WHAT IS THE 5% DEPOSIT FIRST HOME BUYERS SCHEME?
The Government has implemented a new 5% Deposit Scheme commencing 1st October 2025 to assist first home buyers enter the property market. This is a major change to help thousands of Australians.
Under the new scheme first home buyers can purchase a property with as little as a 5% deposit. Single parents and legal guardians can apply with a deposit as low as 2%. The key advantage is Lenders Mortgage Insurance(LMI) normally required for a deposit less than 20% is now not required. There are no income hurdles other than meeting the specific lenders criteria for an approved loan.
This new housing scheme has been brought forward by the government to help buyers enter the market sooner. Modelling shows they may enter the property market up to 4 to 5 years earlier than planned.
The scheme is open to all first home buyers who are over 18 and plan to live in their property as owner occupiers. (It’s not available for investment properties). There is a cap on the market price of the purchased property for all locations in Australia. In Melbourne, the sale must be under $950,000 and Sydney under $1,500,000.
The most important aspect before applying for a preapproval with a bank is to make sure the first home buyers have a detailed budget and clear understanding of their cashflow position.
Can they live comfortably with a loan of 95% of the property’s value? Can they afford an annual holiday and pay one-off expenses that pop up out of nowhere without feeling stressed.
We recommend all first home buyers obtain a preapproval from their bank and understand the commitment required for borrowing 95% of the purchase price.
If the plan is to ask parents to assist with the home purchase, “The bank of mum and dad!”, make sure the parents have a loan agreement drawn up and a legally binding document in place between all parties before the purchase of the property. If the assistance by parents is given as a gift, then this should be documented as a “GIFT” to the child or the couple with both names on the document and signed. This is important for estate planning reasons down the track and to prevent tension between family members.
How this new government scheme impacts the property market will be interesting! The word on the street from local real estate agents is “apartments are being snapped up as soon as they are listed and sold before Auction!!”
Please call us and seek professional advice if you plan to assist a family member with the above.