First Home Buyers: The 5% Deposit Scheme Has Changed – Here’s What You Need to Know

For many Australians trying to buy their first home, the biggest hurdle has not always been the monthly repayment, It has been getting the deposit together.

Saving a traditional 20% deposit while paying rent and watching property prices move can take years.

That is exactly what the expanded Australian Government 5% Deposit Scheme is designed to address.

Eligible first-home buyers can now purchase a home with a deposit as small as 5% of the property’s value, while the Australian Government provides a guarantee to the participating lender over part of the loan.

The result?

Eligible buyers may be able to avoid Lenders Mortgage Insurance (LMI) and potentially enter the property market much earlier than if they waited to save a full 20% deposit. 

And the scheme is significantly broader than it used to be.

No More Income Caps!

One of the biggest changes is the removal of income limits.

Under the previous version of the scheme, higher-income applicants could be excluded even if they otherwise met the requirements.

That restriction has now been removed.

That means someone who previously earned too much to qualify may now be eligible.

This is particularly relevant for couples or professional households whose combined income may have previously pushed them outside the scheme.

No More Limited Annual Places!

The old scheme also had a limited number of places available each financial year.

That meant some eligible buyers could potentially miss out once the allocation was exhausted.

That has changed too.

The expanded scheme now provides unlimited places for eligible buyers, with no waiting list. 

If you qualify and meet the lender’s requirements, there is no annual quota that you need to compete for.

Higher Property Price Caps

This is another major change.

The property price limits under the scheme have been substantially increased to reflect higher property values across Australia.

Current caps include:

• NSW capital city and designated regional centres – $1.5 million
• Other NSW areas – $800,000
• Victoria capital city and Geelong – $950,000
• Other Victoria areas – $650,000
• Queensland capital city, Gold Coast and Sunshine Coast – $1 million
• Other Queensland areas – $700,000
• Western Australia capital city – $850,000
• South Australia capital city – $900,000
• Tasmania capital city – $700,000
• ACT – $1 million 

For Sydney buyers, the $1.5 million cap is particularly significant.

It opens the scheme to a substantially wider range of houses, townhouses and apartments than under the previous limits.

Importantly, both the purchase price and the lender’s assessed value of the property must fall within the relevant cap. 

Who Is Eligible?

To qualify through the first-home-buyer stream, applicants generally need to:

• Be at least 18 years old
• Be an Australian citizen or permanent resident
• Have at least a 5% deposit
• Be a first-home buyer or have not owned property or land in Australia during the previous 10 years
• Buy a property priced within the relevant location cap
• Purchase the property to live in
• Use an eligible owner-occupier principal-and-interest home loan
• Borrow through a participating lender
• Apply individually or jointly with one other person. 

And importantly, the second applicant does not necessarily have to be your spouse or partner.

You may potentially apply with one other eligible person, including a friend or family member, subject to lender requirements. 

What About Single Parents?

There is also a separate option available for eligible single parents and single legal guardians.

Under that stream, the required minimum deposit can be as low as 2%. 

Unlike the standard first-home-buyer stream, an eligible single parent or legal guardian does not necessarily need to be purchasing their first-ever property, although they cannot generally own another property when the new purchase settles. 

Why This Matters Right Now!

There is an interesting combination developing in the property market.

Property prices have softened.

At the same time, the expanded government scheme means some first-home buyers can potentially enter with only a 5% deposit, no income cap and much higher property price limits.

That combination could make the numbers very different for someone who assumed home ownership was still years away.

For example, on a property valued at $800,000, a 5% deposit is $40,000.

A traditional 20% deposit would be $160,000.

That is a difference of $120,000 in required deposit savings before considering purchase costs and the individual requirements of the lender.

Of course, borrowing more also means larger repayments and more interest over time, which is why the strategy has to suit your financial position.

Talk to Loan Nerds and let us help you work out:

What repayments could look like

Whether you qualify for the 5% Deposit Scheme

How much you could borrow