5% Deposit Home Buying in Australia: What It Means, Who Benefits, and How to Prepare

A bigger doorway is opening for first home buyers. From 1 October 2025, the expanded First Home Guarantee lets eligible buyers purchase with a 5% deposit and no Lenders Mortgage Insurance (LMI), with the government acting as guarantor for the remaining 15% to reach an effective 20% loan-to-value ratio. Income caps and national place limits have been removed. Price caps have lifted in many markets. Regional buyers also get unlimited access under a separate expansion.

Key changes at a glance

• Deposit: Buy with 5% down. Government guarantees 15% to avoid LMI.
• Eligibility: No income cap. Australian citizens or permanent residents. First home buyers, or people who have not owned in the last decade. Owner-occupier only.
• Price caps: Examples reported include Sydney up to $1.5m, Brisbane and Canberra up to $1.0m, and Melbourne $950k.
• Regional boost: Unlimited places for eligible regional buyers, higher regional caps, and more community and regional lenders invited to the panel.
• Participating lenders: You must use a panel lender. Loans are principal and interest up to 30 years in most cases.

Solara | Off the plan | 5% Deposit | Secure with $10k and $569 x 99 weeks

What a 5% deposit changes

Time to save

New analysis suggests the saving time to reach a deposit drops sharply.

• Sydney buyers may cut saving time from more than a decade for 20% to under three years for 5%.
• Adelaide, Brisbane, and Melbourne buyers may save about five years of saving time.
• Perth and Hobart buyers may reach a 5% deposit in around 18 months.
• Darwin shows the fastest path at about 11 months to 5%.

But remember: 5% deposit = 95% mortgage

• Higher monthly repayments than a 20% deposit loan.
• More interest paid over the life of the loan.
• Refinance flexibility can be limited while equity is low.
• Negative equity risk if prices dip soon after purchase.

Some lenders offer competitive rates under the scheme because the government guarantee lowers risk. Even so, you still need to pass serviceability tests. Do the maths on repayments at rates higher than today.

Autobiography Wickham | Off the plan | 5% Deposit | Secure with $10k and $284 x 83 weeks

Costs that still apply

• Stamp duty still applies unless you qualify for a state concession or exemption. In some cases, duty can exceed the 5% deposit.
• Legal fees, inspections, and incidentals remain out-of-pocket.
• Moving and set-up costs add up.
• Plan a buffer for valuations, lender fees, and small variations at settlement.

Price pressures and market dynamics

Removing caps and widening eligibility may lift demand.

• Treasury guidance points to a modest national price impact over several years.
• Other analysis warns of a stronger near-term bump, especially in popular price bands such as $1.0m to $1.5m in Sydney.
• Agents report queues, faster sales, and more offers in affordable brackets.
• If supply lags, competition can intensify and shorten days on market.

Melrose Central | Off the plan | 5% Deposit | Secure with $10k and $938 x 28 weeks

Renting versus buying with 5% down

Carrying a bigger mortgage costs more interest over time. Yet buying sooner can reduce years of rent.

• In high-rent cities, the rent avoided by entering earlier can offset a chunk of the extra interest from a 95% loan.
• This is illustrative, not a rule. Outcomes vary by city, price, and future rent growth.

Worked example: repayments and risk

Scenario: $1.20m purchase, 5% deposit ($60k), 95% loan.

• Even a 1% rate rise can add hundreds per month to repayments.
• A 5% price dip soon after purchase could put equity near zero.
• If you plan to sell or refinance early, that can be painful.

Build a buffer and aim to pay down principal faster when you can.

Horizon Hurstville | Off the plan | 5% Deposit | Secure with $10k and $487 x 47 weeks

How to use the scheme wisely

• Buy below your max. Stress-test repayments at rates 1.5 to 2.0 points higher.
• Keep an emergency fund. Target at least three months of repayments plus living costs.
• Target growth and liveability. Transport, schools, health, and jobs matter for value and rentability.
• Be realistic on the “first rung”. Compromise on size, property type, or location to reduce risk.
• Check lender rules. Not all banks treat cash buffers and gifts the same way.
• Know the occupancy rules. It is an owner-occupier scheme. Moving out early can trigger reassessment.

Regional buyers: what’s new

• Unlimited places for eligible regional buyers from 1 October.
• Higher regional price caps to match real purchase costs.
• More regional and customer-owned lenders expected on the panel for more choice.

This should widen access beyond the big four, and help match borrowers with lenders who understand local markets.

For agents and project marketers

Expect more first home buyer inquiries, especially in price bands under local caps.

• Prepare simple repayment tables at several rate points.
• Offer educational content on total upfront costs beyond the deposit.
• Set expectations on stock, days on market, and competition to reduce panic buying.
• For new builds, detail practical timelines from reservation to settlement so buyers can plan cash flow.

Coposit can help buyers manage the deposit

Saving 20% upfront can take years. With Coposit, buyers can secure an off the plan property from $10,000 upfront, then pay the balance of the deposit in weekly instalments while it is being built. That can free up cash to cover stamp duty, legal fees, and moving costs, and align savings with construction timelines. It also gives buyers time to build buffers before settlement.

The Edmondson Collection | Off the plan | 5% Deposit | Secure with $10k and $1,500 x 14 weeks

Quick checklist for 5% deposit buyers

• Confirm you are eligible under the scheme rules
• Price within your city cap and budget
• Serviceability at higher rates passes comfortably
• Upfront cost plan covers duty, legal, inspections, and a buffer
• Emergency fund is set aside and untouched by deposit
• Clear plan to accelerate principal in years one to three
• Understand occupancy and refinancing conditions

Is a 5% deposit the right move for you

A 5% deposit can bring home ownership forward by years, especially in high-rent cities. It is not a free lunch. The mortgage is larger, the interest bill is heavier, and the margin for error is smaller. If repayments pass stress tests, buffers are funded, and the property meets your needs, the scheme can be a smart way to start building equity sooner. Pair it with disciplined budgeting and tools like Coposit for off the plan purchases, and you can step onto the ladder without waiting a decade to save a 20% deposit.