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 (5%) 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.

The scheme has recently been 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 — no more racing for an allocation at the start of the financial year. Single parents can qualify with a minimum two per cent (2%) deposit under the scheme’s family stream.

What it actually saves

The guarantee’s value is the lenders mortgage insurance you don’t pay. LMI on a small-deposit purchase is a serious cost — our LMI estimator shows how steeply premiums climb as deposits shrink — and under the guarantee it disappears entirely rather than being discounted. For many buyers the saving is the difference between buying now and saving for several more years while prices move.

What it doesn’t change is just as important. A five per cent deposit means a larger loan, larger repayments, and thinner equity in the early years — if prices dip, a small-deposit buyer can owe close to what the home is worth. The guarantee removes a fee, not the arithmetic of borrowing more. We put both columns in front of clients before recommending it: the insurance saved, and the extra interest carried.

Who’s eligible — and the caps that still exist

Eligibility is checked purchase by purchase, and the honest 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 — not an investment property.
• Property price caps still apply, and they vary by state and by city versus regional area. The caps have recently been increased across Australia, but a cap is still a cap: on Sydney’s North Shore, a meaningful share of the market sits above it, which shapes what the scheme can do for buyers here. Check the current figure for your area on the official site — or ask us and we’ll check it against the actual streets you’re looking at.
• The loan comes from a participating lender. Most major and many smaller lenders participate, but their pricing and policy still differ under the scheme — which lender carries your guarantee place is a comparison worth making, not a default.

Rules and settings shift with federal policy, so treat any article — including this one — as a snapshot: the official scheme site is the source of truth, and confirming your position against the current criteria takes us minutes.

How it stacks with NSW support

The guarantee is federal; NSW runs its own first-home support separately, and for many buyers they combine. Under the First Home Buyers Assistance Scheme, eligible purchases below the NSW thresholds pay reduced or zero transfer duty — our stamp duty calculator computes the current brackets and shows exactly where the exemption ends. A buyer inside both schemes purchases with a small deposit, no mortgage insurance, and little or no duty: three of the biggest upfront costs of a first home, all addressed at once. That stack is the first thing we check in every first-home-buyer conversation.

The catches, stated plainly

• The price caps bind hardest exactly where prices are highest. The scheme is most powerful for apartments and entry-market houses; above the cap it simply doesn’t apply.
• Small deposit, big loan. No income caps means higher earners can now use the scheme — but serviceability assessment is unchanged, and a ninety-five per cent loan has to clear the same buffered assessment as any other. Run the borrowing power numbers before falling for a listing.
• Living requirements are real. The scheme supports owner-occupiers; moving out and renting the property has consequences for the guarantee. Buy it to live in it.
• A guarantee place is lender-specific plumbing. Switching lenders mid-process, or refinancing later, needs handling so the guarantee position is preserved or exited deliberately — another reason to have one person watching the whole board.

Guarantee, guarantor, or neither

Buyers regularly conflate this scheme with a guarantor home loan — understandably, since both exist to solve the same deposit problem. The difference is who stands behind you: the government (this scheme, inside its price caps, with its owner-occupier rules) or your family (a guarantor structure, 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 LMI or adjusting the target. That’s a decision with real money on every branch — it deserves an hour with someone who does it weekly, and that hour costs you nothing.