The Australian Government’s 5% deposit scheme, formally the First Home Guarantee, is the single most useful lever for most Sydney first home buyers, and since October 2025 it has been dramatically wider: no income caps, no limit on annual places, and a Sydney price cap of $1.5 million. Here is how it actually works, in the order lenders think about it.

How does the 5% Deposit Scheme work?

You still borrow from a normal lender and hold a normal home loan. The difference is that Housing Australia guarantees the portion of the loan above 80% of the property value, up to 15% of it. Because the lender’s risk above 80% is covered by that guarantee, it does not charge lenders mortgage insurance, which is the cost that usually makes small-deposit borrowing expensive. There is no cash payment to you and nothing to repay to the government: it is a guarantee, not a grant.

Who is eligible for the 5% Deposit Scheme?

The scheme is for owner-occupiers buying a first home, purchasing individually or with others. You need at least a 5% genuine deposit, and you must live in the property. Eligibility is assessed twice, by Housing Australia against the scheme rules and by the lender against its ordinary credit policy, so passing one test does not guarantee the other. The removal of income caps in October 2025 ended the awkward situation where a pay rise could push a buyer out of the scheme between pre-approval and purchase.

What are the price caps in NSW?

The cap for Sydney and NSW regional centres is $1.5 million; for the rest of NSW it is $800,000. The cap applies to the purchase price of the property. At $1.5 million the scheme now covers a large share of Sydney’s apartment and townhouse market and a meaningful share of houses, which was simply not true under the old caps.

What does it cost compared with waiting?

The scheme’s saving is the LMI you do not pay and the years you do not spend saving. The cost is the larger loan: a 95% loan means higher monthly repayments than a 80% loan on the same property, and less equity from day one. Run both versions honestly, the deposit calculator compares buying now at 5% against saving longer, and the repayments calculator shows the monthly difference. For many buyers the arithmetic favours buying sooner; for some it does not. The point is to decide on numbers, not slogans.

What fine print should you know?

  • Participating lenders only. Not every lender offers the scheme, and policies differ between those that do. This is where a broker earns their keep: matching your situation to a participating lender likely to approve it.
  • Your 5% must generally be genuine savings. Policies vary on gifts and other sources, so get advice before assuming.
  • The guarantee ends when you refinance above the rules or stop living in the home. It is designed for owner-occupiers, not a first investment property.
  • Property type rules exist. Established homes, new builds and vacant land with a build contract are treated differently by some lenders. Check before you fall in love with something unusual.

How does it stack with other help?

The scheme combines with the NSW stamp duty exemption for eligible buyers up to $800,000 and the concession up to $1 million, and with the First Home Super Saver Scheme for building the deposit itself. A buyer at $780,000 using all three pays no duty, no LMI, and saved their deposit with a tax advantage. That combination is why working out eligibility properly, before you set your price range, is worth an hour of anyone’s time.

Where should you start?

How does an application run?

The scheme is administered through participating lenders, so from your side it looks like an ordinary home loan application with one extra layer. In practice the sequence is:

  • Eligibility check and pre-approval. A participating lender assesses your income, deposit and commitments as it would for any loan, and checks the scheme criteria at the same time. A scheme place is reserved for you at this stage, for a limited period.
  • Find the property. It must be within the price cap for its location and must be a type the scheme and the lender both accept. At $1.5 million in Sydney, the cap is rarely the binding constraint it once was, but it is still checked on the contract price, not the guide price.
  • Full approval. The lender values the property and issues formal approval. The guarantee is confirmed with Housing Australia as part of this step.
  • Settlement. You settle as any buyer would. Nothing is paid to you and nothing is owed to the government; the guarantee simply sits behind your loan.

Because a place is reserved at pre-approval, the practical advice is to get pre-approved through a participating lender before you start bidding, not after. Buying unconditionally at auction and then discovering your lender does not participate is a problem that is entirely avoidable and entirely common.

What other government guarantees are there?

The First Home Guarantee sits inside the broader Home Guarantee Scheme. A separate guarantee exists for eligible single parents and single legal guardians, with a deposit as low as 2%, and the arrangements for regional buyers have been folded into the main scheme’s caps. If your circumstances are unusual, check the current Housing Australia list rather than assuming the first home guarantee is the only door, because it is not.

Which mistakes cost people the scheme?

  • Signing before the place is secured. The guarantee needs to be in place for the loan that settles. Exchanging contracts first and applying second puts the sequence backwards.
  • Creeping over the cap. A property guided under the cap can sell over it at auction. Know the cap for your location and treat it as a hard ceiling on your bidding.
  • Investor intentions. The scheme is for a home you live in. Planning to rent it out from settlement is a different product and a different conversation.
  • Changing jobs mid-process. Your lender re-verifies at final approval. A job change between pre-approval and settlement, particularly onto probation, can unsettle an approval that was otherwise straightforward.
  • Assuming every lender is the same. Participating lenders apply their own credit policy on top of the scheme rules. Two buyers with identical numbers can get different answers from two participating lenders.

What does the scheme not change?

It is worth being clear about the limits. The scheme removes LMI and lets you buy with a smaller deposit; it does not change the lender’s assessment of whether you can afford the loan. A 95% loan is still tested at the buffered rate against your income and expenses, and a buyer who cannot service it is not helped by the guarantee. It also does not reduce the price of the property or the interest rate, and it does not remove the need for buying costs, which still have to be funded from your own money at settlement. Think of it as removing one specific barrier, the deposit gap, and leaving every other part of the purchase exactly as it was.

Questions people ask

Does the guarantee cost me anything?

There is no fee for the guarantee itself. Your ordinary loan costs, such as any application or valuation fees a lender charges, still apply, and the interest rate you receive is the lender’s normal rate for your loan rather than a special scheme rate.

What happens if I later refinance?

You can refinance while keeping the guarantee in some circumstances, but the rules are specific and not every lender can take on a guaranteed loan. It is worth asking before you switch, because losing the guarantee with a loan still above 80% can mean LMI becomes payable.

Can I buy with a friend rather than a partner?

Yes. The scheme allows eligible buyers to purchase together whether or not they are a couple, provided each meets the criteria. The practical complications of joint ownership are covered in our guide to buying with a partner, and they apply just as much to friends.

The first home buyers page covers the scheme alongside every other support, and the free borrowing assessment checks your numbers against the scheme rules and participating lenders’ policies. Eligibility is always assessed by Housing Australia and your lender, but you can walk in knowing exactly where you stand.

Sources: Housing Australia, Australian Government 5% Deposit Scheme rules and price caps; Revenue NSW, First Home Buyers Assistance Scheme, checked 17 October 2026.

General information only, not credit, legal or tax advice. Your situation is assessed properly before any recommendation. Government scheme details change; figures are current at the time of writing.