If you’re trying to buy your first home right now, you’ve probably heard about the 5% deposit scheme and wondered whether it’s actually helping or just pushing prices higher.
It’s a fair question, and it’s one we’re getting a lot of at the moment.
The short answer is yes, it’s helping a lot of buyers get into the market sooner. But there’s a bit more going on behind the scenes that’s worth understanding before you decide if it’s right for you.
How the 5% deposit scheme works in Australia
The First Home Guarantee allows eligible first home buyers to purchase a property with just a 5% deposit.
The government guarantees up to 15% of the property value, which means your lender doesn’t require Lenders Mortgage Insurance (LMI).
That’s a big deal. LMI can easily cost tens of thousands of dollars, depending on your loan size, so avoiding it can make a real difference to how quickly you can move forward.
From late 2025, the scheme was expanded quite significantly:
- No annual cap on places
- Income limits removed
- Higher property price caps in many areas
- Single parents can access the Family Home Guarantee with as little as a 2% deposit
The goal is simple: it’s to help more Australians get into the market sooner rather than spending years trying to save a full 20% deposit.
In many cases, that’s exactly what’s happening.
First Home Guarantee vs Help to Buy
It’s also important to understand that this is different to the Help to Buy scheme.
Help to Buy is a shared equity model where the government takes a partial ownership stake in the property, which can reduce the deposit required to as little as 2% for eligible buyers.
The key difference is that with Help to Buy, the government actually owns a share of the property alongside you, whereas with the First Home Guarantee, there is no ownership involved at all.
Instead, the First Home Guarantee works as a support mechanism for your lender, allowing you to purchase with a 5% deposit without paying lenders mortgage insurance, while still retaining full ownership of the property from day one.
Both schemes are designed to help buyers get into the market sooner, but they achieve it in very different ways, and that distinction is important when you’re working out which one might suit your situation.
What we’re seeing in the market
The First Home Guarantee scheme is clearly getting more people into the market.
A large portion of participants are under 30, and thousands of single parents have used it to secure a home sooner than they otherwise could have.
There’s also been strong uptake in regional areas, with over 99,000 participants purchasing outside major cities.
In October 2025 alone, almost 5,800 homes were purchased through the scheme, which was roughly one in every ten transactions nationally.
We’re seeing this firsthand as well. Many buyers who felt stuck trying to save a full deposit are now moving forward sooner using the scheme, especially while rents and living costs are still high.
There’s also been a lift in demand from younger buyers, with inquiries from 18-25-year-olds rising year on year.
For many, it’s removing the biggest barrier, which is the deposit.
The other side of the story
There is another side to this that’s worth understanding.
Recent data shows that properties at the lower end of the market are seeing the strongest price growth across most major cities.
These are typically the same properties that fall within the scheme’s price caps.
In simple terms, more buyers are now able to compete for the same entry-level properties.
That increased competition is pushing prices up in that part of the market.
Since early 2023, prices in the most affordable segment have risen significantly, with strong growth compared to higher-end properties.
That said, it’s not the whole story.
We’re still dealing with a housing shortage, strong population growth, and limited new supply.
Those factors were already putting pressure on prices well before the scheme was expanded.
So while the scheme is helping buyers get in, it’s also operating in a market where demand is already high.
What this means for you as a first home buyer
This is where it becomes less about headlines and more about your personal situation.
For many buyers, the scheme is a genuinely useful tool.
It can allow you to buy sooner, avoid a large LMI cost, and stop chasing a moving target while prices continue to rise.
But there are a few things you need to be clear on.
A smaller deposit means a higher loan and higher repayments. It also means you have less buffer if the market shifts in the short term.
These aren’t reasons to avoid the scheme, but they are things you want to understand properly before making a decision.
This is exactly what we work through with clients every day.
Some of the key questions to consider:
- What do your repayments look like if rates increase further, especially with the cash rate sitting around current levels?
- Are you buying in an area with strong long-term demand?
- How long would it realistically take you to save a larger deposit if you waited?
In a lot of cases, waiting sounds like the safer option, but when you actually run the numbers, getting in sooner can make more sense.
The bigger picture
The conversation around the 5% deposit scheme really comes back to supply and demand.
Schemes like this increase access, which is great for buyers, but they also bring more competition into an already tight market.
For some areas, especially where properties sit comfortably under the price caps, this creates more opportunity.
For others, particularly where buyers are stretching to the top of the cap, it means being more strategic and making sure the numbers stack up.
Understanding the market you’re buying into puts you in a much stronger position.
Whether it’s the right move for you comes down to your numbers, your goals, and your timeline.
If you’re thinking about using the scheme, the next step is working out whether it actually makes sense for your situation.
This blog is intended for general informational purposes only. For personalised advice tailored to your unique financial situation, please contact NMC Finance.
