While you're saving... house prices keep moving higher
Saving a 20% deposit for your first home has always been a challenge. But in a market where a modest townhouse in Newcastle can cost $700,000 or more, it’s become genuinely out of reach for a lot of people. It’s not because they’re not trying (or because they’re eating out too much) but because the maths simply doesn’t work fast enough.
A 20% deposit on a $700,000 property is $140,000. Even with disciplined saving, that can take the better part of a decade. And while you’re saving, house prices keep moving.
The Australian Government introduced the First Home Guarantee, commonly known as the 5% Deposit Scheme, to address exactly this. It’s one of the most useful tools available to first home buyers right now, but it comes with rules, conditions, and trade-offs that are worth understanding properly before you assume it applies to you.
The 5% Deposit Scheme lets eligible first home buyers purchase a property with as little as 5% deposit, without paying Lenders Mortgage Insurance (LMI).
Normally, if your deposit is less than 20%, lenders require you to pay LMI (insurance that protects the bank, not you, if you default on the loan). Depending on your loan size, LMI can cost anywhere from $10,000 to $30,000 or more. It’s a significant upfront cost on top of an already stretched budget.
Under this scheme, the government acts as a guarantor for the missing portion of your deposit, up to 15% of the property value. This means the lender treats your loan as though you had a full 20% deposit. No LMI required.
To be clear about what the government is and isn’t doing here: they are not giving you money. They’re not taking a share of your property. They’re just guaranteeing part of the loan to the bank, which removes your LMI obligation. You own 100% of the property from day one.
To qualify for the scheme, you need to meet all of the following criteria:
You can apply as an individual or jointly with another person. Friends, siblings, and other combinations are eligible. However, they must also meet the above eligibility requirements.
Who it won’t work for:
This is one of the most important things to understand, and one of the most common reasons buyers find themselves ineligible after assuming they qualify.
The scheme only applies to properties purchased under a set price cap, which varies by location. For the Newcastle and Lake Macquarie region, the current cap sits at $1,500,000. It’s worth confirming the current cap before you start looking, as these figures are reviewed annually.
Always check the current price caps at firsthomebuyers.gov.au before committing to a property at the top of your budget.
The scheme applies to residential properties, including:
The property must be under the relevant price cap and must be purchased as a primary residence, not an investment.
The scheme removes LMI and gets you into the market sooner. But a 5% deposit means a larger loan, which means higher monthly repayments than if you’d saved 20%.
Something to model carefully with your mortgage broker before you commit.
For example, on a $700,000 property:
At a 6% interest rate over 30 years, that difference in loan size translates to roughly $600 to $700 more per month in repayments. Over the life of the loan, that adds up. But set against five or six more years of renting while you save (and property prices that are likely to keep rising) many buyers find the scheme makes sense for their situation.
The right answer depends on your income, your stability, and how long you’re planning to stay in the property. A good mortgage broker will help you model both scenarios.
Meet Sarah – a 28-year-old accountant in Newcastle earning $82,000 a year. She’s saved $35,000 and wants to buy a $700,000 townhouse.
Without the scheme: To reach a 20% deposit, Sarah needs $140,000. She’s $105,000 short. On top of the deposit shortfall, she’d also need another $15,000 to $25,000 saved for LMI and other costs. She would potentially need to save for another five or so years to meet her goal.
With the scheme: Sarah’s $35,000 is exactly 5% of the purchase price. She applies through a participating lender, gets pre-approval, and proceeds to purchase, with no LMI payable because the government guarantees the remaining 15%.
She buys now, starts building equity in her own property, and doesn’t spend another six years paying someone else’s mortgage through rent.
The scheme doesn’t make the loan smaller. But it removes two enormous barriers that were keeping her on the sidelines.
It’s worth being aware of the limits:
The guarantee simply sits in the background until you refinance, sell, or build enough equity that it naturally falls away. There’s nothing to repay to the government.
This is where we come in and timing matters more than most buyers realise.
The 5% Deposit Scheme has specific conditions around contract terms, settlement timeframes, and property types. If any of those conditions aren’t met, you can lose your eligibility… sometimes after you’ve already committed to a purchase.
Involving a conveyancer early, ideally before you’ve found a property, means:
By the time most buyers think to call a conveyancer, they’ve already signed something. That’s the point at which your options narrow significantly.
Here’s what you can do next:
Do I pay the 15% back to the government? No. The government doesn’t contribute money to your purchase and doesn’t take any equity. The guarantee simply sits in the background and falls away once you’ve built up enough equity, refinance, or sell.
What happens if I can’t make my repayments? The guarantee protects the lender, not you. If you default, the bank will deal with you directly and may offer hardship options. The government doesn’t step in to cover your repayments.
Can I use the scheme with a partner who has owned property before? No. If either applicant has previously owned property in Australia, the purchase is not eligible.
Is the scheme available every year? The First Home Guarantee is subject to annual quotas. Places can and do run out, particularly later in the financial year.
Does the scheme work with the First Home Buyer stamp duty concession? Yes and this combination is one of the most powerful tools available to eligible first home buyers in NSW. Used together, they can remove LMI entirely and significantly reduce your stamp duty liability.
The 5% Deposit Scheme is one of the most useful pathways into home ownership available to first home buyers in NSW right now but it has lots of moving parts, and the specifics matter.
At Impero Conveyancing, we guide first home buyers through this process every day. We’ll help you understand how the scheme affects your contract and obligations, flag any risks early, and make sure everything is structured correctly from the start.
If you’re thinking about buying your first home, even if you’re just in the early stages of working out whether it’s possible, get in touch. No question is too early.
📍 103 Nelson St, Wallsend NSW 2287 📞 (02) 4910 0522 🌐 talktous@imperoconveyancing.com.au
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