What Is the Australian Government 5% Deposit Scheme?
The Australian Government 5% Deposit Scheme allows eligible first home buyers to purchase a property with a deposit of just 5%, without having to pay Lenders Mortgage Insurance (LMI).
Under a normal home loan, if you borrow more than 80% of the property's value, your lender will require you to pay LMI, an insurance premium that protects the lender (not you) if you can't meet your repayments. On a Sydney property, LMI can easily run to $20,000–$40,000, making it a significant barrier for buyers who are close to but haven't quite reached a 20% deposit.
The Australian Government 5% Deposit Scheme solves this by having the Australian Government act as guarantor for up to 15% of the property value, bridging the gap between your 5% deposit and the 20% threshold lenders require to waive LMI. Importantly, this is a guarantee to the lender, not a cash payment to you. You still borrow 95% of the purchase price and are fully responsible for your repayments.
LMI Saving Example: On a $900,000 property in Sydney, LMI on a 5% deposit loan could be approximately $25,000–$35,000. The Australian Government 5% Deposit Scheme eliminates this cost entirely for eligible buyers.
The Major Changes of October 2025
From 1 October 2025, the Australian Government significantly expanded the Australian Government 5% Deposit Scheme in ways that make it far more accessible, particularly for buyers in Sydney and other high-cost markets. The three headline changes were:
1. Unlimited Places
Previously, the scheme was capped at a set number of places each financial year, and competition for those spots could be intense. From October 2025, the number of guarantees available has been uncapped, meaning any eligible first home buyer can now access the scheme without worrying about missing out on a limited allocation.
2. No Income Caps
Under the old rules, applicants had to earn below $125,000 (singles) or $200,000 (couples combined) to qualify. These caps have now been completely removed, making the scheme accessible to first home buyers at any income level.
3. Higher Property Price Caps
Perhaps the most impactful change for Sydney buyers: the eligible property price cap for NSW capital cities and regional centres has increased from $900,000 to $1,500,000. This is a transformative shift, as the previous $900,000 cap excluded most properties in Sydney's inner and coastal suburbs from the scheme entirely.
NSW Price Caps (from 1 October 2025):
Sydney & major regional centres: $1,500,000 (was $900,000)
Other NSW areas: $800,000 (was $750,000)
Who Is Eligible?
With income caps removed and property price caps raised, the eligibility criteria are now relatively straightforward. You must:
- Be an Australian citizen or permanent resident
- Be at least 18 years old
- Be a first home buyer, or not have owned property or land in Australia in the last 10 years
- Have saved a minimum deposit of 5% of the purchase price
- Be buying a property priced at or below the applicable price cap ($1,500,000 in Sydney)
- Intend to live in the property as your principal place of residence
The scheme applies to individuals and couples applying together. Unlike some other government schemes, there are no restrictions based on profession, location, or property type, as long as it's a residential dwelling you plan to live in.
What Properties Are Eligible?
The scheme covers a broad range of residential properties, provided they fall within the price cap. Eligible property types include:
- Existing houses, townhouses, and apartments
- House and land packages
- Off-the-plan apartments and townhouses
- Land and a separate building contract
Investment properties and properties above the price cap are excluded.
Old vs New Scheme: A Comparison
| Feature | Before Oct 2025 | From Oct 2025 |
|---|---|---|
| Places per year | Limited (35,000) | ✓ Unlimited |
| Income cap (singles) | $125,000 | ✓ Removed |
| Income cap (couples) | $200,000 | ✓ Removed |
| Sydney price cap | $900,000 | ✓ $1,500,000 |
| Minimum deposit | 5% | 5% |
| LMI payable? | No (waived) | No (waived) |
What the $1.5M Price Cap Means for Sydney Buyers
The increase to a $1.5M price cap is genuinely significant for buyers in Sydney's inner suburbs and coastal areas. Under the old $900,000 cap, the scheme was almost entirely inaccessible for buyers targeting the Eastern Suburbs, where even a modest one-bedroom apartment can push toward or past that threshold.
With the new $1.5M cap, buyers looking at entry-level apartments in Randwick, Maroubra, Kingsford, and parts of Coogee can now potentially use the scheme to access properties that were previously beyond its scope. While the $1.5M cap still excludes many houses in the area, it opens the door to a meaningful portion of the apartment market.
"For the first time, the Australian Government 5% Deposit Scheme is genuinely relevant for buyers targeting Sydney's Eastern Suburbs. A 5% deposit on a $1.2M apartment is $60,000, versus $240,000 for a 20% deposit. That's a transformative difference."
How to Actually Apply
You cannot apply to Housing Australia directly. All applications must go through a Participating Lender as part of a standard home loan application. The major banks (CBA, NAB, ANZ, Westpac) and many second-tier lenders participate in the scheme, as do mortgage brokers who can apply on your behalf.
The process works as follows:
- Confirm your eligibility (citizenship, first home buyer status, deposit amount, property price)
- Get pre-approval through a Participating Lender and request a Guarantee placement. I can help you with this
- Find your property and confirm it meets the price cap requirements
- Request your formal loan approval based upon the actual purchase price. This is something I will help you with
- The lender checks availability and, if your application is approved, formalises the guarantee request with Housing Australia
- Settlement proceeds as normal, with no additional steps required at settlement
Important Things to Understand
The Australian Government 5% Deposit Scheme is an excellent scheme, but it's important to go in with clear expectations:
- It is not a grant. You do not receive any cash. You still borrow the full amount minus your deposit and make all repayments in full.
- Your borrowing capacity still applies. Lenders will still assess whether you can afford the repayments. Accessing the scheme doesn't bypass credit assessment.
- You must live in the property. If you rent out the property after purchase without notifying Housing Australia, the guarantee may be revoked, potentially triggering LMI obligations.
- Rates may differ. Some lenders price loans under the scheme slightly differently. A broker will help you compare the true cost across participating lenders to ensure you're getting the best deal overall.
Can It Be Combined with Other Grants?
Yes, in most cases. The Australian Government 5% Deposit Scheme can generally be used alongside the NSW First Home Owner Grant ($10,000 for new homes) and the stamp duty concessions available for first home buyers. Combining these benefits can substantially reduce the upfront cash required to enter the market. Your broker can advise on which combination of schemes applies to your specific situation.
Ready to Explore the Australian Government 5% Deposit Scheme?
Shane can confirm your eligibility, help you understand how much you can borrow, and manage the application across Participating Lenders, all at no cost to you.
