"Eligible first home buyers will be able to access the 5% deposit scheme, removing income and place caps." - Alex Kenward, Finance Manager
All first home buyers will soon be able to enter the property market with just a 5% deposit on the back of sweeping changes to the Home Guarantee Scheme.
Income caps and limits on places under the scheme will be scrapped as of 1 October, Prime Minister Anthony Albanese announced on Monday.
The change means all first home buyers – regardless of income – will be able to access the scheme, which allows property purchases with as little as a 5% deposit without paying for Lenders Mortgage Insurance (LMI).
Previously, only 50,000 places were offered each financial year, with singles earning more than $125,000 and couples on more than $200,000 deemed ineligible.
"Labor was re-elected with a clear mandate to bring down the deposit hurdle for first home buyers, and we're delivering," Mr Albanese said.
It comes just one day after the government announced it would be pausing aspects of the National Construction Code to allow for faster construction activity.
“Yesterday we announced reforms to unlock tens of thousands of new homes and today we’re announcing changes to help tens of thousands of first home buyers get into home ownership,” Housing Minister Clare O'Neil said.
The scheme's property price caps will also rise substantially on 1 October.
Buyers in Sydney will soon be able to spend as much as $1.5 million – up from $900,000 – while those in Brisbane can access the scheme on properties worth $1 million – up from $700,000.
"This promises to open doors for more people and is an important boost for aspirational home buyers in Australia," HIA managing director Jocelyn Martin said.
One in three first home buyers already use the scheme, which has supported 230,000 property purchasers to enter the market.
Typically, a homebuyer with a deposit of less than 20% of their property's value is forced to pay for LMI, which can cost thousands of dollars.
The Home Guarantee Scheme, managed by Housing Australia, effectively sees the federal government acting as guarantor for a portion of a first home buyer's mortgage – up to 15%.
If a homebuyer using the scheme later defaults on their home loan repayments, the government could be called upon to repay a portion of their loan.
However, occurrences of defaults are low.
Housing Australia's most recent annual report shows just 0.1% of scheme-backed loans were 90 days or more behind on repayments.
Meanwhile, as of mid-2024, only one instance of default had led to a government payout in the scheme's history.
According to leading LMI provider Helia, which currently provides LMI for the nation's largest lender CommBank as well as ING, nearly a third of gross written LMI premiums came from first home buyers in the first half of 2025.
That market is expected to be almost entirely wiped out on the Home Guarantee Scheme's expansion, which was originally scheduled for early-2026.
The Home Guarantee Scheme currently encompasses three guarantees: The First Home Guarantee, the Regional First Home Guarantee, and the Family Home Guarantee.
As part of the upcoming changes, the Regional First Home Guarantee, which offers 10,000 of the scheme's 50,000 places specifically to regional Australians, will be binned.
First home buyers in Australia's regions can instead access the First Home Guarantee.
There are no apparent changes coming for the Family Home Guarantee.
In addition to removing income caps, creating unlimited places, and upping price thresholds, the Albanese Government has also directed Housing Australia to "promote the diversity of lenders" offering the scheme.
It suggested first home buyers could benefit from a greater choice of smaller, customer-owned, and regional-based mortgage providers.
The news was welcomed by the Customer Owned Banking Association (COBA).
"More customer-owned banks on the Home Guarantee Scheme panel will create a more dynamic, inclusive, and competitive market," COBA CEO Michael Lawrence said.
"Ultimately, this increased competition and choice will benefit first home buyers,"
Around three dozen banks participate in the scheme as it stands, including CommBank, Westpac, and NAB.
"Customer-owned banks offer a distinct alternative by providing a unique understanding and commitment to people and communities," Mr Lawrence continued.
The scheme's expansion is expected to drive property prices higher, but not by much.
Treasury modelling has found removing caps on income and available places will lead to a 0.5% increase in prices over the coming six years.
Previous analysis by PropTrack found the scheme in its current form largely hasn't affected property prices.
In 2024, PropTrack senior economist Paul Ryan said it may have boosted buyer demand but any impact was likely constrained by its relatively tight price caps, though buyer activity may have clustered just below those thresholds.
"If this is the case, it suggests buyers with access to the scheme are either bidding up home prices to the limits allowed by the scheme or bargaining prices down to the limit that lets them get the guarantee."
Mr Ryan also noted, however, that the majority of buyers turning to the scheme were paying far less than the maximum price allowed.
Source: Yourmortgage