Australia’s 5% Deposit Scheme: Expanding Opportunities for First Home Buyers

If you’re looking to buy your first home in New South Wales, you might be aware of the First Home Owner Grant (FHOG). This is a national home buyers’ assistance scheme funded and administered by each individual state and territory.

It was launched by the Howard government in July 2000. Under the scheme, eligible first-home buyers are entitled to a one-off grant to help them purchase their principal residence. The amount varies by state, but in New South Wales, it’s $10,000.

In October 2025, prospective first-home buyers received another boost from the Federal Government. The Prime Minister, Anthony Albanese, introduced measures allowing for “uncapped” 5% deposits under the Home Guarantee Scheme (now known as the 5% Deposit Scheme.

This move is great news for Australians who want to achieve their dream of owning a home. It could shave years off how long it takes to save for a deposit.

If you missed the announcement, you might not be aware of these recent changes. We’ve put together this guide to explain how this newly revamped 5% deposit scheme can benefit you.

What is the uncapped 5% deposit?

The Australian Government 5% Deposit Scheme is a modified and renamed version of the Home Guarantee Scheme.

The government launched the original first home buyer scheme on January 1, 2020. Through it, 27 lenders (two major and 25 non-major) offered guaranteed loans to 10,000 eligible first home buyers across Australia who had saved a 5% deposit. Crucially, these guaranteed loans did not require them to pay Lenders Mortgage Insurance (LMI).

When approving a loan request, most major banks and mortgage lenders have traditionally required first-time home buyers to have a 20% deposit saved. The introduction of the Home Guarantee Scheme was largely a welcome change.

In July 2022, the number of available loans increased to 40,000, making it easier for many more first-time home buyers to enter the property market. However, the cap meant that many others still missed out (despite meeting the eligibility criteria for a 5% deposit).

Thankfully, the Federal Government has now removed that cap, as well as previous income caps. In doing so, they have made the scheme open to all first home buyers who have a minimum 5% deposit. Better still, single parents or legal guardians only need to have a minimum 2% deposit.

Since the original Home Guarantee Scheme launched in 2020, the Federal Government has helped over 248,000 Australians buy their first home. Thanks to the recent changes, there is genuine optimism that the number could soar in the coming years.

How does the 5% deposit work?

The introduction of a minimum 5% deposit requirement for all eligible first-home buyers will fundamentally alter who enters the property market and where.

That’s because, in addition to removing the caps, the Federal Government has lifted property price thresholds in line with current market values. This means buyers in high-cost markets like Sydney can access the scheme for more properties and in more suburbs than they otherwise could.

For instance, a first-home buyer could buy a property valued at around $1.5 million with a $75,000 deposit, rather than $300,000. This opens the possibility of living in areas like Bondi, Balmain, or Surry Hills, suburbs that might otherwise have been financially out of reach.

The practical effect of these changes is to dramatically shorten the time it takes people to save for a deposit. It also significantly reduces their upfront costs. At the same time, it eliminates Lenders Mortgage Insurance (LMI), which can cost tens of thousands of dollars over the life of a loan.

With the government guaranteeing the portion of the loan above the 5% deposit, eligible buyers can apply their savings more directly toward ownership, rather than insurance and long waiting periods.

According to the Albanese government, the changes to the scheme mean that first home buyers in Sydney purchasing a million-dollar home with a 5% deposit can:

• Shave 10 years off the time it takes to save up for their deposit
• Save around $42,000 in Lenders Mortgage Insurance
• Pay more than $350,000 towards their home loan rather than paying rent

In essence, the uncapped 5% Deposit Scheme was once a limited-access assistance program. Now it’s a more accessible gateway for first-home buyers to get into the housing market sooner— and with lower upfront barriers.

What you should know about the Australian government 5% Deposit Scheme

Unlike the First Home Owner Grant, the Australian Government 5% Deposit Scheme isn’t a cash grant. The government doesn’t give you money towards your deposit. Instead, it acts as a guarantor for the part of the loan that would normally require you to pay Lenders Mortgage Insurance (LMI).

The scheme is administered by Housing Australia. It is delivered through participating banks and mortgage lenders. This means you still must apply for a home loan through one of those lenders. Additionally, you must meet all of their lending criteria.

Am I eligible for the Australian government 5% Deposit Scheme?

To qualify for the Australian Government 5% Deposit Scheme, you must meet a number of eligibility requirements. They’re designed to ensure you’re a genuine first-home buyer.

These criteria can change at any time. Therefore, when you feel ready to purchase a property in Sydney or wider New South Wales, it’s important to check your eligibility here.

Here are the criteria at the time of writing:

• You must be an Australian citizen (permanent residency alone may not be sufficient in some cases).
• You must be at least 18 years old.
• You must intend to live in the property as your principal place of residence.
• You must not have previously owned property in Australia.
• You must have saved a 5% deposit of the total property price value (2% if you’re a single parent or legal guardian).

As mentioned, you must also satisfy your lender’s serviceability requirements. Also, the scheme does not override processes such as normal credit checks, employment verification, or borrowing capacity assessments.

Where can you buy property in Sydney with a 5% deposit?

In theory, there are many suburbs across Sydney where you could buy a house, unit, or townhouse with as little as a 5% deposit. However, it’s important to understand what that 5% actually equates to in dollar terms and how it aligns with local property values.

As of February 2026, the median property prices are:

• Houses in Sydney: $1,598,819
• Units in Sydney: $903,210
• Regional dwellings: $821,563

This means that if a house is listed at $2 million in Annandale, Newtown, Manly, or Pyrmont, you might be able to buy it with a $100,000 deposit.

To see what properties are available in Sydney and wider New South Wales, talk to one of our DiJones real estate professionals. They’ll be able to provide you with the latest insights into market pricing, availability, and strategy, and they can be an invaluable resource as you explore your options.

What are the risks of buying with a 5% deposit?

The recent changes to the Australian Government 5% Deposit Scheme make it much easier for first-time home buyers to enter the property market. However, like with any property purchase, there are some risks.

Keep these things in mind:

• You begin with minimal equity.
• If property values soften, you may have limited contingency funds.
• Higher loan-to-value ratios mean larger repayments relative to deposit size.
• Interest rate movements may have a greater impact on your cash flow.

As a buyer, you’ll need to honour the responsibilities associated with repaying your loan, so it's worth assessing whether you have the following before committing to purchasing your first property:

• Stable employment
• Emergency savings buffer
• Comfort with repayment levels under different interest rate scenarios

Is the 5% deposit initiative right for you?

The 5% Deposit Scheme will provide many Australians with an excellent opportunity to purchase a home sooner in New South Wales. It’s perhaps best suited to those who:

• Have a stable income but limited savings
• Are comfortable borrowing at higher loan-to-value ratios
• Want to enter the market sooner rather than later
• Meet all the eligibility requirements

It may not be suited to buyers who:

• Would rather have larger cash reserves behind them before making a purchase
• Are uncertain about their cash flow or job stability
• Are uncomfortable with high levels of debt

Summing up

For many Aussies, the Australian Government 5% Deposit Scheme is a welcome development, representing a genuine opportunity to step onto the property ladder sooner.

However, despite its benefits, buying property in Sydney remains a major financial undertaking. That’s why it’s worth seeking advice from professionals who know the local property market well.

If you’re considering purchasing your first home with a 5% deposit, the team at DiJones can help. Contact us today to find out which properties are available in your price range. Let us help you turn your great Australian dream of home ownership into a reality.