As property prices continue to rise, the prospect of home ownership feels increasingly out of reach for many Australians, especially for first home buyers. One of the biggest hurdles is saving a deposit, which typically ranges from 10% to 20% of the property’s purchase price.
This is where the newly expanded Australian Government 5% Deposit Scheme (the Scheme) can step in and assist first home buyers. This initiative was first introduced in 2020 but was subject to income caps, and limits on the number of places available. However, from 1 October 2025, these restrictions have been removed so that all Australian first home buyers, of all income levels, can apply for the Scheme through a participating Lender. Whilst caps on maximum property prices remain, these have been increased across many cities and regions.
Eligible first home buyers can now secure a loan with just a 5% deposit or 2% for single parents or legal guardians, without having to pay Lenders Mortgage Insurance (LMI). This is made possible because the Australian government (via Housing Australia) will guarantee up to 15% of the loan, enabling banks to lend up to 95% or 98% of the home’s value.
Who is eligible?
To access the Scheme, applicants must meet the following criteria:
1. Be an Australian citizen or permanent resident over the age of 18.
2. Have saved a minimum deposit of 5%.
3. Be a first home buyer or not have owned a property or land in Australia in the last 10 years.
4. Be purchasing a home in Australia priced at or below the location’s price cap. For example, in Sydney the price cap is $1.5 million and $800,000 for other areas in the State of New South Wales.
5. Intend to live in the home as an owner-occupier (does not apply to investment properties).
6. Apply for an owner-occupier home loan with Principal and Interest repayments from a Participating Lender, up to 30 years (plus up to three years to build a new home).
7. Apply individually or jointly with one other person (partner, friend or family member).
Single parents or single legal guardians can also access the Scheme with the following additional requirements:
1. Must be a single parent or single legal guardian of one or more dependent children.
2. Have saved a minimum deposit of 2%.
3. Must not own or have any other property interest when the new home settles.
4. Must apply as an individual (joint applications are not permitted).
Eligibility for the Scheme does not guarantee home loan approval. Applicants must also meet the Lender’s credit policy and loan approval requirements.
Benefits and Considerations
The main benefit of the Scheme is being able to purchase a home with a smaller deposit, while avoiding LMI. The amount of potential LMI savings can vary, but according to Helia, a leading LMI provider, a buyer purchasing a $1 million property with a 5% deposit could avoid an up-front LMI premium of nearly $34,000.
The Scheme also applies to a wide range of property types, including houses, townhouses, apartments, house and land packages, off the plan purchases, and new build on vacant land. In all instances, the purchase price must be at or below location price caps.
Whilst the Scheme can help first home buyers enter the market sooner, there are several risks to consider:
• A smaller deposit means a larger loan, leading to higher repayments and more interest paid over time.
• If property prices fall, buyers may face the risk of negative equity.
• Increased buyer demand through the expansion of the Scheme could fuel property prices even more, with the Insurance Council of Australia forecasting that the Scheme could inflate property values by 10% in the first year alone.
• While LMI fees are waived, there are other costs to consider such as stamp duty, building and pest inspections, and conveyancing and legal fees.
If you are looking to purchase your first home, let our experienced Conveyancing Team guide you through the process.
