What the 2025 federal budget means for mortgage holders & homebuyers

The government was forced to hand down its fiscal plan when it was unable to call the 2025 election earlier this month, meaning this year’s budget largely doubles as election material. 

The date on which Australians will vote is set to be solidified in coming days, with the prime minister required to give at least 33 days’ notice and a deadline of 17 May looming.

That said, it’s unlikely Labor revealed all of its property-related election promises on budget night.

Prospective homebuyers and mortgage holders might want to stay tuned for further announcements as the campaign unfolds.

“This budget lifts our commitments in housing to $33 billion – and there’s more to come,” Housing Minister Clare O’Neil said in revealing funding boosts for modular housing and the Help to Buy scheme over the weekend.

Let’s dive into what’s in the budget for mortgage holders and homebuyers, and what it might mean for interest rates.

Help to Buy Scheme gets $800m top-up

The long-delayed Help to Buy shared equity scheme – a jewel in Labor’s housing policy crown – will receive an $800 million injection, taking the total federal commitment to $6.3 billion.

The scheme is expected to support up to 40,000 buyers to enter the market, with the federal government contributing:

• Up to 30% of the purchase price for existing homes, and
• Up to 40% of the purchase price of new builds

The scheme aims to reduce the amount buyers need to borrow, making mortgages more affordable and accessible.

The budget also included key eligibility changes to Help to Buy, addressing earlier criticism that income and price caps were too restrictive.

Single applicants can now earn up to $100,000 per year (previously $90,000) while couples can now earn up to $160,000 annually (previously $120,000).

Meanwhile, property price caps have been adjusted upwards in line with current market conditions.

For more information, check out our previous coverage on the changes

HECS cuts could boost borrowing power

Labor’s long-standing promise to wipe 20% of student debt if re-elected is back in focus – and it could mean good news for prospective homebuyers.

While not a new election promise, the policy remains one of the government’s most significant pledges and could help increase the borrowing power of those with HECS/HELP debts.

Lower student debt levels may improve mortgage serviceability from a lender’s perspective – though the impact of the cut may have been softened following earlier pressure from Federal Treasurer Jim Chalmers.

The treasurer called on financial regulators to review how student loans are factored into mortgage applications in February.

In response, APRA floated potential adjustments, including allowing banks to:

• Discount HECS debts from debt-to-income ratios
• Exclude HECS balances likely to be repaid within 12 months from serviceability assessments

$54m for quicker housing construction

The budget also includes $49.3 million to help state and territory governments expand prefabricated and modular housing construction industries.

The approach aims to increase housing supply, with the government claiming some homes could be delivered in half the time of traditional builds.

An additional $4.7 million will go towards establishing a certification scheme for offsite builds, designed to improve approval processes.

Modular and prefab homes are seen as a potential solution to accelerate delivery and reduce build costs.

For homebuyers, this could feasibly translate to:

• Faster build times
• Lower construction costs
• More housing stock on the market – potentially easing price pressures

The investment supports the Housing Accord’s goal of building 1.2 million new homes between 2024 and 2029.

Speaking of, just 45,000 homes were built through the accord in the first quarter of its five year lifespan.

However, the government is expecting that number of ramp up as its initiatives take effect. 

More funding for Housing Australia

Housing Australia will receive a budget boost of $4.9 million over the coming four years, which will help support core programs like the Home Guarantee Scheme.

The Home Guarantee Scheme, which encompasses the First Home Guarantee, the Regional Home Guarantee, and the Family Home Guarantee, helped a third of first home buyers into the market in 2023-24.

It allows eligible purchasers to buy property with as little as 2% deposit and, crucially, without needing to pay lenders mortgage insurance (LMI).

What could the budget mean for interest rates?

While the federal budget doesn’t directly determine interest rates, its impact on inflation and government spending can influence the Reserve Bank of Australia’s (RBA) monetary policy decisions – and, in turn, the direction of mortgage rates.

That influence, however, is likely to be minimal this time around.

“The RBA will take the budget into account, but it is unlikely to shift its view on the outlook by much,” said Westpac head of business and industry economics Sian Fenner.

Perhaps the most notable policy from an inflation perspective is the government’s six-month extension of energy bill rebates and its surprise tax cuts.

The rebates are considered unlikely to move the needle enough to alter the RBA’s path forward.

Meanwhile, the reduction of the lowest tax rate from 16 cents per dollar to 15 cents per dollar won’t kick in until mid-2026, with the rate being dropped again to 14 cents per dollar in mid-2027. 

The newly formed RBA monetary policy board will meet for the first time on 31 March, with its decision announced 1 April.

This marks the board’s debut following the RBA overhaul in February, which officially split the former board into two separate entities: the monetary policy board and the governance board.

Most economists expect the April meeting will result in a hold, with the May meeting shaping up as a potentially live one, depending on incoming quarterly inflation data.

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