What are the benefits of the Government 5% deposit scheme
The Australian Government 5% Deposit Scheme
What NSW Buyers Need to Know
If you're a first home buyer in NSW, the Australian Government 5% Deposit Scheme lets you buy with as little as a 5% deposit, not the standard 20% deposit that's normally required by lenders.
I get asked about this scheme almost every week, usually by someone who has been quietly saving for years and assumes they're still a long way off. So I wanted to put together a straightforward explanation of how it actually works, who qualifies, and what it could mean for you.
What is the 5% Deposit Scheme?
The scheme (formerly called the First Home Guarantee) is run by Housing Australia. Instead of the government handing you money, it guarantees part of your home loan to your lender.
Here's the mechanism in plain terms:
You put down a minimum 5% deposit, or 2% for single parents.
The government guarantees the gap between your deposit and 20%.
Because the lender sees the loan as fully secured, you avoid paying Lenders Mortgage Insurance (LMI).
You still own 100% of your home from day one. The government doesn't take a stake in your property, it simply backs part of the loan with your lender.
Am I eligible for the 5% Deposit Scheme in NSW?
To qualify for the scheme you need to satisfy the following:
Be an Australian citizen or permanent resident, aged 18 or over.
Be a first home buyer, or not have owned property in Australia in the past 10 years.
Intend to live in the property as your principal place of residence.
Meet your lender's normal borrowing and serviceability checks.
Other points of consideration
No income caps: There are no limits on your household income.
No wait lists: There are no limits on the number of scheme places available.
Qualifying for the scheme and qualifying for the loan are two different things, and your borrowing capacity still needs to stack up.
What are the current NSW property price caps?
This is where a lot of buyers get caught out, because the cap depends on exactly where you're buying.
Sydney, Newcastle, Lake Macquarie and the Illawarra (Wollongong): up to $1,500,000
Other NSW locations: up to $800,000
You can check the exact cap for your target suburb using Housing Australia's postcode search tool.
Both the purchase price and the lender's valuation of the property need to sit at or under the relevant cap.
How much deposit do I actually need, and what could I save?
I've written before about how much deposit first home buyers really need, and the honest answer is usually less than people expect once a scheme like this is factored in. Let's run through the numbers with a general example. Say you're looking at an $800,000 property in NSW.
5% Deposit Scheme your costs are as follows.
Deposit required $40,000
Lenders Mortgage Insurance $0
Upfront Costs $40,000
10% Deposit (Non first home buyer)
Deposit required $80,000
Lenders Mortgage Insurance $14,000 - $26,000 approx
Upfront Costs $94,000 - $106,000 *Note: getting a loan under this structure will generally attract higher interest rates due to the high LVR of 90%
20% Deposit (Non first home buyer)
Deposit required $160,000
Lenders Mortgage Insurance $0
Upfront Costs $160,000
It's worth remembering the scheme doesn't cover stamp duty, conveyancing, building and pest inspections, or other purchase costs. Those still need to be budgeted for separately, alongside your deposit.
There are other NSW and federal schemes that could reduce these costs further, including stamp duty exemptions and the First Home Owner Grant, which are covered below.
NSW First Home Buyers Assistance Scheme (FHBAS)
A separate state scheme to the federal 5% Deposit Scheme. Unlike the FHOG, FHBAS covers both new and established homes.
To qualify for FHBAS, you generally need to:
Be 18 or over, with at least one purchaser an Australian citizen or permanent resident.
Never have owned residential property in Australia, either on your own or with someone else, and never have received a first home buyer exemption or concession under the Duties Act.
Not have a spouse or partner who has previously owned property or received a FHBAS benefit, even if they're not a party to this purchase.
Move into the home within 12 months of settlement (or completion, if newly built) and live there as your principal place of residence for the required period.
Stamp duty exemptions
Full stamp duty exemption ($0 payable) on new or established properties up to $800,000 under the NSW First Home Buyers Assistance Scheme.
Savings of $30,187.Reduced stamp duty costs on purchases between $800,000 and $1,000,000.
No stamp duty exemption on purchases over $1,000,000.
Full stamp duty exemption ($0 payable) on vacant land up to $350,000 under the same scheme.
Reduced stamp duty costs on vacant land between $300,000 and $450,000.
No stamp duty exemption on vacant land over $450,000.
FHBAS is applied for separately to the 5% Deposit Scheme, through your solicitor or conveyancer after contracts are exchanged, using the application forms on the Revenue NSW website. Because the eligibility tests aren't identical, it's worth checking both rather than assuming qualifying for one means you'll automatically qualify for the other.
First Home Owners Grant (FHOG)
The NSW First Home Owner Grant (New Homes) is a separate $10,000 cash payment, on top of anything you get through the 5% Deposit Scheme or the FHBAS. It's tax-free, it isn't means tested, and you don't have to pay it back.
The catch is that it only applies to new homes, not established ones. To qualify, you generally need to:
Be buying or building a home that's brand new, purchased off the plan, or substantially renovated. Established homes don't qualify.
Keep the purchase price under $600,000 for a completed new home, or under $750,000 for a combined land and building contract.
Meet the same age and residency requirements as the other schemes.
Move into the home within 12 months of settlement and live there continuously for at least 12 months.
The grant is paid once, either at settlement or at your first construction progress payment if you're building. Because it's assessed separately to the 5% Deposit Scheme and the stamp duty exemptions, a lot of buyers building a new home end up qualifying for all three at once.
What are my other options if the scheme doesn't fit?
The 5% Deposit Scheme is one piece of the puzzle, not the whole picture. Depending on your situation, it's also worth looking at:
First Home Super Saver Scheme, which lets you use voluntary super contributions toward your deposit
Family Home Guarantee, a separate 2% deposit stream for eligible single parents and guardians
Several of these can be stacked with the 5% Deposit Scheme, which is where a lot of the real savings add up. Everyone's situation is different though, so it's worth working through the combination that actually applies to you rather than assuming you qualify for all of them.
Frequently asked questions
Does the 5% Deposit Scheme cost me anything extra? No. There's no fee charged to you for using the guarantee. The saving comes from avoiding LMI, which you'd otherwise pay as part of a low-deposit loan.
Can I use the scheme if I'm buying an apartment or townhouse? Yes. The scheme covers new or existing houses, townhouses, apartments, house and land packages, off the plan purchases, and vacant land with a building contract, provided the price stays under the relevant cap.
Do I have to use a specific bank? You need to apply through one of the lenders participating in the scheme. Not every lender offers it, and rates can vary slightly between participating lenders, so it's worth comparing rather than assuming your first choice is the best deal.
Your mortgage broker will compare all lenders and find the best option for you based on your needs and objectives. Visit harpermortgagebrokers.com.au to get started.
What happens if I stop living in the property? The guarantee is tied to the property being your principal place of residence. If you move out and rent the property without notifying Housing Australia, the guarantee can be affected, so it's important to keep your lender informed if your circumstances change.
A final word
I know how disheartening it can feel watching prices move faster than your savings.
What I like about this scheme is that it doesn't ask you to wait for a bigger deposit, it removes one of the biggest upfront costs standing in your way.
It's not the right fit for everyone, and it's not a substitute for a proper look at your borrowing power and your budget, but for a lot of first home buyers in NSW it's opened a door that felt closed a year or two ago.
I'm passionate about helping first home buyers because I've been there myself. I know how daunting it can feel when you don't know where to turn or what's actually available to you. It's also why I get so much satisfaction out of this work. There's nothing quite like helping someone buy their first home, because I know firsthand how great that feeling is.
If you're not sure whether you'd qualify, or which combination of schemes and grants actually applies to your situation, then get in touch with Harper Mortgage Brokers to discuss your individual circumstances.
Richard Harper is the founder of Harper Mortgage Brokers, operating under Purple Circle Financial Services. He's built his practice on honesty, trust and transparency, and clients know him as understanding, compassionate, reliable and straight with them. Service the way it should be.
This article is general information only and doesn't take into account your personal financial situation, needs or objectives. It isn't personal or financial advice and shouldn't be relied on as a substitute for professional guidance specific to your circumstances. Lending criteria, government schemes and eligibility rules can change, so figures and details should always be confirmed before you rely on them. Harper Mortgage Brokers operates under Purple Circle Financial Services, Credit Representative Number 573723.
Sources and references
ABC News – Sweeping changes to the first home buyer scheme explained
Revenue NSW- First Home Buyers Assistance Scheme eligibility criteria