Australian Government 5% deposit scheme
Effective from 1 October 2025, the Federal government introduced the Australian Government 5% deposit Scheme (formerly referred to as “the Home Guarantee Scheme”), an initiative intended to help people buy their first home by saving a smaller contribution to the purchase price and avoid paying Lenders Mortgage Insurance (LMI).
What is it?
Normally, when buying a home, if you have not saved at least 20% of the purchase price and need to borrow over 80%, your lender (bank) will make you pay Lenders Mortgage Insurance (LMI). LMI is a fee that protects the bank, not you, in case you can’t repay the loan.
With the Australian Government 5% deposit Scheme, an eligible first home buyer will be able to purchase a property with minimum savings of 5% of the purchase price without having to pay LMI. This scheme will be available through over 30 participating lenders across Australia, including major banks and regional banks. Essentially, the government acts as a guarantor for part of your home loan, covering up to 15% of the property’s value so that you don’t have to pay LMI.
Other Changes for Home Guarantee Scheme
As of October 2025, the scheme has further updated that:
- There will no longer be mandated income caps on first-home buyers upon their purchase of a home (previously singles buyers had to earn ≤ $125k and couples ≤ $200k).
- There will no longer be a cap on the number of first home buyers who can access the Scheme per year (previously only a limited number of first home buyers could access it each year).
- The property price caps for the Australian Government 5% Deposit Scheme (maximum value of an eligible home) have been raised significantly in each state/territory.
Note: These increased caps only apply to your eligibility for the Australian Government 5% deposit Scheme and are different from the caps applied to the First Home Buyers Assistance Scheme for exemption/concession from stamp duty. Contact VRT Lawyers for further information.
What to Watch Out for?
The Australian Government 5% Deposit Scheme is an initiative that buyer’s need to apply for directly with their lender (bank). A common misconception is that, as a first home buyer that is utilising this scheme, you are automatically entitled to pay the vendor (seller) a reduced deposit of 5% on exchange of Contracts. This is not the case and where VRT Lawyers can assist you.
The deposit payable under a Contract for Sale is normally 10% of the purchase price. Therefore, once your offer has been accepted, VRT Lawyers will write to the vendor’s solicitor/conveyancer on your behalf to formally ask the vendor if they would be willing to accept a reduced deposit of 5% on exchange of Contracts.
It is important to note that the vendor does have to agree to accept a reduced deposit. So, if you are bidding against another buyer who is able to pay the full 10% deposit then the vendor may choose to go with the other buyer.
Contact VRT Lawyers today for more information.
