The 5% homebuyer deposit for first home buyers.
The Australian Government’s expanded 5% Deposit Scheme, which commenced on October 1, offers a fast-tracked path to home ownership for many aspiring buyers. By drastically reducing the deposit required and eliminating Lenders Mortgage Insurance (LMI), this program aims to unlock the door to your very own home sooner than ever thought possible.
However, like any major economic policy, it has significant implications that buyers and taxpayers must consider.
Here is a breakdown of how the scheme works, who qualifies, and what the potential impact could be on the property market.
What is the 5% Deposit Scheme and how does it work?
The scheme is designed to make home ownership more achievable, particularly for those struggling to save a 20% deposit.
- Low Deposit: The home buyer secures a loan with a minimum deposit of 5% (for First Home Buyers) or 2% (for single parents/legal guardians).
- Government Guarantee: Instead of the buyer paying LMI (which protects the lender), the Australian Government provides a guarantee to a Participating Lender. This guarantee allows the lender to provide a home loan covering up to 95% or 98% of the home's value without the usual LMI fee.
- No LMI: The buyer avoids paying Lenders Mortgage Insurance, significantly reducing upfront costs.
Key features of the expanded program include no income caps, as well as unlimited spots and no waiting list. The Scheme also makes a wider choice of home types available (houses, apartments, house/land packages, vacant land with a building contract, new or existing homes).
It’s not just for first home buyers!
| Applicant | First Name | Eligibility Criteria | Joint Applications? |
|---|---|---|---|
| First Home Buyers | 5% | Must not have owned a home or land in Australia in the last 10 years. | Can apply on your own or jointly with one other person. |
| Single Parents/Legal Guardians | 2% | Cannot own another home or have any property interest once your new home settles. | Must apply on your own (no joint applications). |
General eligibility for all applicants.
- Must be an Australian citizen or permanent resident, at least 18 years old.
- Must live in the home as an owner-occupier (no investment properties).
- The purchase price must be at or below the location's property price cap (e.g. up to $850,000 in Perth)
The downside for buyers.
While the scheme is genuinely designed to help buyers, it carries a financial trade-off for the market as a whole.
The major concern is that, with the Scheme enabling more people to buy, home-buying competition will increase. This will put upward pressure on property prices as a whole, but especially in the first-home buyer segment. Additionally, while a buyer might save tens of thousands of dollars on LMI, they will end up borrowing even more overall if the average property price increases by a larger amount.
We can help you navigate the home loan headaches.
Buying your first home or starting over is one of the biggest financial decisions you'll make. Before you commit to the 5% Deposit Scheme, ensure your overall financial position is strong enough to handle a larger loan amount and potential interest rate changes.
Contact Ascent Property Co. today.
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