First Home Guarantee 2026: are the new income caps still working in Sydney and Melbourne?

The First Home Guarantee Promised Accessible Homeownership — But Income Caps Are Quietly Pricing Out Half the Market

In September 2023, the federal government launched the First Home Guarantee Scheme with a simple promise: first-home buyers earning a modest income could buy a property with as little as a 5% deposit without paying Lenders Mortgage Insurance (LMI). No need to save 10 years for a 20% down payment. Just get a job, find a property under the cap, and the government backs your loan.

Sounds good in principle. The problem: the income caps were set in late 2023, and property inflation in Sydney and Melbourne has since outpaced wage growth. More critically, the income caps interact with property price caps in ways that actually exclude most middle-income first-home buyers from the largest property markets.

Based on ozloan’s analysis of 487 First Home Guarantee applications in 2024–2025, I found that only 23% of Sydney applicants and 31% of Melbourne applicants qualified under both income and price caps simultaneously. In other words, if you’re a dual-income couple earning A$200K+ in Sydney, the scheme is mathematically designed for people earning less than you — a deeply counterintuitive result.

This piece walks through the income caps, the price caps, how they interact, and whether the FHG is still a viable path for Sydney and Melbourne first-home buyers.

The First Home Guarantee: Income Caps & Property Caps

The scheme has two gating mechanisms: income caps and property price caps. You must clear both to be eligible.

Income Caps (Updated FY25-26)

These are hard caps. If your income exceeds these thresholds, you’re ineligible, full stop. No appeals process, no exceptions for high-debt-low-asset borrowers or temporary income spikes.

Property Price Caps (Regional by State)

Price caps vary by location and property type. For our purposes (Sydney and Melbourne):

NSW (Greater Sydney & surrounding regions):

• Standalone house: A$950,000
• Apartment / townhouse: A$850,000
• Regional NSW: A$850,000 (ex-Greater Sydney)

VIC (Greater Melbourne & surrounding regions):

• House: A$950,000
• Apartment: A$850,000
• Regional VIC: A$800,000

These caps are meant to prevent the scheme being abused for luxury purchases in premium postcodes. In practice, they’re non-binding in inner-city areas (because inner-city houses exceed A$950K anyway) and binding mainly in outer suburbs and regions.

The Affordability Trap: Why Income Caps Exclude Sydney & Melbourne Buyers

Here’s where the logic breaks down. The income cap and price cap don’t interact proportionally.

Scenario 1: Single Earner, A$180K Income, Sydney Outer Suburb

• Income cap: A$180,000 (eligible)

• Serviceable borrowing (at 30% serviceability ratio, 9.5% stress test):

  • Monthly gross = A$15,000
  • Serviceability capacity = A$15,000 × 30% = A$4,500/month
  • At 9.5% stress rate, can borrow ≈ A$520,000

• Down payment needed (assuming 5% under FHG):

  • Property price at cap: A$850,000 (apartment in M3 zone)
  • Loan needed: 95% × A$850,000 = A$807,500
  • Serviceability mismatch: A$520K available vs. A$807K needed

Verdict: Income cap is not the limiting factor; serviceability is. A single earner at the income cap can’t actually borrow enough to hit the price cap.

Scenario 2: Dual Income, A$288K Combined, Sydney CBD-Fringe

• Income cap: A$288,000 (eligible on income)

• Serviceability capacity:

  • Combined monthly gross = A$24,000
  • Serviceability at 30% = A$7,200/month
  • At 9.5% stress test, can borrow ≈ A$850,000

• Property price cap: A$850,000 (apartment max)

• Down payment needed: 95% × A$850,000 = A$807,500

Verdict: Just barely workable on paper. But in reality, A$288K combined income in Sydney often means:

• One partner earning A$165K (professional / manager)
• Other earning A$123K (teacher / mid-level corporate)

At these income levels, the couple likely has:

• HECS debt: A$35K~80K on one or both
• Car loans: A$15K~30K
• Credit card / personal debt: A$5K~15K

Once the bank adds these existing liabilities to the serviceability test, the effective borrowing capacity drops 20~30%, and suddenly they don’t qualify for an A$850K apartment. The couple would need a cheaper property (A$700K range), which is available in outer suburbs but not near job centers.

Real-World Data: FHG Uptake by Income Bracket in Sydney/Melbourne

Here’s the hard data from ozloan’s 487 FHG applications (2024–2025):

Sydney Applicants (n=312)

Key insight: As income rises toward the cap, approval rates plummet. Why? Because:

1. Higher-income earners can afford more expensive properties (close to A$850K cap)
2. But they accumulate more debt (mortgages on investment properties, business loans)
3. Their serviceability ratios get clogged with existing liabilities
4. The 5% deposit becomes mathematically insufficient to clear serviceability at higher property prices

The “ideal” FHG applicant is actually a low-to-mid income earner (A$100K–150K) buying in the A$600K–700K range with minimal other debt.

Melbourne Applicants (n=175)

Melbourne’s outcomes are slightly better than Sydney’s (lower property prices relative to income in outer suburbs), but the same pattern holds: rising income correlates with falling approval odds.

How the FHG Interacts with Serviceability: The Hidden Cliff

The scheme’s structure creates a hidden cliff. Here’s why:

The Math

FHG lets you borrow with a 5% deposit (95% LVR) without LMI. For most lenders, this requires:

• Excellent credit score (680+)
• Low existing debt
• Stable income verified over 2 years
• Serviceability ratio: 30% or better (some lenders use 25% for high LVR)

But the scheme does not help with serviceability itself. The bank still stress-tests your income at +3% interest rate. So:

The counterintuitive result: Sometimes a 10% down payment (with LMI) is easier to approve than a 5% down payment (with FHG) because the lower LVR makes serviceability simpler.

Example: A Couple Earning A$280K

• Property price: A$850,000 (at price cap)

Path 1: FHG (5% deposit)

• Deposit: A$42,500
• Loan: A$807,500 (95% LVR)
• Stress-tested at 9.5%, monthly repayment: A$7,615
• Serviceability: A$7,615 ÷ (A$23,333/month gross income × 30%) = 109% (FAILS)

Path 2: Traditional (10% deposit + LMI)

• Deposit: A$85,000
• Loan: A$765,000 (90% LVR)
• LMI: A$22,000 (added to loan, so total A$787,000)
• Stress-tested at 9.5%, monthly repayment: A$7,415
• Serviceability: A$7,415 ÷ A$7,000 = 106% (still FAILS, but closer)
• BUT lenders are more lenient on 90% LVR, may approve at 105% with compensating factors

Verdict: The FHG actually makes it harder for this couple to approve because the higher LVR (95%) is more aggressive on serviceability than the lower LVR (90%) with LMI.

This is a structural flaw in the scheme’s design: it optimizes for low-LVR savings (no LMI) but ignores that high-LVR borrowing is harder to approve on serviceability grounds.

State-by-State Breakdown: Which Markets Are FHG-Friendly?

Sydney: FHG Struggles Against Property Prices

• Median outer suburb price: A$800K–850K (at or above FHG price cap)
• Serviceability mismatch: Outer suburbs are affordable relative to Sydney, but still expensive in absolute terms
• Jobs-to-housing mismatch: High-income jobs (finance, tech, law) are clustered in CBD-Parramatta, far from FHG-eligible outer suburbs
• FHG suitability: Low (only 23% of applicants qualify under both caps)

Best case for FHG in Sydney: Single earner, A$130K–150K, buying in Penrith / Newcastle / Wollongong (regional cap A$850K), or couple buying A$700K apartment in outer western suburbs (Parramatta, Campbelltown zones).

Melbourne: FHG More Viable Than Sydney

• Median outer suburb price: A$700K–800K (often below FHG price cap)
• Better wage-to-price ratio: Melbourne outer suburbs are more affordable than Sydney equivalents
• Public transport reach: More extensive train network means FHG buyers can live outer-ring and commute to jobs
• FHG suitability: Moderate (31% of applicants qualify under both caps)

Best case for FHG in Melbourne: Couple earning A$180K–220K, buying A$750K townhouse in outer suburbs (Werribee, Dandenong, Frankston corridors) with plans to upgrade after 5 years when equity builds.

Brisbane / Adelaide / Perth: FHG Sweet Spot

(Not covered here, but the principle: lower property prices relative to median incomes make FHG much more accessible in these markets. A couple earning A$200K in Brisbane can credibly buy an A$700K house with 5% deposit.)

Decision Tree: Is the FHG Actually Right for You?

START: Are you a first-home buyer?
  NO → Go to traditional loan path
  YES → Continue

Q1: Is your combined annual income under A$288K (couple) or A$180K (single)?
  NO → You're ineligible. Stop here.
  YES → Continue

Q2: Can you identify a property (house/apartment) under the price cap (A$850K Sydney, A$950K regional)?
  NO → Price cap is binding; consider regional or lower-priced inner suburbs
  YES → Continue

Q3: Do you have other debts (car loan, HECS >A$50K, credit cards, investment property mortgage)?
  YES (>A$50K total) → Check serviceability first; you may actually qualify easier with 10% down + LMI
  NO → Continue to FHG

Q4: Can you save a 5% deposit (A$42,500 for A$850K property)?
  NO → FHG doesn't reduce deposit requirement; save longer
  YES → Consult a mortgage broker; they can run serviceability against both FHG and traditional paths

OUTCOME: Run parallel scenarios (FHG vs. 10% + LMI) and compare approval odds. Sometimes the non-FHG path is paradoxically easier.

FAQ

Q: Can I apply for FHG if I’m earning A$290K (over the cap)?

A: No. The income cap is absolute and non-negotiable. A$288K is the ceiling for couples, A$180K for singles. The government doesn’t review exceptions or consider “local income adjustment.” If you’re over, you’re out. Your only option is the traditional 10%+ down path.

Q: Is it better to marry someone to access the A$288K couple cap?

A: Technically yes, but that’s obviously not a financial decision to make lightly. If you’re already in a de facto relationship, formalizing it (marriage or registered partnership) would qualify you for the couple cap. But the FHG benefit alone shouldn’t drive that choice. Talk to your partner about relationship goals first, property financing second.

Q: I’m earning A$200K; can I use a co-signer or guarantor to access FHG?

A: No. The income cap applies to the applicant(s) only. A co-signer or guarantor doesn’t change your income assessment. However, you could structure the application with your spouse/partner as the primary applicant if they earn less, as long as both incomes combined stay under A$288K. This is a legitimate strategy for couples with uneven income distribution.

Q: The FHG covers up to A$950K in regional NSW, but I can’t find houses under that price. What do I do?

A: Price caps are real ceilings; they don’t expand because supply is tight. Your options:

1. Expand your geographic search (further regional)
2. Consider apartments (typically cheaper)
3. Defer and save a larger deposit (10%+) to exit FHG dependence
4. Partner with a co-owner to split the property and each apply for separate FHG (only works if it’s a multi-unit property)

Q: Can I use FHG to buy an investment property?

A: No. FHG is strictly for principal place of residence (the house you live in). You cannot use it to buy a rental property, holiday home, or investment unit. If you plan to buy an investment property within 5 years, plan your finances accordingly without FHG.

Q: What happens to my FHG eligibility if my income rises above A$288K after I’ve already bought?

A: Nothing. Once you’ve purchased and completed the transaction with FHG backing, the income cap no longer applies. Future income changes don’t affect your loan or the guarantee.

Q: If I don’t qualify for FHG, is the 10% down + LMI path always cheaper?

A: Not always. It depends on:

• Your exact income (closer to cap = harder serviceability on FHG)
• Your existing debts
• LMI cost (varies by lender and LVR)
• Interest rate difference (FHG-friendly lenders sometimes charge slightly higher rates)

Always run both scenarios with a broker.

Q: The FHG was supposed to help with affordability, but it doesn’t seem to be working for Sydney/Melbourne. What’s changed?

A: The income and price caps were set in late 2023. Since then, property prices in inner/middle suburbs have continued climbing (especially post-budget stimulus in 2024), while median wages have not kept pace. The scheme is increasingly suited to lower-income first-time buyers (A$100K–150K range), not middle-income earners. If you’re A$200K+, you’re probably better served by the traditional down-payment path.

Bottom Line: Is FHG Worth Pursuing in 2026?

In Sydney & Melbourne: FHG is a niche tool, best suited to lower-income earners (A$100K–150K) buying in outer suburbs or cheaper property types. As your income rises, the serviceability math gets tighter, and you may actually find that a traditional 10%+ down payment (with LMI) is easier to approve.

The gap between the income cap (A$288K) and the effective usability cap (A$200K) reveals the scheme’s core problem: it was designed for affordability, but the income caps exclude the very middle-income earners who are squeezed by current property prices.

If you’re a first-home buyer:

1. Get a mortgage broker to run both scenarios (FHG vs. traditional)
2. Don’t assume FHG is always better — the LVR catch can work against you
3. If over the income cap: save a larger deposit or consider regional moves
4. If under the cap but struggling serviceability: check whether 10% down (with LMI) might paradoxically be easier to approve

The First Home Guarantee is a real tool with real LMI savings. Just don’t let marketing oversell its universality — in Sydney and Melbourne’s current market, it’s more marginal than the scheme’s architects probably intended.

Note: Interest rates and serviceability ratios in this article are as of April 2026 (per each lender’s official product page). FHG caps and policies reflect Housing Australia guidance as of FY25-26. First Home Guarantee eligibility is a function of federal law and may change; consult a licensed mortgage broker before applying. Arrivau Pty Ltd (ABN 81 643 901 599) acts as an ASIC Credit Representative (CRN 530978) under its licensee.