First Home Guarantee: What Happens When the Bank’s Valuation Doesn’t Match Your Purchase Price?

By Andrew Paterson

When you buy under the First Home Guarantee, both your purchase price and the bank’s valuation need to fall under the property price cap. Most people only think about the purchase price, but the valuation is a separate assessment and it doesn’t always come back at the same number.

When those two figures differ, it can change your deposit, your borrowing amount or your eligibility for the scheme entirely. It’s one of those things that tends to surface after you’ve already signed a contract, which is why it’s worth understanding early.

Your deposit is calculated on the valuation, not the purchase price. Housing Australia confirms the 5% requirement is based on the Property Value as assessed by your participating lender, which may differ from what you agreed to pay.

When the valuation comes in higher than your purchase price

If the bank values the property above what you agreed to pay, you’re still eligible for the scheme as long as both figures fall under the cap. You’ve effectively bought below market value, which is a good position to be in.

The part that surprises people is the deposit. Your 5% is calculated on the valuation, not the purchase price.

So if you signed a contract at $850,000 but the bank values the property at $890,000, your minimum deposit is 5% of $890,000. That’s $44,500 instead of the $42,500 you may have budgeted for.

The difference in that example is only $2,000, and for most buyers it’s manageable. But if you’ve planned your savings down to the last dollar, even a small increase can mean scrambling to find extra cash before settlement.

It’s worth keeping some buffer in your savings beyond the bare minimum deposit, particularly if you’re buying in an area where sale prices have been running below market value.

When the valuation exceeds the cap

You can sign a contract comfortably under the price cap, only for the bank’s valuation to come back above it. Even though your purchase price is fine, exceeding the cap on valuation makes you ineligible for the scheme.

Your options at that point are limited:

• Renegotiate the purchase price down (the vendor has no incentive to agree)
• Challenge the valuation (banks rarely overturn their own assessments without clear evidence of error)
• Proceed without the scheme, meaning a 20% deposit or Lenders Mortgage Insurance
• Withdraw from the purchase if your contract allows it

This is why a subject-to-finance clause matters. Without one, you could lose your deposit if the numbers don’t line up.

When the valuation comes in low

A low valuation doesn’t disqualify you from the scheme if both numbers are still under the cap. But it creates a funding gap. Say you’re buying a property:

• You sign a contract at $900,000
• The bank values the property at $850,000
• Your deposit is 5% of the valuation: $42,500
• But the lender will only finance against $850,000
• You’ve contractually agreed to pay $900,000
• That leaves a $50,000 gap you need to cover from your own savings, on top of the deposit and other costs

For a first home buyer who’s been carefully saving toward that 5%, an unexpected $50,000 shortfall can collapse the deal.

The house-and-land trap

Low valuations are particularly common with new builds in Geelong’s growth corridors. If you’re looking at a building loan, this is worth understanding before signing anything.

For construction under the scheme, the combined land price and build cost must stay under the cap. Take a typical package:

• Land: $350,000
• Build contract: $580,000
• Total: $930,000 (under Geelong’s $950,000 cap)

But completed homes frequently value at less than they cost to build. The valuer looks at what the property would sell for on the resale market today, not what you spent constructing it.

That $930,000 package might value at $870,000 on completion. Same kind of funding gap as the earlier example, except with construction it tends to be larger and more predictable.

Upgrades can push you over the cap entirely. Most packages are quoted at a “base” price that doesn’t include things like better fixtures, landscaping, fencing or premium lot selection. Add those extras after signing and the total can easily exceed the limit.

Housing Australia warns that amendments to the fixed-price building contract after signing may impact the validity of your scheme place. The practical lesson is to build your wishlist into the original contract, not plan to add things later.

Buying off the plan carries similar risk. The valuation happens at settlement, not when you sign.

For developments that take 12 to 24 months to complete, a market shift can open the same kind of gap between what you agreed to pay and what the bank is willing to lend against.

Different lenders, different numbers

Not all participating lenders value properties the same way. Some use automated desktop valuations. Others send a valuer for a physical inspection. Some are more conservative than others.

A property that values at $945,000 with one lender might come back at $955,000 with another – same property, same buyer, but a different outcome for the scheme. This is one reason it helps to work with a broker who knows which panel lenders lean which way in specific areas.

What you can do about it

There’s no way to eliminate valuation risk entirely, but a few things help:

• Get a pre-purchase valuation before you commit. This is particularly worthwhile for properties near the cap or house-and-land packages where the completed value often comes in under cost.
• Build in a buffer. A contract price of $940,000 on a $950,000 cap leaves almost no room. Targeting $900,000 or below gives you breathing space if the valuation comes in slightly high.
• Include a subject-to-finance clause in every contract. It’s your safety net if the valuation creates problems you can’t absorb.

Use our borrowing power calculator to understand what you can realistically afford, and the mortgage repayment calculator to see what different loan amounts cost month to month.

For a complete look at how the scheme works, see our full First Home Guarantee guide.

Talk to someone who sees this every week

A 15-minute chat with one of our brokers will tell you where you stand – your specific property, your deposit position and which lenders are likely to value it favourably. No cost, no pressure, no paperwork until you’re ready.

Book a free lending strategy session or call us on (03) 5222 7453.