First homebuyers will be able to purchase a property with a deposit of just 5 per cent from Wednesday, when Australia’s expanded Home Guarantee Scheme takes effect.
The federal government will support eligible buyers by guaranteeing a portion of their home loan, meaning the need for less cash up front without having to fork out for costly Lenders Mortgage Insurance (LMI).
From October 1, price caps will also be pushed up to $1 million in some cities, and the scheme will do away with income limits.
The government says the changes will get Australians into a home sooner by cutting years off the time it takes to save for a deposit and unshackling the burden of LMI.
“It’s just not right that an entire generation of young Australians has been locked out of the housing market, saving for decades while paying off someone else’s mortgage,” Housing Minister Clare O’Neil said.
While the government says it is levelling the playing field, there are warnings for borrowers and concerns the scheme could backfire by inflating property prices in a market where supply is already struggling to keep pace with demand.
How the scheme is changing from Wednesday, October 1
The scheme has already helped more than 240,000 buyers enter the housing market, and that is expected to grow significantly when the limit on the number of government guarantees is scrapped, allowing all first home buyers who have saved a 5 per cent deposit to apply.
Income caps are gone (previously, the income cap was $125,000 for singles or $200,000 for joint applicants), and property price caps have been raised where prices have increased.
For example, the cap has gone from $900,000 to $1.5 million in Sydney, where the median house price is $1.7 million.
“The median home price in Australia today is $844,000, and 5 per cent of that is $42,200. The last time $42,200 covered the 20 per cent deposit for a median home was 2002, which shows the generational scale of this change,” the government said in August.
There are more than 30 lenders participating in the scheme across the country, “including a wide range of customer-owned and regional banks, as well as major banks”.
Housing Australia, which administers the scheme, said the guarantee protects the lender, not the home buyer, and is “not a cash payment”.
“Home buyers will not receive any funds,” HA said.
“It essentially means that if a home buyer defaults on their home loan, and selling the property doesn’t cover the outstanding amount they owe on their mortgage, then Housing Australia ‘guarantees’ to pay the lender a shortfall up to a pre-agreed limit.”
How much will buyers save on LMI?
Buyers who apply for a loan without a 20 per cent deposit and don’t have family to guarantee their debt are typically required to pay lender’s mortgage insurance.
Canstar found that someone with a 5 per cent deposit would normally have to fork out about $28,000 in LMI for a unit worth $695,000.
For a house with a price tag of $920,000, and the same 5 per cent deposit, buyers would be slugged $36,730 in LMI.
‘It feels impossible’
Jarad Johnson is keen to take advantage of the scheme to buy his first home, and hopes to see more government assistance in the future.
The Queensland plumber, 26, currently lives in a share house and plans to go halves in a three-bedroom house with his best mate.
Given cost of living pressures, Johnson said he could never afford to save the required deposit if he went it alone.
He hopes their combined salaries, together with the scheme, is enough to secure a fixer-upper on the Gold Coast.
“The scheme’s definitely a positive,” he told 7NEWS.com.au.
“Interest rates have been through the roof, but it’s not just buying a home, it’s the repayments too.
“It feels impossible to do by yourself. That’s why I’m doing it with a mate — because it’s achievable.”
How many Australians will use the scheme?
The number of Aussies jumping on the scheme is tipped to rise from 50,000 every year to about 80,000.
Treasury estimates the scheme will only add a modest 0.5 per cent to home prices over six years, but others have questioned that figure.
A report for the Insurance Council has predicted the expansion could “substantially boost demand” and increase property prices by between 3.5 to 6.6 per cent in 2026 “and for several years afterwards”.
Real Estate Buyers Agents Association of Australia president Melinda Jennison said the scheme was already having an impact.
“Buyers are fast-tracking their decision to buy,” Jennison told 7NEWS.com.au following reports from her teams around the country.
“It’s certainly caused an increase in buyer demand in the weeks leading up to the scheme’s October 1 commencement date.”
She said a sense of FOMO (the fear of missing out) was stirring, increasing competition and the potential for borrowers to stretch their budget further than planned.
“Time will tell in terms of value. At the moment, the perceived volume (of potential new buyers) is creating a frenzy. We might not actually see that volume,” she said.
Gareth Croy, managing director of wealth advisory firm Your Future Strategy, predicted the scheme would put upward pressure on all suburbs with house prices below the thresholds.
“However, as these properties are sold, the sellers will upgrade and increase demand on the next price bracket, which will repeat through subsequent price brackets, creating a domino effect,” Croy told 7NEWS.com.au.
No property panacea
Compare the Market economic director David Koch said 5 per cent deposits “may not be the panacea of our property woes”, but likely the “start of the solution”.
“Deposits are just part of a big, messy problem. Bigger loans mean bigger repayments. Even with a 20 per cent deposit, average earners are priced out of many city suburbs,” he said.
“That’s because the repayments would eat up more than a third of their income, making it harder for them to live comfortably.”
Analysis by Compare the Market shows that up to 44 per cent of metropolitan suburbs should be available to couples earning average salaries and powered by a 20 per cent deposit.
But single buyers are “priced out of 99 per cent of locations”.
“Not enough affordable properties are being built. If construction and building approvals continue at the current rate, we could see the government miss its affordable homes target by more than 200,000 properties,” Koch said.
“So, 5 per cent deposits may not be a panacea for our property woes — they’re just the start of the solution.”
Buyer beware
While upfront costs are lower, home buyers are still completely responsible for servicing the loan, and will need to factor in stamp duty and application fees.
Canstar said it is important to weigh up the potential risks that come with borrowing at this level, including higher interest rates, not being able to move out of the property while the guarantee is in place, and the chance of falling into negative equity if property prices drop.
“This scheme takes lenders’ mortgage insurance off the table, which can be a roadblock for many first homebuyers. However, that doesn’t make a wafer-thin deposit risk-free,” Canstar data insights director Sally Tindall said.
“A smaller deposit typically means a bigger loan, higher monthly repayments and potentially a higher interest rate.
“The good news is there are now 38 lenders in the scheme, which provides buyers with a choice of rates.”
Am I eligible for the Home Guarantee?
Prospective buyers will have access to the expanded scheme from Wednesday, October 1.
The federal government had planned for the changes to begin in 2026, but moved them forward to October to help “Australians realise their dream of home ownership sooner”.
“Labor was re-elected with a clear mandate to bring down the deposit hurdle for first home buyers, and we’re delivering,” Prime Minister Anthony Albanese said.
You will need to be an Australian citizen, a first-time buyer or someone who has not owned a property in Australia in the last 10 years, and be buying or building to live in.
Those applying must also pass the bank’s serviceability tests.
“While this will prevent many from purchasing the property they want, the answer isn’t to make the test easier and saddle them with a debt they can’t afford,” Tindall said.
“The reality is, most first home buyers will have to compromise on size, location or both to make that first step into the market.
“For many first home buyers, the scheme could be the key to ownership, but it’s vital to stress-test your budget and borrow only what you can comfortably afford in real life, not just on paper.
You can check your eligibility here, with a fresh tool to go live on Wednesday.
About Your Future Strategy
Your Future Strategy is a multi-disciplinary financial services firm with experts across the financial landscape, including qualified professionals in financial planning, strategic accounting, lending, investments, estate planning and superannuation.
As financial strategists, they help create a well-designed pathway for people to tick off financial goals to give them choice in their future, whether that’s saving for children’s schooling and university, building a significant property portfolio, creating and protecting their legacy, or retiring early.
“It’s probably those people who were thinking about it, but really didn’t have any sense of urgency, that all of a sudden, went, ‘Oh, I can see what’s coming. Let’s dive in before the tidal wave comes,” - Gareth Croy
"Historically, we would see people get into their 50s, and in some cases their early 60s, and only start asking the question then about whether they are actually in a position to retire," - Gareth Croy
The following article was taken from 7 News. Read the article in full below: https://7news.com.au/news/home-guarantee-scheme-expanded-as-government-backs-australian-first-home-buyers-armed-with-5-per-cent-deposit-c-20177384
First homebuyers will be able to purchase a property with a deposit of just 5 per cent from Wednesday, when Australia’s expanded Home Guarantee Scheme takes effect.
The federal government will support eligible buyers by guaranteeing a portion of their home loan, meaning the need for less cash up front without having to fork out for costly Lenders Mortgage Insurance (LMI).
From October 1, price caps will also be pushed up to $1 million in some cities, and the scheme will do away with income limits.
The government says the changes will get Australians into a home sooner by cutting years off the time it takes to save for a deposit and unshackling the burden of LMI.
“It’s just not right that an entire generation of young Australians has been locked out of the housing market, saving for decades while paying off someone else’s mortgage,” Housing Minister Clare O’Neil said.
While the government says it is levelling the playing field, there are warnings for borrowers and concerns the scheme could backfire by inflating property prices in a market where supply is already struggling to keep pace with demand.
How the scheme is changing from Wednesday, October 1
The scheme has already helped more than 240,000 buyers enter the housing market, and that is expected to grow significantly when the limit on the number of government guarantees is scrapped, allowing all first home buyers who have saved a 5 per cent deposit to apply.
Income caps are gone (previously, the income cap was $125,000 for singles or $200,000 for joint applicants), and property price caps have been raised where prices have increased.
For example, the cap has gone from $900,000 to $1.5 million in Sydney, where the median house price is $1.7 million.
“The median home price in Australia today is $844,000, and 5 per cent of that is $42,200. The last time $42,200 covered the 20 per cent deposit for a median home was 2002, which shows the generational scale of this change,” the government said in August.
There are more than 30 lenders participating in the scheme across the country, “including a wide range of customer-owned and regional banks, as well as major banks”.
Housing Australia, which administers the scheme, said the guarantee protects the lender, not the home buyer, and is “not a cash payment”.
“Home buyers will not receive any funds,” HA said.
“It essentially means that if a home buyer defaults on their home loan, and selling the property doesn’t cover the outstanding amount they owe on their mortgage, then Housing Australia ‘guarantees’ to pay the lender a shortfall up to a pre-agreed limit.”
How much will buyers save on LMI?
Buyers who apply for a loan without a 20 per cent deposit and don’t have family to guarantee their debt are typically required to pay lender’s mortgage insurance.
Canstar found that someone with a 5 per cent deposit would normally have to fork out about $28,000 in LMI for a unit worth $695,000.
For a house with a price tag of $920,000, and the same 5 per cent deposit, buyers would be slugged $36,730 in LMI.
‘It feels impossible’
Jarad Johnson is keen to take advantage of the scheme to buy his first home, and hopes to see more government assistance in the future.
The Queensland plumber, 26, currently lives in a share house and plans to go halves in a three-bedroom house with his best mate.
Given cost of living pressures, Johnson said he could never afford to save the required deposit if he went it alone.
He hopes their combined salaries, together with the scheme, is enough to secure a fixer-upper on the Gold Coast.
“The scheme’s definitely a positive,” he told 7NEWS.com.au.
“Interest rates have been through the roof, but it’s not just buying a home, it’s the repayments too.
“It feels impossible to do by yourself. That’s why I’m doing it with a mate — because it’s achievable.”
How many Australians will use the scheme?
The number of Aussies jumping on the scheme is tipped to rise from 50,000 every year to about 80,000.
Treasury estimates the scheme will only add a modest 0.5 per cent to home prices over six years, but others have questioned that figure.
A report for the Insurance Council has predicted the expansion could “substantially boost demand” and increase property prices by between 3.5 to 6.6 per cent in 2026 “and for several years afterwards”.
Real Estate Buyers Agents Association of Australia president Melinda Jennison said the scheme was already having an impact.
“Buyers are fast-tracking their decision to buy,” Jennison told 7NEWS.com.au following reports from her teams around the country.
“It’s certainly caused an increase in buyer demand in the weeks leading up to the scheme’s October 1 commencement date.”
She said a sense of FOMO (the fear of missing out) was stirring, increasing competition and the potential for borrowers to stretch their budget further than planned.
“Time will tell in terms of value. At the moment, the perceived volume (of potential new buyers) is creating a frenzy. We might not actually see that volume,” she said.
Gareth Croy, managing director of wealth advisory firm Your Future Strategy, predicted the scheme would put upward pressure on all suburbs with house prices below the thresholds.
“However, as these properties are sold, the sellers will upgrade and increase demand on the next price bracket, which will repeat through subsequent price brackets, creating a domino effect,” Croy told 7NEWS.com.au.
No property panacea
Compare the Market economic director David Koch said 5 per cent deposits “may not be the panacea of our property woes”, but likely the “start of the solution”.
“Deposits are just part of a big, messy problem. Bigger loans mean bigger repayments. Even with a 20 per cent deposit, average earners are priced out of many city suburbs,” he said.
“That’s because the repayments would eat up more than a third of their income, making it harder for them to live comfortably.”
Analysis by Compare the Market shows that up to 44 per cent of metropolitan suburbs should be available to couples earning average salaries and powered by a 20 per cent deposit.
But single buyers are “priced out of 99 per cent of locations”.
“Not enough affordable properties are being built. If construction and building approvals continue at the current rate, we could see the government miss its affordable homes target by more than 200,000 properties,” Koch said.
“So, 5 per cent deposits may not be a panacea for our property woes — they’re just the start of the solution.”
Buyer beware
While upfront costs are lower, home buyers are still completely responsible for servicing the loan, and will need to factor in stamp duty and application fees.
Canstar said it is important to weigh up the potential risks that come with borrowing at this level, including higher interest rates, not being able to move out of the property while the guarantee is in place, and the chance of falling into negative equity if property prices drop.
“This scheme takes lenders’ mortgage insurance off the table, which can be a roadblock for many first homebuyers. However, that doesn’t make a wafer-thin deposit risk-free,” Canstar data insights director Sally Tindall said.
“A smaller deposit typically means a bigger loan, higher monthly repayments and potentially a higher interest rate.
“The good news is there are now 38 lenders in the scheme, which provides buyers with a choice of rates.”
Am I eligible for the Home Guarantee?
Prospective buyers will have access to the expanded scheme from Wednesday, October 1.
The federal government had planned for the changes to begin in 2026, but moved them forward to October to help “Australians realise their dream of home ownership sooner”.
“Labor was re-elected with a clear mandate to bring down the deposit hurdle for first home buyers, and we’re delivering,” Prime Minister Anthony Albanese said.
You will need to be an Australian citizen, a first-time buyer or someone who has not owned a property in Australia in the last 10 years, and be buying or building to live in.
Those applying must also pass the bank’s serviceability tests.
“While this will prevent many from purchasing the property they want, the answer isn’t to make the test easier and saddle them with a debt they can’t afford,” Tindall said.
“The reality is, most first home buyers will have to compromise on size, location or both to make that first step into the market.
“For many first home buyers, the scheme could be the key to ownership, but it’s vital to stress-test your budget and borrow only what you can comfortably afford in real life, not just on paper.
You can check your eligibility here, with a fresh tool to go live on Wednesday.
About Your Future Strategy
Your Future Strategy is a multi-disciplinary financial services firm with experts across the financial landscape, including qualified professionals in financial planning, strategic accounting, lending, investments, estate planning and superannuation.
As financial strategists, they help create a well-designed pathway for people to tick off financial goals to give them choice in their future, whether that’s saving for children’s schooling and university, building a significant property portfolio, creating and protecting their legacy, or retiring early.