The 5% Deposit Scheme Is Now Open to Every First Home Buyer

For years the federal First Home Guarantee came with a long list of gates. You had to fit under an income cap, beat thousands of other applicants to a limited number of places each year, and find a home below a modest price ceiling. From late 2025 most of those gates are gone.

The scheme was expanded and renamed the Australian Government 5% Deposit Scheme, and it is now open to every first home buyer who meets the basic eligibility rules. That is a meaningful shift, and it changes the calculation for anyone who has been saving towards a deposit. It also comes with a price-side warning worth understanding before you sign anything.

What actually changed

Three of the old limits have been lifted at once. There are no longer any income caps, so a buyer's salary no longer rules them in or out. The annual cap on places has been removed, meaning there are now unlimited spots rather than a fixed allocation that ran out partway through the year. And the property price caps have been raised, so more homes in more suburbs now fall within reach of the scheme. In NSW capital cities and regional centres, the price cap rose to $1.5 million.

The core mechanic is unchanged. An eligible first home buyer can purchase with a deposit of just 5%, and the government guarantees the rest of the deposit shortfall. Because of that guarantee, the buyer avoids paying Lenders Mortgage Insurance, which lenders normally charge when a deposit is below 20%. For a full breakdown of how the guarantee works and who qualifies, our First Home Guarantee guide walks through the eligibility detail.

Why skipping LMI matters

LMI is a cost that catches a lot of first home buyers by surprise. It protects the lender, not you, and it can run into many thousands of dollars depending on the loan size and deposit. Avoiding it is one of the biggest financial advantages the scheme offers. If you are unsure what LMI is or how it is calculated, our guide to Lenders Mortgage Insurance explains the mechanics and when it normally applies.

Getting into a home with a 5% deposit rather than 20% also changes the timeline. A smaller deposit means less time saving and an earlier entry into the market. To see what a 5% deposit looks like against the price you are targeting, our guide on how much deposit you need to buy a house sets out the numbers and the other upfront costs to budget for.

The price effect to weigh

There is a genuine trade-off here, and it is worth understanding rather than glossing over. When you make it easier for more buyers to enter the market at the same time, you add demand, and added demand tends to push prices up.

The Insurance Council of Australia has estimated the expansion could push prices up to 10% higher in the first year in the markets that first home buyers favour, and between 3.5% and 6.6% higher nationally. Economists who study housing have made a broader point: demand-side measures like deposit schemes generally lift prices, and the structural fix for affordability is increasing housing supply rather than subsidising demand. In plain terms, helping more people buy without building more homes can feed back into the very prices buyers are trying to get ahead of.

None of that means the scheme is a bad deal for an individual buyer. It means you should enter with your eyes open. If a chunk of the benefit you gain from a smaller deposit is offset by paying a higher price, that is a real consideration when you decide how much to offer and where.

Stacking it with other support

The 5% Deposit Scheme does not replace the other help available to first home buyers. In most cases you can still combine it with state First Home Owner Grants and stamp duty concessions, which can together make a sizeable difference to your upfront costs. The rules and amounts vary by state and by whether you are buying new or established, so check what applies where you are buying.

Our First Home Owner Grant guide covers the state-by-state grants, and the broader first home buyer guide pulls the whole process together, from saving and pre-approval through to settlement.

What it means for you

The expanded scheme removes the income cap, the limit on places, and a good deal of the price-cap restriction that kept buyers out before. For a lot of first home buyers, that turns the 5% deposit pathway from something they might qualify for into something they almost certainly can use.

The smart move is to pair the opportunity with a clear-eyed view of the price effect. Work out what you can genuinely borrow first, then decide what you are willing to pay in a market where demand has just been given a nudge. Run the numbers with our borrowing power calculator so you know your real ceiling before you start making offers.