The First Home Guarantee (5% Deposit Scheme)

The First Home Guarantee is the federal government’s answer to the deposit problem. For eligible first home buyers, the government guarantees part of the home loan, so a lender can accept a minimum five per cent deposit without charging lenders mortgage insurance. You still borrow from a normal lender at normal rates and repay every dollar yourself. The guarantee changes what the lender needs from you on day one, not what the loan costs over its life, and holding those two ideas apart is half of understanding the scheme. The rest is detail.

The program was recently expanded and rebranded as the 5% Deposit Scheme, and the expansion removed its two most frustrating gates. Under the current settings there are no income caps and no cap on the number of places, so the old January scramble for an allocation is gone. Single parents can qualify with a minimum two per cent deposit under the scheme’s family stream. Sina has watched the queue-anxiety part of this conversation simply disappear from his first meetings since the change, which is worth something on its own.

What it actually saves

The guarantee’s value is the lenders mortgage insurance you never pay. LMI on a small-deposit purchase is a serious cost, climbing steeply as the deposit shrinks, and our LMI estimator will show you the curve. Under the guarantee that premium is not discounted; it is gone.

For many buyers the saving is the difference between buying now and saving for several more years while prices move around underneath them. That is the honest pitch, and it is a strong one even before the duty stacking further down enters the picture.

What the scheme does not change matters just as much. A five per cent deposit means a larger loan, larger repayments, and thin equity in the early years, so a soft patch in prices can leave you owing close to what the home is worth for a while, which is survivable but not comfortable. The guarantee removes a fee, not the arithmetic of borrowing more. When we run these for clients we put both columns on the table: the insurance saved on one side, the extra interest carried on the other. The second column is rarely small enough to ignore, and honest brokers say so before settlement rather than after.

Who qualifies, and where the caps bite

Eligibility is checked purchase by purchase, and the summary is fewer barriers than before but not none. You must be a first home buyer within the scheme’s definition, buying a home to live in rather than an investment, and the loan has to come from a participating lender. Most majors and many smaller lenders participate, and past-ownership rules carry edges worth checking early rather than at approval time. Their pricing and policy still differ under the scheme, which means the choice of who carries your guarantee place is a genuine comparison, not a default to whoever advertised first.

Property price caps still apply, they vary by state and by city against regional, and they have recently been increased across Australia. Here is the North Shore reality, and it is the caveat we give before anyone gets attached: a meaningful share of this market sits above the cap, and no broker can make an over-cap purchase eligible. Nobody can. For apartments and entry-level houses the scheme does real work around here; for a freestanding house on a quiet Ku-ring-gai street it usually cannot help, and pretending otherwise wastes everyone’s Saturday. The conversation moves to guarantors or priced insurance instead.

Rules shift with federal policy, so treat every article, including this one, as a snapshot with a date on it. The official scheme site is the source of truth, and checking your position against the current criteria takes us minutes rather than the afternoon of contradictory forum reading it tends to take buyers on their own.

How it stacks with the NSW schemes

The guarantee is federal. NSW separately runs the First Home Buyers Assistance Scheme, which reduces or removes transfer duty below its own thresholds, and our stamp duty calculator computes the current brackets including the concession band. For many buyers the two stack. A small deposit without mortgage insurance and with little or no duty removes three of the biggest upfront costs of a first home in a single move. That is why the eligibility check is the very first thing we run in a first-home conversation, before anyone talks about lenders at all.

The stack has edges, though. Duty relief phases out as prices climb, the federal cap sits where it sits, and buyers near those lines sometimes discover that negotiating five thousand dollars off the price changes their costs by far more than five thousand dollars. Sina keeps a one-page map of these cliff edges for buyers hovering near a threshold. Ask for it.

The catches, stated plainly

The price caps bind hardest exactly where prices are highest, which is a polite way of saying the scheme is least useful in the suburbs where help is most needed. No income caps means higher earners can now use it, but serviceability assessment is unchanged, and a ninety-five per cent loan still has to clear the same buffered test as any other loan, so run the borrowing power numbers before falling for a listing. The living requirement is real too: the scheme backs owner-occupiers, moving out to rent the place has consequences for the guarantee, and the clean answer is to buy it to live in it or use a different structure entirely.

One more, because it surprises people: a guarantee place is lender-specific plumbing. Switching lenders mid-application, or refinancing later, needs handling so the position is preserved or exited on purpose rather than by accident halfway through a settlement.

Timing interacts with pre-approval as well. A guarantee place is reserved through the lender as part of the application, pre-approvals expire, and a place that lapses with the pre-approval means redoing paperwork at precisely the moment you have found the property. Keep the two clocks synchronised. Our pre-approval guide walks that sequence in detail.

Guarantee, guarantor, or neither

Buyers regularly mix this scheme up with a guarantor home loan, understandably, since both exist to solve the same deposit problem. The difference is who stands behind you. Here it is the government, inside its price caps and owner-occupier rules; in a guarantor structure it is your family, with no price cap but a parent’s property in the frame. Some buyers qualify for both and get to choose. Some qualify for neither and are better served by paying the insurance or adjusting the target suburb, which nobody enjoys hearing and more than a few people later describe as the advice that mattered.

Our view, which plenty of commentators would argue with: for buyers inside the caps the guarantee should almost always be examined before a family guarantee, because it does the same job without putting anyone’s parents on the hook, and the folklore that guarantor loans are somehow the premium option mostly comes from people selling them. That is a decision with real money on every branch. It deserves an hour with someone who runs it weekly, and that hour costs you nothing.