For many first home buyers, the real challenge isn’t choosing a property but saving for the deposit. Take an $800,000 home as an example: traditionally requiring a 10%–20% deposit means setting aside $80,000–$160,000—a sum that often takes young families years to accumulate. To better support first home buyers, the Australian government has accelerated and expanded its 5% deposit scheme. Prime Minister Anthony Albanese stated that the early rollout will help young people realize their homeownership dreams faster. He said: “We want to help young people and first home buyers achieve their dream of owning a home sooner. Bringing forward our 5% deposit scheme is precisely about that goal—enabling more Australians to move into their own homes faster while saving money.”
Effective October 1, 2025, the Australian government expanded the First Home Buyers Guarantee (FHBG), allowing eligible buyers to purchase property with just a 5% deposit and waiving the Lender Mortgage Insurance (LMI) fee. This means first home buyers can enter the housing market more easily.
Policy Breakdown
Compared to the old regulations: | |
1 | The minimum deposit can be as low as 5% (for regular first home buyers); single parents/legal guardians may qualify for as low as 2% under certain programs.
|
2 | Removal of Quota and Income Caps: Strict restrictions on quotas or income levels will no longer apply (i.e., “no caps, no income thresholds”), enabling more first home buyers to qualify for applications. |
3 | Waiving Lenders Mortgage Insurance (LMI): The government provides guarantees to banks for loans, thereby replacing the LMI that homebuyers would otherwise have to pay themselves, directly reducing the upfront costs for buyers. The Treasury and the government estimate that this scheme will save home buyers approximately $1.5 billion in LMI payments in the first year. |
What is LMI? Lenders Mortgage Insurance (LMI) is an insurance product designed to protect banks or lending institutions (Lenders) when providing mortgage loans to borrowers. It typically applies only when the loan-to-value ratio (LVR) exceeds 80%, as banks perceive higher risk in such mortgages. Its purpose is to mitigate losses for lenders in the event the borrower defaults on repayment. Policy Exemption Effect: Under the 5% Deposit Scheme, government guarantees replace LMI, eliminating the need for buyers to pay this additional insurance premium and saving them thousands to tens of thousands of Australian dollars. It is estimated that first home buyers will avoid approximately $1.5 billion in loan insurance costs through this scheme in the first year alone. |
In addition, starting in October, the housing price caps under the policy will be raised across various regions:
Sydney’s threshold will rise from AUD 900,000 to AUD 1.5 million, Melbourne’s will increase from AUD 800,000 to AUD 950,000, and Brisbane’s will climb from AUD 700,000 to AUD 1 million. Other states and territories will see corresponding adjustments. This means first home buyers will have access to more eligible properties across broader regions, no longer constrained by excessively low price caps.
Who is eligible to apply? Qualifications and restrictions
Basic Eligibility (Common Requirements)
- First Home Buyers Status
- Australian citizen or permanent resident (non-citizens/non-permanent residents are generally ineligible for this federal support program).
- Possess at least 5% (or 2% for single parents/guardians) in available savings and meet the lending bank’s pre-approval assessment (income, debt-to-income ratio, credit history, etc.).
Foreign buyers should note:
- FHBG/5% Deposit Not Applicable: Non-Australian citizens/permanent residents are ineligible for this scheme.
- Foreign Investment Review Board (FIRB) Approval – Required for most non-residents purchasing residential property.
- Stamp Duty Surcharge – Many states impose additional taxes on foreign buyers.
- Higher Deposit Requirements – Lenders typically require non-resident buyers to pay a 20-30% deposit.
Although the deposit has decreased, the pressure hasn't “disappeared.”
Before taking advantage of policy incentives, homebuyers must still prepare thoroughly. While policies have lowered the entry barrier, purchasing a home still involves long-term financial planning and risk management. A 5% deposit allows you to buy sooner, but it also means borrowing more money. The higher the loan amount, the greater the pressure you’ll face when market conditions or interest rates shift.
You need to consider these questions carefully:
- Can you still afford your payments if interest rates rise?
- Is your income stable? Are there risks to your repayment ability in the coming years?
- If property prices fall, could you end up with negative equity?
Favorable policy | Risks and Precautions |
More opportunities to enter the housing market mean more Australians can become homeowners. Reduced deposit and LMI costs ease the financial burden for first home buyers. The housing price cap has been raised, making more areas and properties eligible and offering greater choice. | Loan-to-value ratios as high as 95% mean that rising interest rates or income fluctuations could increase repayment pressure. A low deposit doesn’t mean easy living; buyers still bear the long-term mortgage obligation. The policy may attract more buyers to enter the market, leading to tight housing supply in popular areas and compressed decision-making time for home purchases. |
Observations and Recommendations
While benefiting from the 5% deposit policy, first home buyers must still develop a comprehensive plan to ensure a safe and secure purchasing process. First, establish a detailed financial plan. Homeownership involves not only the deposit but also long-term loans, interest rate fluctuations, and daily expenses. High-leverage financing means buyers may face significant pressure if interest rates rise or property values decline. Therefore, pre-assessing monthly repayment amounts and overall budgets is a crucial step before entering the market.
Second, meticulously reviewing contracts and properties is paramount. Before signing, thoroughly read all clauses in the sales contract; seeking interpretation from a professional lawyer is a prudent approach. Simultaneously, conduct a comprehensive inspection and appraisal of the property to ensure no underlying quality issues or hidden risks exist, effectively preventing unnecessary losses later.
Furthermore, buyers should monitor policy changes and market trends. While governments may lower deposit requirements, policies can influence housing price trajectories and loan conditions, while market competition may intensify. Staying informed about policy shifts and market dynamics helps develop sound strategies for purchasing and repaying mortgages.
Summary
The expanded First Home Buyer Scheme is projected to support over 70,000 buyers annually. However, regardless of how favorable the policy may be, purchasing a home still requires careful planning: confirm eligibility for the scheme, assess financial capacity, and thoroughly review contracts and bank guarantee documents. For foreign nationals or non-permanent residents, it is also essential to understand the Foreign Investment Review Board (FIRB) approval process and associated additional fees in advance to avoid transaction delays.
By clarifying eligibility, quantifying financial capacity, familiarizing themselves with policy and contract terms, and considering market trends, first-time buyers can enter the housing market more safely and securely. This approach helps achieve homeownership goals while effectively managing potential risks.
Consultation with Specialized Lawyers
Amy Zhu
Partner, Senior Licensed Conveyancer
Amy is an experienced licensed conveyancer with years of experience in conveyancing matters. She has outstanding work experience and achievements in conveyancing services under property law and conveyancing law provisions. She is skilled in working with clients in Mandarin and English.
Yan Zhou
Solicitor
Yan began working as a law clerk in late 2018 and enrolled in the law program at the University of Sydney. She earned her Juris Doctor degree in 2024 and has been working full-time in legal-related roles since the latter half of that year, currently focusing on conveyancing matters.
Abraham Sun
Principal Solicitor
As the Principal Solicitor, Abraham has been working with numerous clients including listed companies, state-owned enterprises, ultra-high-net-worth clients, and investment banks. Customers in various industries including Australian and Chinese companies and individual investors, had achieved considerable economic benefits with his professional legal advice.
Si Zhang
Special Counsel, Notary Public
Si specializes in legal provisions in all areas of business, corporate and property matters, in terms of acquisitions/sales, property, corporate, commercial, industrial and retail leasing, as well as off-the-plan properties, commercial development, foreign investment, joint ventures, providing professional and pertinent advice to clients within these areas.
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