From 1 October 2025, a landmark initiative will transform the way Australians enter the property market. The expanded First Home Guarantee scheme will allow eligible buyers to purchase with as little as a 5% deposit, while avoiding the hefty cost of Lenders’ Mortgage Insurance (LMI).
The government will step in to guarantee up to 15% of the loan, giving buyers faster access to the market and removing one of the largest upfront barriers. Importantly, the scheme will be available to all first-home buyers regardless of income, with no cap on the number of participants.
With property price caps lifted significantly to reflect today’s market, buyers will now have access to a wider range of homes across capital cities and regional centres. In Sydney, for example, the cap has risen to $1.5 million, up from $900,000.
What It Means for Buyers
Traditionally, saving a 20% deposit could take a decade or more. This scheme reduces the required deposit to 5%, cutting that timeframe dramatically and allowing many Australians to buy their first home sooner.
In its first year alone, the program is expected to save buyers around $1.5 billion in LMI fees. On a $1 million property, for instance, a buyer could save up to $42,000 in insurance costs.
The higher property price caps also mean buyers can consider areas previously out of reach, such as inner and middle-ring suburbs of major cities:
- Sydney: $1.5 million
- Melbourne: $950,000
- Brisbane: $1 million
- Adelaide & Perth: $800,000
- Regional areas: significant increases across all states
Risks and Considerations
While the initiative is being celebrated, it does not come without concerns. Economists warn that increasing demand without boosting supply could put upward pressure on prices.
Government modelling suggests the impact will be modest, around 0.5% over six years, but independent research by Lateral Economics forecasts house prices could rise by 3.5%–6.6% in 2026, and up to 9.9% in certain markets.
Entering the market with a 95% loan also leaves buyers more exposed to financial risk if interest rates rise or if property values fall. Without parallel supply-side reforms, experts caution that the scheme could worsen affordability in the long term.
Mortgage Broker Perspective
Mortgage brokers are welcoming the initiative, noting that it opens the door for thousands of buyers who may have felt home ownership was out of reach. However, they are also urging caution.
They highlight that while the deposit hurdle is reduced, buyers still need to budget for additional costs such as stamp duty, conveyancing, and inspections. Entering the market with only 5% equity means less buffer if circumstances change, so buyers should ensure repayments remain affordable even if interest rates increase.
Brokers are also advising first-home buyers to secure pre-approval well before October, given the scheme is expected to fuel a highly competitive spring selling season. They recommend considering how the scheme can be combined with other grants and concessions for maximum benefit.
Preparing to Take Advantage
To make the most of the scheme, first-home buyers should:
- Engage a mortgage broker early to assess borrowing power and lender options.
- Secure pre-approval ahead of October to move quickly once the scheme begins.
- Understand all upfront costs beyond the deposit.
- Consider long-term affordability and avoid over-stretching.
- Explore available state-based grants and stamp duty concessions.
- Factor in potential savings from avoiding LMI and how that improves borrowing power.
Final Word
The October launch of the 5% deposit scheme represents one of the most significant housing initiatives in recent years. By removing income caps, lifting property price thresholds, and eliminating participation limits, the scheme has the potential to help thousands of Australians step onto the property ladder sooner.
However, the success of the initiative will depend on responsible borrowing and increased housing supply. For buyers who prepare carefully and plan for the long term, this policy could be the key that finally unlocks the door to home ownership.
– Raj Bhandari
