Insight

5% Deposit Scheme, Help to Buy or LMI? Low-deposit options for first home buyers in 2026

October 22, 2026

Newly completed Australian home representing a first home purchase

Most first home buyers in Australia are not short of income. They are short of a deposit. The question this guide answers is narrow and practical: if you have less than 20% saved, what are your real options, what does each one cost, and what does each one commit you to after settlement?

There are three main routes: the Australian Government 5% Deposit Scheme (formerly the Home Guarantee Scheme), the Help to Buy shared equity scheme, and an ordinary low-deposit loan with lenders mortgage insurance (LMI). They are not variations on one product. They work differently, and the right one depends on your income, the price you are paying and how long you plan to stay.

Why the deposit is the hurdle

The National Housing Supply and Affordability Council’s 2026 report found it took the median-income household 11.2 years to save a 20% deposit in the December quarter 2025, well above the 10-year average of 9.6 years, and that the ratio of dwelling prices to income rose to 8.4 (NHSAC, State of the Housing System 2026, ch. 3). In the same report, 45.9% of median household income was needed to meet repayments on a new mortgage. The Council also notes home ownership among households aged 25–34 fell from 61% in 1981 to 43% in 2021.

That is the gap the government schemes are designed to close: they shorten the saving period, not the repayment period. You still need to service the full loan.

What LMI is, and who it protects

Lenders mortgage insurance “protects a credit provider if borrowers are unable to repay their loan”. It is “usually a one-off cost to a home loan borrower, payable when the amount borrowed exceeds 80% of the value of the property”, and, in ASIC’s words, it “does not benefit the borrower, it only protects the lender” (Moneysmart). The Productivity Commission devoted a full chapter of its 2018 financial system inquiry to LMI, including its role in the system, competition in the LMI market and its effect on borrowers (Productivity Commission, 2018, ch. 13).

Lenders like LMI for a structural reason as well as a credit one: under APRA’s capital rules, an owner-occupied principal-and-interest loan at 80–90% LVR carries a 40% risk weight with eligible LMI and 50% without it (APRA APS 112, Table 1). That is why most lenders insist on it above 80%.

LMI premiums vary by lender, insurer, loan size and LVR, and are often added to the loan. Ask for a written figure before you compare options, because it is the number every alternative below is trying to avoid.

The 5% Deposit Scheme: how the guarantee replaces LMI

Under the scheme, Housing Australia gives your lender a guarantee so you can borrow up to 95% of the property value without paying LMI (Housing Australia Information Guide, 1 July 2026). The guarantee is a promise to the lender, not money for you. If you default and the sale proceeds don’t cover the debt, Housing Australia pays the lender the shortfall “up to a pre-agreed limit” of up to 15% of the property value (Information Guide, section 1.3). You remain responsible for all repayments and costs, and you could still owe money if a sale falls short of the loan.

From 1 October 2025 the scheme was expanded: no limit on places, no income caps, higher price caps, and the Regional First Home Buyer Guarantee folded into the First Home Guarantee (Housing Australia, 24 August 2025; Treasury). It has two streams (Treasury):

General Stream for first home buyers and people who have not owned property in the last 10 years, with a deposit as small as 5%.
Single Parent Stream for eligible single parents or legal guardians with at least one dependant, with a deposit as small as 2%. Applicants in this stream don’t have to be first home buyers.

Core eligibility for first home buyers includes being an Australian citizen or permanent resident, being at least 18, living in the home as an owner-occupier and taking a principal-and-interest loan of up to 30 years (Information Guide, section 2). The government says the scheme has helped “over 320,000 Australians since the Scheme commenced in 2020” (firsthomebuyers.gov.au). In 2023–24, before the expansion, it supported close to a third of new owner-occupier first home buyers nationally (NHSAC, State of the Housing System 2025, ch. 3).

The government’s own illustrations, released when the expansion started, estimate LMI savings of about $42,000 on a $1 million Sydney home bought with a $50,000 deposit, and about $25,000 on a $600,000 home in Bendigo (Prime Minister’s media release, 1 October 2025). Treat those as the government’s estimates, not quotes.

Property price caps by location

Both the purchase price and the lender’s assessed value must be at or below the cap. For land plus a separate building contract, the combined cost must fit under it (firsthomebuyers.gov.au price caps). Current caps:

New South Wales: $1,500,000 in Sydney and regional centres; $800,000 elsewhere.
Victoria: $950,000 in Melbourne and Geelong; $650,000 elsewhere.
Queensland: $1,000,000 in Brisbane, the Gold Coast and the Sunshine Coast; $700,000 elsewhere.
Western Australia: $850,000 in Perth; $600,000 elsewhere.
South Australia: $900,000 in Adelaide; $500,000 elsewhere.
Tasmania: $700,000 in Hobart; $550,000 elsewhere.
ACT: $1,000,000.
Northern Territory: $750,000 in Darwin; $600,000 elsewhere.
Jervis Bay Territory and Norfolk Island: $550,000. Christmas Island and Cocos (Keeling) Islands: $400,000.

The NSW regional centres are the Central Coast, Coffs Harbour–Grafton, Illawarra, Mid North Coast, Richmond–Tweed, and Newcastle and Lake Macquarie. Some suburbs span more than one postcode with different caps, so check the exact address with the government’s postcode tool and your lender.

Help to Buy: shared equity explained

Help to Buy works on a different principle. Instead of guaranteeing part of your loan, the government buys part of your home. You need a minimum 2% deposit, and the government contributes up to 30% of the price of an existing home or up to 40% of a new home, so your loan is smaller and no LMI is needed (firsthomebuyers.gov.au, Help to Buy). There are 10,000 places a year, applications opened on 5 December 2025, and the scheme is designed to help up to 40,000 households over four years (Housing Australia, 5 December 2025). It is available in all states and territories.

Eligibility is tighter than the 5% Deposit Scheme (firsthomebuyers.gov.au):

Australian citizens only, aged 18 or over, applying alone or with one other person.
Taxable income at or below $103,000 for an individual, or $165,000 for joint applicants and single parents, based on your previous-year notice of assessment (FY 2026). The thresholds are wage-indexed each year.
No current ownership of property in Australia or overseas, with limited exceptions for single parents.
You must live in the home. Renting it out is not allowed.
You can’t combine Help to Buy with other government shared equity, loan or guarantee assistance, but you can still use stamp duty concessions and grants.

Housing Australia takes a second mortgage over the property. Gains and losses are shared in proportion to the government’s share, and when you buy back its share or sell, the amount is based on the property’s value at that time. You can make voluntary part payments to increase your share, and periodic reviews of your income may lead to required repayments.

Side by side: one Perth purchase, four ways

Take a $700,000 established home in Perth, under the $850,000 cap. The repayments below assume an illustrative 6.5% p.a. principal-and-interest rate over 30 years. This is not a quote, and every lender prices differently.

5% Deposit Scheme: $35,000 deposit, $665,000 loan (95% LVR), no LMI. About $4,203 a month.
Help to Buy (existing home, 30% share): $14,000 deposit (2%), government contribution $210,000, loan $476,000 (68% LVR), no LMI. About $3,009 a month. The government owns 30% of any future gain or loss.
Ordinary loan with LMI: $35,000 deposit and a $665,000 loan, plus an LMI premium (often added to the loan, which raises the repayment). About $4,203 a month before any capitalised premium.
Wait and save 20%: $140,000 deposit, $560,000 loan. About $3,540 a month, but on NHSAC’s figures you could be saving for years while prices move.

Two points the comparison makes plain. First, lenders don’t test you at the rate you’ll pay. Most banks assess you at least 3 percentage points higher (APRA, 28 May 2026), so on the 5% scheme loan above the bank would check you could manage about $5,592 a month. Second, Help to Buy’s lower repayment is not free. If the home rises to $800,000, the government’s 30% share is worth $240,000, not the $210,000 it put in.

Ongoing obligations, and what happens if you refinance or move

Under the 5% Deposit Scheme the guarantee stays in place until one of several events, including (Information Guide, sections 4.3–4.4):

you stop living in the home without an exemption, or you rent it out;
your balance falls to 80% or less of the property value on scheduled repayments (redrawable extra repayments don’t count);
you borrow more against the property, or you sell it; or
you refinance to a lender that isn’t a Participating Lender.

If the guarantee ends while your LVR is still above 80%, your lender may require LMI or other costs. You can refinance to another Participating Lender and keep the guarantee, but you can’t increase the loan, extend the term or make other changes that affect eligibility. In practice that limits your choice of lenders for the first few years, and that is worth understanding before you sign. Help to Buy has its own obligations: you must maintain and insure the home, take part in periodic reviews, and keep living in it (firsthomebuyers.gov.au).

How to apply

You can’t apply to Housing Australia directly for either scheme. Applications go through a Participating Lender as part of your home loan application. When the scheme was expanded, Housing Australia said it was available through more than 30 Participating Lenders (Housing Australia, August 2025). Help to Buy has its own, separate lender list. Once pre-approved under the 5% Deposit Scheme you have 90 days to find a home and sign a contract (firsthomebuyers.gov.au). Help to Buy also gives 90 days from conditional approval, with a possible extension of up to another 90 days.

A broker can compare Participating Lenders on rate, fees and policy, but approval is always the lender’s and Housing Australia’s decision. In WA and SA, the state governments also run their own low-deposit loan schemes (NHSAC 2025, ch. 3). Check state grants and stamp duty concessions through firsthomebuyers.gov.au and your state revenue office.

A balanced view

The NHSAC remains “cautious about demand-side housing policies”, warning they may push prices up for first home buyers generally in the near term (NHSAC 2026, ch. 3). That is a market-wide concern, not a reason for an eligible buyer to pay LMI they don’t need to. It is a reason to buy on what you can service, not on the maximum you can borrow.

Frequently asked questions

Can I use the First Home Super Saver Scheme with the 5% Deposit Scheme?

The FHSS is a way of saving your deposit inside super, not a loan or guarantee, and the government presents the three schemes side by side. See our First Home Super Saver Scheme guide for the timing rules, which are strict.

Can I use the 5% Deposit Scheme and Help to Buy together?

No. Help to Buy excludes other government shared equity, loan or guarantee assistance. Stamp duty concessions and grants can still apply.

Is there still an income cap on the 5% Deposit Scheme?

No. Income caps were removed from 1 October 2025. Help to Buy does have income caps.

Do I still have to pass serviceability?

Yes. Neither scheme changes how a lender assesses your ability to repay, including the serviceability buffer. See why a loan fails serviceability.

What if my lender values the home below the price?

Under the 5% Deposit Scheme, your deposit and the cap are tested against the lender’s assessed value as well as the price. A low valuation can mean a larger deposit is needed. Talk to your lender before going unconditional.

General information only. It is not credit assistance, financial product advice, or an offer of finance, and it does not take account of your objectives, financial situation or needs. Scheme rules, caps and thresholds are as published on the cited government pages on 22 October 2026 and can change. Eligibility and approval are decided by the lender and Housing Australia.

Sources

NHSAC, State of the Housing System 2026, 30 April 2026. https://nhsac.gov.au/reports-and-submissions/state-housing-system-2026 (accessed 22 October 2026).
National Housing Supply and Affordability Council (NHSAC), State of the Housing System 2025, 21 May 2025. https://nhsac.gov.au/reports-and-submissions/state-housing-system-2025 (accessed 22 October 2026).
Moneysmart (ASIC), Lenders mortgage insurance (LMI) – glossary, last updated 16 September 2019. https://moneysmart.gov.au/glossary/lenders-mortgage-insurance-lmi (accessed 22 October 2026).
Productivity Commission, Competition in the Australian Financial System (Inquiry Report No. 89), released 3 August 2018. https://www.pc.gov.au/inquiries-and-research/financial-system/report/ (accessed 22 October 2026).
APRA, Prudential Standard APS 112 Capital Adequacy: Standardised Approach to Credit Risk, in force from 1 July 2025. https://www.apra.gov.au/standards/aps-112 (accessed 22 October 2026).
Housing Australia, Australian Government 5% Deposit Scheme for First Home Buyers – Information Guide, 1 July 2026. https://firsthomebuyers.gov.au/sites/default/files/2025-09/Australian%20Government%205%25%20Deposit%20Scheme%20Information%20Guide.pdf (accessed 22 October 2026).
First Home Buyers (Australian Government), Australian Government 5% Deposit Scheme, current page. https://firsthomebuyers.gov.au/australian-government-5-percent-deposit-scheme (accessed 22 October 2026).
Housing Australia, Unlimited places, higher property price caps for first home buyers from 1 October 2025, 24 August 2025. https://www.housingaustralia.gov.au/media/unlimited-places-higher-property-price-caps-first-home-buyers-1-october-2025 (accessed 22 October 2026).
The Treasury, Supporting people into home ownership, current page. https://treasury.gov.au/policy-topics/housing/home-ownership-support (accessed 22 October 2026).
Prime Minister of Australia, Uncapped 5 per cent deposits available for first home buyers from today (media release), 1 October 2025. https://www.pm.gov.au/media/uncapped-5-cent-deposits-available-first-home-buyers-today (accessed 22 October 2026).
First Home Buyers (Australian Government), Property Price Caps – Australian Government 5% Deposit Scheme, current page. https://firsthomebuyers.gov.au/australian-government-5-percent-deposit-scheme/property-price-caps (accessed 22 October 2026).
First Home Buyers (Australian Government), Australian Government Help to Buy Scheme, current page. https://firsthomebuyers.gov.au/australian-government-help-buy-scheme (accessed 22 October 2026).
Housing Australia, Applications now open for the Australian Government Help to Buy Scheme, 5 December 2025. https://www.housingaustralia.gov.au/media/applications-now-open-australian-government-help-buy-scheme (accessed 22 October 2026).
APRA, APRA maintains current macroprudential policy settings in highly uncertain environment, 28 May 2026. https://www.apra.gov.au/news-and-publications/apra-maintains-current-macroprudential-policy-settings-highly-uncertain (accessed 22 October 2026).