James Martin and Liz Upcroft are saving about $600 a week in rent by living at Martin’s parents’ home – a decision they made to help bulk up their savings for a home deposit so they are in a position to buy at the end of this year.
However, the couple, both 28, are finding that the rate they’re saving is being outpaced by the rise in Sydney’s home values, especially since Labor’s first home buyer scheme was expanded towards the end of 2025.
Under the scheme, eligible homebuyers can buy a property with a deposit as little as a 5 per cent of the value of the home and avoid paying lenders mortgage insurance. Most property purchases require a 20 per cent deposit.
Homes priced less than $1.5 million in Sydney, under $1 million in Brisbane and Canberra and $950,000 in Melbourne are eligible under the expanded guarantee, which came into effect in October. Adelaide’s price cap is $900,000, Perth’s is $850,000 and Hobart’s is $700,000.
“It feels a little bit like a treadmill. We’ll look, and we’ll have an idea around, all right we need to save this much money for a deposit, and then we’ll check again six months later, and the needle’s moved,” Martin told The Australian Financial Review.
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After being priced out of their dream property locations, Surry Hills and Darlinghurst in Sydney’s inner east, the pair turned their attention to Parramatta – about 24 kilometres from the CBD.
However, even on their target budget there’s a chance they could end up being priced out of Parramatta as well. Prices are expected to grow strongly in the suburb, where the median unit price of $693,000 is comfortably under Sydney’s price cap for the federal government’s 5 per cent deposit guarantee.
“It just keeps jumping a little bit forward every time we look,” Martin said.
While the federal government has increased the scheme’s price caps for nearly every state and territory, the percentage of suburbs with median house prices at or below these caps is shrinking.
Prices for homes eligible for the scheme are rising faster than those that are ineligible, an outcome that economists have warned was likely.
As a result, the portion of areas with median home values below or at the expanded price caps fell from 51.1 per cent in August to 43.8 per cent in December, according to Cotality data.
“It [the deposit guarantee] is very much a sugar hit to the market in the sense that it’s going to be a fairly popular demand side stimulus,” Cotality research director Tim Lawless said.
The capitals with the smallest portion of suburbs under the price caps are Darwin at 21.9 per cent and Perth at 23.9 per cent. Sydney experienced the most significant adjustment to its price cap, rising from $900,000 to $1.5 million and also has the highest portion of suburbs with median house values below its price cap at 46.7 per cent.
As well, the application of the revised price caps across the various markets was inequitable. For example, Darwin’s price cap remained unchanged despite the city’s home prices rising nearly 54 per cent in about six years.
“Being the most expensive capital city by some margin, [Sydney’s] got the highest price cap at $1.5 million,” Lawless said. “[But] it’s still the city where you’ve got the largest selection set, if you will, for houses, at least where the median value comes in below the price caps.”
The nation’s biggest banks are facing new restrictions on real estate lending, with the Australian Prudential Regulation Authority imposing debt-to-income limits on owner-occupier and investor mortgages for the first time. It comes into effect on February 1.
Banks will be prevented from lending more than 20 per cent of the value of new mortgages to borrowers whose debt is six times their annual income or more.
Gareth Croy, managing director at financial consultancy firm Your Future Strategy, said this “black and white” change by APRA could have a flow-on effect on the property market in the latter part of 2026.
“Whilst we saw last year, obviously, that borrowing capacity with some rate cuts just meant there was more gas in the tank for people to spend, this is going to go the opposite direction,” he said. “It just won’t give people the capacity to keep paying more and more for property.”
Sydney and Melbourne hotspots likely to experience strong price growth over the next 12 months are Parramatta and Box Hill in Melbourne’s east, as a result of improved lifestyle and infrastructure investment, according to Croy.
“We will see the strong investment growth and increases into these areas that have got existing infrastructure, but more poised around affordability,” he said. “They’ll become more desirable than some of the other areas that probably were in 2025.”
Bracken Ridge and Kedron in Brisbane, Prospect and Davoren Park in Adelaide, as well as South Perth and Warwick in Perth, were also on the precipice of strong price growth for 2026, according to Your Future Strategy research.