Australia’s 5% Mortgage Deposit Scheme Kicks Off Early

Getting into the property market has always been one of the biggest financial hurdles for Australians, especially first-home buyers. 

Saving up a 20% deposit can take years, all the while house prices keep climbing. That’s why the Federal Government’s announcement to roll out its revamped 5% mortgage deposit scheme earlier than planned has caught so much attention.

This is a major change that will open the door to home ownership for tens of thousands more Australians. 

What Exactly Is the Home Guarantee Scheme?

In a nutshell, the Home Guarantee Scheme is an initiative by the Australian Government to help people get into the property market sooner.

It allows eligible home buyers to purchase a property with a deposit as little as 5% without having to pay Lenders' Mortgage Insurance (LMI).

The scheme isn't a cash payment or a grant but rather a guarantee that makes you a safer bet in the eyes of a bank.

How Does It Work?

The government basically acts as a guarantor for your loan. This means they provide a guarantee to your lender for the portion of your loan that would otherwise require you to pay LMI.

This guarantee gives lenders the security they need to approve your loan with a smaller deposit.

What Is Lenders’ Mortgage Insurance (LMI)?

Lenders’ Mortgage Insurance (LMI) is a one-off insurance premium that protects the lender (not you) if you can't repay your loan. It can cost tens of thousands of dollars and is typically required if your deposit is less than 20%. 

But under the Home Guarantee Scheme, you won’t have to pay it even though your deposit may be as low as 5%.

What’s Changing—And What’s ‘Early’ About It

Currently, the scheme only offers a set number of places each year. Once they’re gone, buyers have to wait until the next round. 

It was originally set to remove these limits in January 2026, but the government has decided to bring the changes forward to 1 October 2025. 

From that date, the caps will be scrapped, turning the scheme into an ongoing, uncapped programme for eligible applicants.

In practice, this means:

• No more ‘mad rush’ to secure a spot before the allocation runs out.

• Income caps are removed.

• Property price limits are increased to reflect today’s market.

• And regional access is streamlined by folding the Regional First Home Buyer Guarantee (RFHBG) and First Home Guarantee (FHG) into one, so no more separate regional scheme anymore.

Put simply, from October, more buyers in more places will be able to use the scheme without the stress of missing out.

How the Scheme Helps Buyers

• Lower deposit hurdle: Just 5% upfront instead of 10–20%. On a median-priced home (~$844k), that’s about $42k instead of $169k.

• No Lenders Mortgage Insurance: This saves you thousands worth of LMI premium even if your deposit is as low as 5%.

• Faster entry to home ownership: Less saving means buyers can get into the market sooner.

• Access across more income levels: Since the income caps are being removed, more Australians who may previously have been marginally ineligible can now apply.

• Access to more expensive properties: With the property price limits being increased, you can now consider more expensive properties to buy.

• More lender choice: It encourages a range of participating lenders, including smaller regional and customer-owned banks, not just the big banks. This gives buyers more choice and potentially more competitive rates or features.

What Are the Eligibility Rules?

While the scheme is expanding, the eligibility criteria remain in place to ensure it helps those who need it most. 

You may use Housing Australia’s Eligibility Tool to check your eligibility, or find the key requirements for the First Home Guarantee (the 5% deposit scheme) below:

1. You must be an Australian citizen (aged 18 or over).

2. You must be a genuine first home buyer (or not have owned a property in Australia in the last 10 years).

3. You must intend to live in the property as the owner-occupier (it can't be an investment property).

4. You must have saved a genuine 5% (at least) deposit.

5. The property price must be below the relevant regional price cap. These are updated regularly, so it's crucial to check the latest figures. For example, current caps (as of 2025-26) are:

   • Sydney & major regional centres (NSW): $1,500,000

   • Melbourne & major regional centres (VIC): $950,000

   • Brisbane & major regional centres (QLD): $1,000,000

You can find the full and most up-to-date information using the Australian Government’s postcode search tool.

Pro Tip: You can use the First Home Super Saver Scheme (FHSSS) to turbocharge your deposit savings by using your superannuation. This can be a powerful tool to use alongside the HGS.

How to Apply?

You can either apply through a participating lender authorised by Housing Australia to offer the Home Guarantee Scheme, or through a mortgage broker who can help you find a lender and streamline the process from start to finish.

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What to Watch Out For 

• Loan approval still required: You must meet the bank’s credit and servicing rules. That means the guarantee doesn’t guarantee you a mortgage.

• Fiercer competition: More eligible buyers mean homes may sell faster, especially in entry-level price brackets.

• Extra costs still apply: Stamp duty, conveyancing, lender fees, and valuations can add up, even with a smaller deposit.

• Budget discipline: A lower deposit makes it easier to buy, but also means taking on a larger loan with higher repayments, potentially resulting in mortgage stress.

What Buyers Can Do to Prepare

1. Start lining up your deposit: Aim to have 5% of your target property value set aside, plus a buffer for other upfront costs. Also, think about having a bit extra as a safety margin (e.g., building inspection, mortgage buffer, etc.).

2. Get your paperwork in order: Having your ATO Notice of Assessment, proof of citizenship/permanent residency, and other income documents ready will help speed up approval. Lenders will also want to see your financial situation (income, expenses, liabilities), so being organised helps.

3. Engage a mortgage broker early: A broker can help match the borrower to a participating lender, check eligibility, estimate how long saving may take, run pre-approvals, and help lock in a loan at the right time.

4. Be ready to act: Once pre-approved, buyers often have around 90 days to find and sign a contract after approval (check with the lender). Having a shortlist of areas/properties ready can speed things up.

5. Keep an eye on interest rates and market conditions: Even with the guarantee, the interest rate you get matters. Shop around, ask your lender/broker for comparison rates, and be realistic about repayments to make sure you’re comfortable with the debt.

What Does This Mean for the Housing Market?

In simple terms, dropping the deposit hurdle is likely to bring more first-home buyers into the game sooner, especially with the busy spring and summer selling season just around the corner. 

Regional areas may see more demand, with higher price caps making homes outside the capitals more appealing.

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