The government is not giving you money — it is standing behind the bank
The Australian Government's 5% Deposit Scheme lets you buy a home with a 5% deposit and no lenders mortgage insurance, with the government guaranteeing up to 15% of your loan. It can save you $20,000 to $60,000 in LMI. But buying with 5% down means a price drop of just 5% puts you in — owing more than your home is worth — a risk the RBA Governor has publicly warned about.
- Since 2020, the scheme has helped more than 230,000 Australians buy a home .
- After October 2025 expansion (no income caps, no place limits), uptake jumped 75%, with 22,921 guarantees issued in four months .
- Only 5 guarantees have ever been called on, at a total cost to taxpayers of $240,673 .
These schemes have moved from niche to mainstream. If you are considering buying with less than 20% deposit, you now have to understand both what they offer and the financial risks they carry.
What the scheme actually does
The Australian Government 5% Deposit Scheme (formerly the Home Guarantee Scheme) works by having the up to 15% of your home loan to the lender . You put down a 5% deposit. The lender treats your loan as if it has an 80% loan-to-value ratio. That means no LMI.
You do not receive money from the government. You do not get a smaller loan. You borrow the full 95% and repay the full 95%. The only thing the guarantee removes is the LMI premium.
The schemes available right now
There are two main guarantee schemes, plus a scheme:
1. Australian Government 5% Deposit Scheme (First Home Buyers)
This is the main scheme. You need a 5% deposit, and the government guarantees up to 15% of the loan to the lender. From 1 October 2025, there are no income caps, no place limits, and higher property price caps .
Eligibility: Australian citizen or permanent resident, aged 18+. You must be a first home buyer or not have owned an Australian residential property in the past 10 years. You must move in within 6 months of settlement and live there while the guarantee applies .
2. Family Home Guarantee (Single Parents)
Single parents — whether first home buyers or previous owners — can buy with as little as a 2% deposit and no LMI, with the government guaranteeing up to 18% of the loan . This has also been expanded with no income caps, no place limits, and the same higher property price caps as the main scheme .
3. Help to Buy (Shared Equity)
Launched in December 2025, Help to Buy is fundamentally different. The government contributes up to 40% of the purchase price for a new home, or 30% for an existing home, and takes an equivalent equity share in your property . You need just a 2% deposit. But there is an income cap: $100,000 for individuals, $160,000 for joint applicants . Only 10,000 places are available each year, and the scheme operates in all states and territories except Tasmania, which has not yet passed enabling legislation .
Property price caps (from 1 October 2025)
The 5% Deposit Scheme has price caps that vary by location. These caps determine the maximum property price you can buy under the scheme :
State/Territory | Capital city and regional centres | Rest of state |
|---|---|---|
NSW | $1,500,000 | $800,000 |
VIC | $950,000 | $650,000 |
QLD | $1,000,000 | $700,000 |
WA | $850,000 | $600,000 |
SA | $900,000 | $500,000 |
TAS | $700,000 | $550,000 |
ACT | $1,000,000 | — |
NT | $600,000 | — |
These caps were substantially increased in October 2025. The NSW capital city cap, for instance, jumped from $900,000 to $1,500,000 .
How much LMI you avoid
The LMI saving depends on the property price and your deposit size. On a $700,000 purchase with a 5% deposit, LMI would typically cost $20,000 to $28,000 . On a $1,000,000 purchase in Sydney or Brisbane, the LMI saving can reach $40,000 to $60,000 . Since the scheme's inception, only 5 guarantees have been called on, at a total cost to taxpayers of $240,673 — which tells you that the vast majority of scheme users have kept up their repayments .
The negative equity risk the RBA Governor warned about
Here is the part most scheme promoters leave out.
When you buy with a 5% deposit, a property price decline of just 5% wipes out your entire equity. RBA Governor Michele Bullock put it plainly: "When you've got a high loan-to-valuation ratio, it doesn't take as long for housing prices to decline and you're in negative equity" .
Bullock also warned that if buyers "do find themselves in difficulties... the collateral value underlying that, there's a risk that may not cover the loan" . The government guarantee protects the bank in that scenario. It does not protect you.
This is not theoretical. Australia's closest comparable economies — New Zealand and Canada — have both experienced house price declines of more than 15% from recent peaks . Melbourne property prices rose only 22% between March 2020 and late 2025, the weakest capital city performance in Australia, and Melbourne units increased just 13% over the same period .
The price inflation problem
A 2025 report by Lateral Economics, commissioned by the Insurance Council of Australia, found that the expanded scheme could push up property prices by 3.5% to 6.6% nationally . For entry-level homes — exactly the properties first home buyers target — the report estimated price increases of up to 10% in the first year .
On a $700,000 home, the scheme saves you $21,000 to $28,000 in LMI. But if it pushes the price of that home up by $37,100 to $69,300, you end up paying more than you saved . The report estimated that up to 6,500 lower-income buyers could be priced out of the market entirely in the first year .
Using the scheme with open eyes
None of this means you should avoid the scheme. Avoiding $20,000 to $60,000 in LMI is a genuine saving. But you need to go in understanding three things:
- 1You are borrowing more, not getting a discount. Your repayments are based on a 95% loan. They will be higher than if you had saved a larger deposit.
- 2Your equity buffer is thin. Any price decline in the first few years hits you harder than a buyer who put down 20%. Build a cash buffer for this reason.
- 3The guarantee protects the lender, not you. If you default and the property has dropped in value, the government covers the bank. You still lose your home and can still owe money.