How the 5% Deposit Scheme can help you buy a home this year

• First-home buyers in Australia have a new fast track into the property market – but not every purchase is eligible
• Under the expanded scheme, first-time owner-occupiers can buy with as little as a 5 per cent deposit, and single parents with as little as 2 per cent
• From income caps to property purchase prices, here’s what you need to know about using the scheme to your advantage

It was once the biggest barrier to home ownership, but first home buyers in Australia may now be able to buy their dream first property with just a fraction of the deposit normally needed.

Research shows that, on average, first-time owner-occupiers take between five and seven years to scrape together enough money to afford a 20 per cent deposit on a property they want to buy.

But the federal government’s expanded 5 per cent Deposit Scheme has made it easier for first home buyers to get into the property market. 

The scheme offers unlimited places, higher property price caps, and no income caps, giving more first home buyers a chance to enter the market.

How it works

The scheme lets first home buyers buy a home with a deposit as low as 5 per cent, and single parents or legal guardians with a deposit as low as 2 per cent, without needing to pay Lenders Mortgage Insurance (LMI). 

This means buyers can enter the market without the delay of saving a 20 per cent deposit, which has helped first-timers save more than $2.3 billion collectively on LMI costs.

The scheme has certainly motivated potential buyers to start saving. According to broking firm Mortgage Choice, 28 per cent of first home buyers say the scheme has sped up their decision to buy a home.

Who it has helped

Government figures show one in two first home buyers now use the first home buyer scheme to enter the market. 

More than 102,000 first home buyers have now accessed the 5 per cent deposit scheme since it was expanded and uncapped last year.

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First home buyers tend to have a higher loan-to-value ratio and lower deposits, which often limits the properties they can afford, but the updated 5 per cent deposit scheme has lowered the barrier to entry and improved housing options for first home buyers.

Based on the median house prices and assuming a 5 per cent deposit, the scheme has saved the average first home buyer around $23,000 for a $600,000 home.

Bear in mind that buyers still need to budget for stamp duty, conveyancing, inspections and other buying costs not included in the deposit.

Accessing the scheme

The scheme is relatively straightforward to access, and buyers don’t need to apply directly to the government.

There are a few boxes that prospective buyers need to tick: They need to have a 5 per cent deposit saved; be an Australian resident; be buying their first home and intend to live in it as an owner-occupier (no investment properties); and buy a home that is below the applicable regional price cap.

Price caps vary by location. For instance, the 5 per cent Deposit Scheme lets buyers bid on a property worth up to $1.5 million in Sydney, but only $850,000 in Perth.

You can see the regional price caps that apply here.

The scheme currently has no income caps and no waitlist. Buyers can access the government’s eligibility checker here.

To be eligible, wannabe buyers also can’t have owned a home or land in the last decade.

Timing the market to avoid negative equity

First home buyers are urged to speak to a professional before making the leap to avoid what’s known as negative equity.

Because these buyers are entering the market with a higher loan-to-value ratio, the property they bought could become worth less than the loan they took out.

Data from property tracking firm Cotality shows the downturn in the national housing data has continued to broaden, with declines now accelerating and spreading to more markets.

Tim Lawless, the executive research director of Cotality’s Asia Pacific research division, predicts that the current property market correction will occur around mid-2027, which could incentivise first home buyers to try and wait until the market bottoms out before they buy.

“There’s definitely an incentive to try and hold out, but what we tend to observe is that if you are intending to hold a property for an extended period of time, say 10, 15 or 20 years, then hitting the bottom of the cycle is less important than finding the right property for you,” Lawless told The Money Edition.  

Meanwhile, the Commonwealth Bank points out that first-home buyers are borrowing more while putting down less money as they take advantage of the government scheme to help them buy sooner.

How much first-home buyers can save with a 5 per cent deposit:

Property price: $600,000

Deposit: 30,000

Loan amount: $570,000

Lender’s Mortgage Insurance: Roughly $23,000 saved