If you're a young Aussie dreaming of owning your first home, the stars might just be aligning. 

On one side, we’ve got the Reserve Bank of Australia, who’s just cut the cash rate to 3.85%. That basically means it’s now cheaper to borrow money for a home loan. 

On the other, we’ve got Albo and his government-backed 5% deposit scheme, kicking off from 1 Jan 2026.

What's the deal with the 5% deposit scheme again?

Usually, you need to cough up a 20% property deposit if you want to get a loan from a bank. For instance, on an $820,000 home (the national median price), you’ll need a $164,000 deposit to get the banks comfortable.

But under this new scheme, you’ll only need 5% to get in the door. The government will guarantee the other 15%.

So instead of needing to save $164,000 on the $820,000 home, you’d only be required to front up a $41,000 deposit instead. Of course, you still need to be able to repay your mortgage repayments - but it’s suitable for first-home buyers who are struggling to save up a 20% deposit.

While the government's 5% deposit scheme is a game-changer for many first-home buyers, the scheme only applies to properties under certain price caps, which vary depending on where you're buying.

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Will this affect housing prices?

Historically, when interest rates drop, house prices go up. It’s kind of like clockwork — we've seen it in the 80s, 90s, and 2000s. Cheaper borrowing means more buyers in the market, and more buyers = more competition.

In fact, historical data shows that a 1% rate cut has led to an average 19% increase in house prices, particularly in premium markets across Melbourne and Sydney

Now throw in the new 5% deposit scheme starting in 2026, and you've got a recipe for even more demand. Property expert Louis Christopher reckons prices could jump 8% to 15% nationally in the year after it kicks in.

While a interest rate drop already stimulates housing prices, the 5% deposit scheme will likely  put rocket fuel on the fire for houses below the price cap in each state.

Okay that’s a bit scary - so what's being done to increase supply?

The government's trying. They’ve pledged $10 billion to build 100,000 new homes just for first home buyers. Sounds great, right?

The catch? It’ll take eight years to roll out. That’s only about 8,500 homes a year — not exactly a flood of new supply.

And while they’re laying bricks, demand could go wild. More buyers + not enough homes = prices keep climbing.

So what do I do now?

• Do the maths on your borrowing power with the new lower rate. Your repayments might look more manageable than they did a few months ago.
• Keep an eye on prices. If you’re looking at homes under the scheme’s price caps, be aware that competition could heat up as we get closer to January 2026.
• Get your savings plan in place now because even a 5% deposit still takes time to save.

We’re not saying you need to rush out and buy a house tomorrow. But if buying your first home is on the vision board, now’s a smart time to start getting your ducks in a row. A lower cash rate and a 5% deposit scheme don’t come around every day.