Unlocking Unlocking the Truth About the 5% Deposit Scheme
You’ve probably seen a lot of headlines, opinions, and even myths floating around about this scheme lately.
So in this resource, we’re breaking down what the data from the latest report actually says, clearing up some common misconceptions, and revealing what the numbers tell us about how first-home buyers are really using the scheme in today’s market.
We’ll also cover:
🔑 The most common myths and misconceptions
🔑 The real data from the 2024–25 report
🔑 What the numbers show about risk and missed repayments
🔑 And what it really takes to buy under the scheme, including the full upfront costs beyond that 5 % deposit
This post supports Episode 20 of the First Home Unlocked Podcast: Unlocking the Truth About the 5% Deposit Scheme.
It also continues the conversation from Episode 10: Unlocking the First Home Guarantee Scheme, where we broke down how the scheme works, from eligibility and pros and cons to how to eventually exit once your equity grows.
If you haven’t listened yet, that’s a great place to start.
A Quick Refresher: What Is the 5 % Deposit Scheme?
The 5 % Deposit Scheme (previously known as the First Home Guarantee Scheme) is a federal government initiative run by Housing Australia.
It helps eligible first-home buyers purchase a property with as little as a 5 % deposit, without paying Lenders Mortgage Insurance (LMI).
The government acts as guarantor for up to 15 % of the properties value, allowing your lender to treat the loan as though you had a full 20% deposit.
That means you:
Avoid LMI (saving $10K–$30K or more)
Still access competitive interest rates
Keep 100 % ownership and future equity
Since 2020, more than 230,000 Australians have used the scheme to purchase their first home, including 45,000 key workers, 79,000 regional buyers, and over 5,000 single parents.
It’s not new, it’s now a core part of Australia’s first-home-buyer landscape.
Misconception 1: It’s a New Scheme
We have been seeing and hearing around the scheme, that many people and professionals think the scheme launched recently, especially now that it’s been renamed the 5 % Deposit Scheme.
But the truth is, it’s been around for nearly six years. It started in 2020 as the First Home Loan Deposit Scheme, evolved under Housing Australia in 2022 as the First Home Guarantee Scheme, and continues today under its new name.
The changes that took effect in October 2025 are what’s caused the confusion:
Removal of income caps (so more buyers can qualify)
Increased property price caps Australia wide
Removal of place limits for lenders
These updates have made the scheme more flexible and widely available.
From the recent Housing Australia 2024–25 financial year report, the data showed that 1 in 3 first-home buyers nationally used the scheme to purchase their first home.
So this isn’t a new scheme at all, it’s been running successfully for years, helping thousands of Australians buy their first home sooner.
Misconception 2: It’s a Labour-Only Scheme
You might have seen posts or heard people say the 5% Deposit Scheme is a Labour initiative but that’s not the full story.
In reality, the scheme has had bipartisan support since it first launched in 2020. Both major parties, Labour and the Coalition have continued to back and expand it, recognising how valuable it’s been for helping first home buyers enter the market with smaller deposits and aviod paying LMI.
In the lead-up to the 2025 election, both sides even included versions of the scheme in their housing policies, with only minor differences in eligibility criteria.
So regardless of which government is in power, there’s been consistent support for keeping the scheme in place because the data clearly shows it’s working.
This year’s report confirms strong performance, low arrears, and steady demand right across Australia.
Misconception 3: There’s a High Risk of Defaults or Missed Repayments
You may have seen headlines or comments suggesting that allowing first home buyers to purchase with a 5% deposit, effectively borrowing up to 95% of a property’s value increases the risk of defaults or missed repayments.
But the latest data shows a very different picture.
As of June 2025, arrears on loans under the 5% Deposit Scheme were just 0.3%, with hardship cases at 0.9%. That’s well below the national average arrears rate of around 0.89%.
In other words, borrowers using the scheme are actually performing better than the broader market, even after two challenging years of higher interest rates and rising living costs.
Rather than signalling risk, the data shows that most first home buyers using the scheme are managing their loans responsibly and making their repayments on time.
Borrowing at 95% LVR: Understanding the Risk
While the First Home Guarantee helps remove one major barrier, Lenders Mortgage Insurance, it doesn’t remove the responsibility that comes with borrowing at a 95% Loan-to-Value Ratio (LVR).
At this level, you’re still borrowing a large percentage of the property’s value with no option to release equity. That means if the market dips, or if your income or expenses change unexpectedly, you may have less flexibility to refinance, draw equity, or sell without taking a loss.
That’s why it’s so important to have buffers and protection in place before you buy. Here’s what we recommend:
Emergency fund: Most people aim for 3–6 months of living expenses, not just mortgage repayments. This gives you breathing room if work changes, your income drops, or life throws something unexpected your way.
Insurance: Income protection or other relevant cover can act as a second layer of security, helping you manage repayments if you can’t work for a period of time.
Cash reserve: Some buyers prefer a simple, fixed number like $10,000, $20,000 or even more sitting in the bank so they feel comfortable and prepared.
There’s no single “right” number, it’s about what helps you sleep well at night and keeps you financially secure.
If you’re taking on hundreds of thousands of dollars in debt, planning your buffers carefully can make the difference between a stressful and a confident ownership experience.
This is especially true when using the 5% Deposit Scheme, because while it removes the LMI cost, it doesn’t remove the importance of smart money management.
Misconception 4: You Only Need a 5% Deposit
This is one of the biggest misconceptions about the 5% Deposit Scheme, the idea that all you need saved is 5% of the property price.
Yes, the scheme lets you borrow with just a 5% loan deposit, but that’s not the full amount of cash you’ll need to buy your first home. There are still a number of upfront costs you’ll need to plan for, and they can add up quickly.
Some of the key costs include:
Stamp duty (varies by state and price)
Conveyancing and legal fees
Building and pest inspections
Bank and government fees
Building insurance
Moving costs, setup, and furniture
A cash buffer or emergency fund
We break all of this down in detail in Episode 3: Unlocking the Real Costs of Buying Your First Home, below is an example of how what it really costs.
Example: Buying a $900,000 property in Queensland
Your 5% deposit would be $45,000. Once you add in all the other upfront costs, here’s what it actually looks like:
Stamp duty: $26,350
Transfer fees: $3,457
Mortgage registration: $238
Conveyancer: $2,500
Lender fees: $1,000
Building & pest inspection: $600
Building insurance: $3,000
Moving costs: $3,500
Furniture/setup (approx.): $5,000
Cash buffer: $20,000
Total cash required: roughly $110,000, more than double the 5% deposit alone.
Why this matters
This example highlights why planning ahead is so important. Even though the scheme makes it easier to enter the market with a smaller loan deposit, you still need a realistic understanding of the full cost of buying a home, especially because stamp duty is often one of the largest expenses after the deposit and it varies dramatically depending on the state you’re buying in.
So while it’s called a 5% deposit scheme, the true amount you’ll need upfront is often closer to 10–12% of the purchase price once everything is included.
This is why early planning, budgeting, and clear advice make such a difference. The goal isn’t just to get in, it’s to buy your first home feeling clear, calm and confident.
If you’re not quite ready to buy yet, that’s completely fine. We’re always happy to talk early, help you map out what your numbers might look like, and give you a clear plan to work towards.
What the 2024–25 Report Shows
So what does the 2024–25 Housing Australia Report actually reveal? Here are the key insights from this year’s data and what they mean for first home buyers using the 5% Deposit Scheme:
46,022 of the 50,000 available places were taken up this year
That’s 92% of places used, up 5% from the year before.
This shows increasing demand and confidence in the scheme.
At least one in three first home buyers used the scheme
In six out of eight states and territories, more than a third of first home buyers purchased using the guarantee.
It’s now one of the most widely used pathways into home ownership across Australia.
Over 1 in 4 guarantees went to key workers
Teachers, nurses, police, paramedics, and other essential workers continue to be major beneficiaries.
Average exit time: 29 months
In just over two years, many buyers have built enough equity to refinance off the scheme
Participation increased even with higher interest rates
While broader first home buyer activity slowed across the market due to lending pressures and affordability challenges, the scheme saw more buyers make use of it.
This highlights two things:
The scheme is becoming more important, not less.
Buyers are using it strategically, to stay competitive in a tougher environment.
Final Thoughts: Don’t Just Chase the Incentives
The biggest takeaway from the report is this: The 5% Deposit Scheme is a tool and like any tool, it works best when used with a clear plan.
If you’re considering buying under the scheme, make sure you:
Understand all your upfront costs
Your deposit is just one part of the equation. Stamp duty, conveyancing, inspections, setup costs, and buffers all matter and planning for them early will mean far less stress later.
Keep buffers in place
When you're borrowing at a higher LVR, safety nets become essential. Whether that’s 3–6 months of expenses, a fixed dollar amount, or income protection, choose what helps you feel secure.
Buy a property with long-term quality
This is the real key. As we covered in Episode 1 and Episode 6, the best outcomes come from choosing a home that aligns with your lifestyle, has strong fundamentals, and will grow in value over time not just the one that fits the smallest deposit.
Because it’s not about buying fast. It’s about buying right for where your life is heading, not just where it is today.
Listen to Episode 20 for the full breakdown or Book a Get to Know You Chat to map out your plan with clarity and confidence.
