5% Deposit Scheme - Unexpected Consequences.

The much publicised updated Australian government guarantee scheme was relaunched this October 1.

As a refresher, previously, first home buyers, could use a 5% deposit to purchase a property without paying expensive Lenders Mortgage Insurance (in broad terms a one off fee payable when you have less than 20% deposit) . However the fairly limited scheme was capped by numbers of participants, participant incomes and fairly low house price limits. As of October 1, 2025, numbers are no longer restricted, income caps have been removed and the house price limits have been significantly increased. For example, in Sydney, the house price limit is now $1,500,000 (previously $900,000, maximum income $125,000 for a single, $200,000 for a couple. Now there is no household income limit). This has significantly broadened the scheme to most first home buyers across Australia, not just a few.

Whilst the changes were greatly anticipated, there has still been an immediate effect on property markets around Australia. And not always in the way you would expect.

I spoke today with Chris Clarke, a well respected buyers agent in Sydney (you can find more about Chris here at www.clarkebuyersagents.com.au and https://www.facebook.com/clarkebuyersagents) and following are his comments:

“In short, the 5% HGS scheme is having a very similar impact to when NSW changed stamp duty for first home buyers back in early 2023. At that time, buyers purchasing under $1.5 million could opt to pay an annual land tax instead of the full upfront stamp duty (for as long as they owned the property).

What we saw then, and are starting to see again now, is properties around the $1.3mil to $1.4mil range being pushed to sell just under $1.5mil to remain eligible. Buyers who aren’t first home buyers know that an offer of $1,500,001 is often unbeatable against that competition.

As a result, homes that should be selling between $1.5mil and $1.6mil aren’t attracting much interest, and some owners in that price range are likely to hold off selling if they can.”

So as you can see, once again, government intervention is having unintended consequences, pushing prices up in some price levels, and down in others. A policy that was designed to help first home buyers with limited resources may not be achieving its desired effect.

Personally I am also hearing from agents and first home buyers themselves that there are a lot more first home buyers making use of this new scheme in the market, and combined with lower interest rates over 2025, properties around the $1m and less are being snapped up very quickly.

So what about regionally?

The price cap changes aren’t as large as the capital cities and many first home buyers in regional areas don’t often have the larger incomes over the previous caps, so the price and demand changes are more muted.

Tamworth

Speaking today with Jacqui Powell of Partner Now Property in Tamworth, Jacqui tells me:

“we have seen a distinct increase in the number of first home buyers at open houses since the scheme started. Last Friday in town, we listed a property in the $500,000 range. By the close of Wednesday we had 19 offers and the property sold to a cash buyer. I would estimate the split was 50/50 first home buyers and other (other being a mix of owner occupier and investors). The Tamworth market mind you is consistently strong given its strong rental yield and access to infrastructure”.

Incidentally, Landline recently did a segment on Tamworth (with a special appearance by Jacqui) summing up why its such a great place (as a horse girl I do concur):

Snowy Mountains

Kelly Bertossi of Belle Property Snowy Mountains, a Berridale and Cooma specialist, says:

“Whilst prices may not have moved yet, we have seen a definite change in the market moving to a lower supply and higher demand as we are seeing more first home buyers coming through open homes.  The price range for first home buyers in our area is around 600-750k, so much more affordable than the capital cities”.

Tricky Details

We are also finding a few weeks after release and applying the new rules, that there are some catches in the scheme. Until you reach 20% equity and released from the scheme, you may be able to only refinance to another one of the 38 lenders participating in the scheme, and lenders policies around this aren’t necessarily clear or consistent at this point. In addition, should you wish to undertake renovations, or rent out your property, until you have reached 20% equity, you are limited in your options (as part of the scheme you must be residing in your home, in order that speculation is not encouraged).

Another catch is that if you do in fact have 20% in cash deposit, you are unable to participate in the scheme and must use your 20%, or if choosing to use less, pay Lenders Mortgage Insurance. In fact you are required to use all available cash (less varying amounts of allowed living expenses, for example 6 months of expenses) as your deposit. For example, if you were looking at a purchase of $1m in Sydney, and you had $120,000 in savings, under the scheme, you may be able to withhold $20,000 as a reasonable amount (varies between lenders), however you would be required to put $100,000 (10% not 5%) towards your deposit, depending on the lender.

As you can see, once again, government intervention can have unintended consequences, and its important that you really consider the finer details in these schemes so as not to get caught out down the track.

Reading this and need some advice? Dont hesitate to get in touch, we love helping first home buyers get into the market.

Have a great weekend.

Reggie

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