I have a forum. By default the forum homepage is index.php. I have set the default directory page to home.php.

To clarify.

http://www.domain.com/ = home.php = homepage
http://www.domain.com/index.php = index.php = forum list

In SEO terms will this cause any problems?

The reason why I have done this is because the forum has built up a fair SEO ranking over the past few years and to keep this ranking the forum cannot be moved. At the same time the site needs a homepage.

I just need to confirm that this will not cause any issues. Could this lead to any penalties or a drop in rankings?

Yes, potentially your forums could lose page-rank (and this loss may make your rankings worse).

It depends on links -- especially links from other websites. Let's say that, in the past, many different websites have linked to your forum (thereby increasing its page-rank). Now, what form did those links take?

If a link points to [www.domain.com/index.php], then it's okay: this link will still be pointing to your forum. It remains a page-rank vote for your forum.

But if, as is more likely, a link points to [www.domain.com], then it will no longer point to your forum. Instead, it will point to your new home page [www.domain.com/home.php]. Now it has become a page-rank vote for your home page instead of for the forum.

Therefore, the most likely result of this change is as follows: the page-rank of your forum will decrease (probably quite a lot), and this page-rank will be transferred to your home page. So you will be splitting your current page rank across two pages rather than one -- probably a bad thing for your SEO.

However, it might turn out better than that -- depending on your previous choice of canonical URLs. Previously, if someone went to your website, what URL would he actually see? [http://www.domain.com/] or [http://www.domain.com/index.php]?

If the latter, then you may have a problem. There's a good chance that your inbound links are a mixture of both versions, and therefore you are likely to suffer a significant page-rank split. If the former, however, then it is extremely unlikely that anyone linked to you with [http://www.domain.com/index.php]. Consequently, all of your page-rank would be transferred from your forum index to your new home page (a pretty good result).

Mike you and I are going to get on like a house on fire! Couldnt have said it any better than that - wholeheartedly agree with what you said