-approvals are often a cursory look and not a full assessment, so a broker’s ongoing guidance is vital.
Streamlining the Process: From initial consultation to settlement, a mortgage broker can streamline the entire home loan application process. They handle the paperwork, communicate with lenders on your behalf, and ensure all necessary documentation is in order. This reduces stress and allows you to focus on finding your dream home. Investors Choice Mortgages and their associated companies provide a streamlined process from initial contact through to settlement with an aligned team of mortgage professionals.

The Future of First Home Ownership in Australia

The expanded Australian First Home Guarantee, effective from October 1, 2025, marks a significant step towards making homeownership more accessible for first-home buyers. The removal of income caps and limits on available places, coupled with increased property price caps, reflects a government commitment to addressing the challenges faced by aspiring homeowners. These changes, combined with the continued benefit of avoiding LMI, create a more favourable environment for entering the property market.

However, it’s important to reiterate that while government schemes provide valuable support, they do not replace the need for sound financial planning and a thorough understanding of your borrowing capacity. Lenders will continue to apply their rigorous assessment criteria, and your ability to service a loan will always be the ultimate determinant of how much you can borrow. The importance of managing your finances, understanding your credit profile, and being prepared for the realities of the home loan application process is critical.

For first home buyers, the key to success lies in a proactive and informed approach. Start by understanding your financial position, including your income, expenses, and existing debts. Explore the new First Home Guarantee and how its expanded features can benefit you. Most importantly, seek professional guidance from a trusted mortgage broker. Their expertise can help you navigate the complexities, maximise your borrowing power, and ultimately turn your homeownership dreams into a reality. At Investors Choice Mortgages and our associated partners, our mission is to empower homeowners and homebuyers with the knowledge and tools they need to secure the most appropriate mortgage solutions, helping them achieve financial freedom and homeownership through a guided, client-first approach built on transparency, simplicity, and trust.

Conclusion

The journey to homeownership in Australia is evolving, with the expanded First Home Guarantee offering unprecedented opportunities for first-home buyers. The changes effective from October 1, 2025, particularly the removal of income caps and limits on places, along with increased property price caps, are set to open doors for many. However, understanding how these government initiatives intersect with your personal borrowing capacity, as determined by lenders, is crucial. It’s not just about the property price cap; it’s about your overall financial health, your ability to service the loan, and the lender’s assessment of your risk.

At Investors Choice Mortgages and with our associated partners, we are committed to guiding you through every step of this journey. Our expertise, combined with a client-centric approach, ensures that you are well-informed, empowered, and confident in your decisions. By leveraging the benefits of the new FHG and working with a trusted mortgage professional, you can navigate the complexities of the market and achieve your dream of owning a home in Australia.

Remember, strategic planning and expert guidance are your most powerful tools in this exciting new era of first homeownership.

Download your free First Home Buyer Guide and book your consultation with one of ICM’s expert team, guiding buyers through every step with confidence.

Frequently Asked Questions

What exactly are property price caps in the context of first home buyer schemes?

Property price caps are maximum purchase price limits set by the government for properties eligible under specific first home buyer schemes, such as the First Home Guarantee. If a property’s price exceeds this cap, it will not qualify for the benefits of the scheme, regardless of the buyer’s financial capacity.

How do the new changes to the First Home Guarantee (FHG) from October 1, 2025, affect me as a first home buyer?

The expanded FHG removes income caps and limits on the number of available places, making it more accessible. It also allows eligible first home buyers to purchase a property with just a 5% deposit and avoid Lenders Mortgage Insurance (LMI). Additionally, property price caps have been increased in many areas to better reflect average house prices.

Does the removal of income caps mean I can borrow any amount I want?

No. While the income cap for the FHG is removed, your borrowing capacity is still determined by your lender’s assessment of your financial situation. Lenders will evaluate your income, expenses, existing debts, and credit history to determine how much they are willing to lend you. The FHG helps with the deposit and LMI, but your ability to repay the loan is paramount.

How does avoiding Lenders Mortgage Insurance (LMI) benefit me?

Avoiding LMI can save you tens of thousands of dollars. LMI is a significant, non-refundable premium charged by lenders when your deposit is less than 20% of the property’s value. By using the FHG, the government guarantees a portion of your loan, eliminating the need for you to pay LMI.

Can I still apply for the Regional First Home Buyer Guarantee after October 1, 2025?

No, the specific Regional First Home Buyer Guarantee will close to new applications from October 1, 2025. Its functions are now absorbed into the broader, expanded First Home Guarantee, which will cover both metropolitan and regional areas under a unified scheme.

How important is my credit history when applying for a home loan, even with the FHG?

Your credit history is significant. Lenders use your credit file to assess your creditworthiness and repayment behaviour. A strong credit history can improve your chances of loan approval and potentially better terms, while a poor credit history can negatively impact your borrowing capacity or lead to rejection.

Why should I consider using a mortgage broker when buying my first home?

A mortgage broker can provide invaluable assistance by helping you understand complex lender policies, maximising your borrowing capacity, navigating government schemes like the FHG, and streamlining the entire home loan application process. They act as your advocate, ensuring you secure the most appropriate mortgage solution for your needs.