5 Percent Deposit Scheme for First Home Buyers Kicks Off

‘What it will do is allow more young people to get into home ownership,’ the prime minister said.

A signboard of a sold property in McMahons Point in Sydney, Australia, on May 5, 2022. Brendon Thorne/Getty Images

First home buyers across Australia can now enter the property market with just a five percent deposit under an expanded government guarantee.

Housing Minister Clare O’Neil confirmed the government has removed the scheme’s previous restrictions on income, property value, and the number of applicants.

“Price caps will reflect the value of where you want to live. For a first home buyer buying an $800,000 home, we’re slashing the time it will take to save a deposit from 11 years down to two or three, and it could save you hundreds of thousands of dollars in rent,” O’Neil said in a post on X.

How the Guarantee Works

The Home Guarantee Scheme allows eligible buyers to take out a mortgage with a five percent deposit without having to pay Lenders Mortgage Insurance.

Housing Australia acts as a guarantor, covering up to 15 percent of the property’s value if the loan defaults.

“Under this scheme, the government doesn’t lend you any money that you have to pay back,” said Canstar Data Insights Director Sally Tindall.

“Instead, what it does is commit to the lender that if the mortgage ends up in default, it will step in.”

Previously, access to the scheme was limited to applicants earning up to $125,000 individually or $200,000 as a couple, with a cap on the number of places available.

These income rules and quotas are being removed, and property price caps are rising. The new rules apply from Oct. 1.

The scheme is only available to Australian citizens or permanent residents who are over 18 and intend to live in the home they buy.

Concerns Over Housing Pressure

While the expansion offers relief to aspiring homeowners, Reserve Bank of Australia Governor Michele Bullock noted the scheme was likely to affect the demand side of the market.

“The deposit scheme thing is more a demand-side thing. We have done a little bit of work on this,” she told a Senate inquiry.

Assistant Governor Brad Jones said the impact may be modest but noticeable.

“Our sense is that it could add to overall housing credit in the order of 1 to 2 percent at the margin, you may see a little more upward pressure on house prices in the short term, recognising that first home buyers account for about 20 percent of the flow of new housing credit,” he said.

He added that Treasury expects more housing supply to come online over time.

“The Treasury has also done some work on medium-term supply response, and their sense is that you will see, over time, an uplift in supply … and so that will end up dampening the price effect over the medium term,” he said.

When Prime Minister Anthony Albanese was asked if the scheme would push up property prices, he said, “It will have a minimal impact—there will be a slight increase in prices.”

“What it will do is allow more young people to get into home ownership, and this is just one of the measures we are using to tackle the housing crisis. The earlier people can buy a home, the more economic sense it makes,” he told reporters on Oct. 1.