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As of today, first home buyers can enter the property market with just a 5 per cent deposit and no lender’s mortgage insurance under the new Federal First Home Buyer Guarantee Scheme.
Announced earlier this year, the scheme removes previous income caps, which limited eligibility to $125,000 for singles or $200,000 for joint applicants, now allowing all first-time buyers to benefit.
Under the scheme, the government will act as guarantor for 15 per cent of the loan deposit, avoiding the buyer’s lender’s mortgage insurance and reducing upfront costs.
Property price caps have also been increased, making homes worth up to $1.5 million in Sydney and $1 million in Brisbane and Canberra eligible under the scheme’s updated limits.
By lowering financial barriers and removing the previous 50,000-participant cap, the treasury forecasted an additional 20,000 guarantees in the first year.
While the scheme is designed to help Australians buy property more quickly, how will low stock, high demand, and rising prices affect the market, and will first-time buyers truly benefit?
How long does it take to save 5%
While saving for a 20 per cent deposit has long been identified as a barrier to younger Australians buying a home, the 5 per cent deposit is set to cut that time in more than half, depending on location.
New Domain analysis showed that first-time buyers in a two-income household are set to slash years off saving times, with Sydneysiders benefiting the most from it.
Owner occupiers in Sydney who previously needed more than a decade to save a 20 per cent deposit will now need less than three years to save a 5 per cent deposit.
In Adelaide, Brisbane and Melbourne, buyers can expect to cut their saving time by 5 years, now needing just over two years to save for a deposit.
In Perth and Hobart, first home buyers will take about one and a half years to reach their deposit goals, saving over four years of savings time.
While Darwin slashed only 2 years and 8 months of saving time, the city also recorded the fastest time, accounting for just 11 months to secure a 5 per cent deposit.
Domain’s Chief of Research and Economics Dr Nicola Powell, said the extra years that will be shaved off the saving journey, allowing Australians to buy sooner and start building equity earlier
“Until now, the biggest hurdle to homeownership has been saving a deposit,” Powell said
Yet, she said the scheme wasn’t a “magic fix.”
“Buyers will still face bigger mortgages and the risks that come with rising interest rates and potential property price drops,” Powell said.
“We also expect a fresh wave of demand, which could ramp up competition and push prices higher in more affordable areas, especially if supply doesn’t keep pace.”
Expert warn 5% deposit = 95% mortgage
As more first-time buyers prepare to take advantage of the scheme, experts have urged future homeowners to remember that a 5 per cent deposit still leaves them with a 95 per cent mortgage.
For first-time borrowers, a 5 per cent deposit entails higher interest payments, a limited ability to refinance or convert the property into an investment, and potential negative equity if property prices fall.
Canstar.com data insights director, Sally Tindall said that while the scheme takes LMI off the table, it doesn’t mean a “wafer-thin deposit risk-free.”
“A smaller deposit typically means a bigger loan, higher monthly repayments and potentially a higher interest rate,” Tindall said.
She said that buyers will still need to pass the banks’ serviceability tests to avoid taking on unmanageable debt.
“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.”
Cotality Head of Research Eliza Owen, said the primary cost of a loan for borrowers is the additional interest paid over the life of the loan.
“The flipside of a 5% deposit on a home purchase is a 95% loan-to-value ratio on the home loan. Taking out the extra debt means paying extra interest compared to the traditional 20% deposit,” Owen said.
“Over the life of a 30 year loan, the extra interest costs can be tens-of-thousands, or hundreds-of-thousands more expensive than a 20% deposit home loan.”
“Even though a smaller deposit means paying more interest over time, it could still work out cheaper for renters.”
Owen said that buying a property sooner may mean spending less time paying rent, which can quickly add up.
Cotality analysis showed that renters in Sydney would save the most money if they bought sooner, saving $251,000 on rent at $801 per week with a five per cent deposit, despite an estimated $234,909 extra interest over the course of the loan.
Data showed that first-time buyers across most capital cities would, over the life of their 30-year loan, save more money than if they had stayed in a rental.
Only Melbourne, Darwin, and Canberra forecasted that first home buyers on a 5 per cent deposit scheme would have to pay more interest than rent over the life of their loan, recording an extra cost of between $13,000 and $32,000.
Owen said that the analysis is illustrative rather than prescriptive, as outcomes vary and that non-renters may benefit from saving a full 20 per cent deposit to avoid LMI and extra interest.
“But there are other considerations to take into account even for non-renters, such as entering the market sooner to get ahead of further potential market upswings,” she said.
According to co-founder of real estate agent comparison service bRight Agent Aaron Scott, FHB should consider the financial strain on households and mortgage stress before taking on a loan.
New Roy Morgan research showed 28.4 per cent of mortgage holders are now ‘At Risk’ of mortgage stress, the highest level since January 2025.
Despite recent rate cuts, 1,032,000 Australians, or 19.7 per cent of mortgage holders, are classified as ‘Extremely At Risk’, above the 10-year average of 14.8 per cent.
“House prices are rising, mortgage stress is hovering around record highs, household budgets are stretched to breaking point, and now we’ve got the big banks and leading employers cutting thousands of jobs,” Scott said.
“Essentially new first-home buyers are being encouraged to take on risky loans and it would seem that major layoffs are being announced on a daily basis.”
“It’s a debt trap!” Scott said.
Additionally, property experts anticipate that dwelling prices will rise as demand increases.
“Expanding the scheme and attracting more buyers into the market could backfire for the government. The expected increase in demand is likely to add more fuel on to a red-hot property market, pushing home ownership further out of reach for generations to come,” Tindall said.
While first-home buyers are urged to be cautious about entering the scheme with just a 5 per cent deposit, experts said buyers will need to compromise on size, property type, and location.
“If you’re a first home buyer, understand that it's called a property ladder for a reason and it's OK to start on the bottom rung.
“The reality is, most first home buyers will have to compromise on size, location or both to make that first step into the market,” Tindall concluded.