If buying a slice of the Sydney market is high on your list, you’ve likely realised that waiting to ‘save more’ is becoming a luxury few can afford – as prices continue to inch upward.
With the upfront costs of stamp duty, Lenders Mortgage Insurance (LMI), legal and loan fees adding thousands to the home bill, it’s a hefty barrier for even the most disciplined savers.
Government schemes – namely, the newly expanded 5% deposit scheme or ‘Home Guarantee Scheme’ for first home buyers (rolling out 1st October 2025) – promise to lower the bar for home ownership, so that buyers can enter the market years sooner.
It’s said to be a game-changer – but does it come with trade-offs?
Here’s a breakdown of how the Scheme will work.
Traditionally, standard lenders require a 20% deposit to avoid Lenders Mortgage Insurance; On a $900,000 property, for instance, that means saving a hefty $180,000 upfront. Under the new 5% deposit scheme however, the government ‘guarantees’ the shortfall, removing the need for LMI altogether – so in this instance, an eligible buyer can purchase the property with just $45,000.
Who’s eligible?
- Australian citizens or permanent residents aged 18 or over
- First-time buyers (who have not previously owned property in Australia)
- Individuals with income under $125,000 (or $200,000 for couples)
- Those intending for property to be primary residence
- Price caps may apply depending on location.
The upside
For buyers, perhaps the greatest advantage of the renewed 5% deposit scheme will be the dramatically reduced upfront cost – it’s a chance to buy sooner, save on fees, and begin the property journey without many of the usual financial hurdles, such as Lenders Mortgage Insurance.
The fine print
While the Scheme will make it much easier to enter the market, it’s vital to note that borrowing 95% of the property’s value means much higher loan repayments, and therefore much greater interest paid over time. So you’ll need to ensure that your income can comfortably service the loan – especially in the event of future rate rises.
Additionally, a smaller deposit typically offers little buffer if the market dips; if property values fall, this could leave buyers exposed to negative equity early on.
Some lenders may still apply tighter assessment policies due to a smaller deposit, so be sure to do your research and have your financials in good shape before you apply. The Scheme will be capped each financial year, with limited places available – so if you’re considering applying, it’s smart to get pre-approved through your chosen lender as soon as possible.
Is it worth it?
For many first-time buyers, the 5% deposit scheme will put home ownership within reach after potentially years of trying to break into the market.
The key is to be financially prepared, by making sure you’ve budgeted for higher repayments, factored in future rate changes, plan for the long run – and of course, consult a trusted lender and real estate agent to understand your borrowing power and how it aligns with current market opportunities.
Prudential Real Estate Macquarie Fields | (02) 9605 5333 | macquariefields@prudential.com.au
Prudential Real Estate Narellan | (02) 4624 4400 | narellan@prudential.com.au
