Why More Melbourne Buyers Are Purchasing with Just a 5% Deposit
Buying a home with a smaller deposit is becoming increasingly common across Australia, even as interest rates continue to rise.
New data from the Australian Prudential Regulation Authority (APRA) shows a major increase in borrowers entering the property market with deposits of 5% or less. In fact, the share of owner-occupier loans with very small deposits jumped almost 60% in the year to December 2025.
For many first home buyers in Melbourne and across Australia, that signals one thing clearly: people are no longer waiting years to save a traditional 20% deposit before purchasing a home.
Why Are More Buyers Using a 5% Deposit?
A major driver behind this shift is the expansion of the federal government’s First Home Guarantee Scheme in late 2025.
The scheme allows eligible buyers to purchase a property with as little as a 5% deposit without paying Lenders Mortgage Insurance (LMI). Normally, borrowers with a deposit below 20% are required to pay LMI, which can add thousands, or even tens of thousands, of dollars to the cost of buying a home.
For many Australians, especially first home buyers, avoiding this extra cost can make entering the property market far more achievable.
Rather than continuing to save while property prices and rents rise, many buyers are deciding to enter the market sooner.
Interest Rates Are Higher… But Buyer Demand Remains Strong
Despite recent interest rate increases, buyer confidence has remained surprisingly resilient.
Many borrowers are adapting by:
- purchasing more affordable properties,
- considering regional locations,
- adjusting borrowing expectations,
- or seeking guidance from a mortgage broker to structure their loan more effectively.
For Melbourne buyers in particular, affordability remains a key challenge. As a result, low deposit home loan options are becoming increasingly attractive for buyers trying to secure a foothold in the market sooner rather than later.
What Is the First Home Guarantee Scheme?
The First Home Guarantee Scheme is an Australian Government initiative designed to help eligible buyers purchase a home with a smaller deposit.
Under the scheme:
- eligible buyers can purchase with just a 5% deposit,
- the government guarantees part of the loan,
- and borrowers can avoid paying Lenders Mortgage Insurance (LMI).
This can significantly reduce upfront costs and help buyers enter the property market faster.
However, there are still important factors to consider, including:
- income caps,
- property price limits,
- lender participation,
- borrowing capacity,
- and overall loan suitability.
Why Loan Structure Matters
While low deposit home loans can create opportunities, choosing the right loan structure is still incredibly important.
Different lenders assess applications differently, especially for:
- first home buyers,
- self-employed borrowers,
- buyers with existing debts,
- or applicants with variable income.
Features such as offset accounts, repayment flexibility, fixed vs variable rates, and future refinancing options can all make a meaningful difference over time.
Working with Home Loans Australia can help ensure the loan fits both your current situation and long-term goals.
What Melbourne Buyers Should Consider Before Applying
Before purchasing with a 5% deposit, it’s important to understand:
- your borrowing capacity,
- estimated repayments at current interest rates,
- government scheme eligibility,
- additional purchase costs,
- and how future rate movements could affect your budget.
A smaller deposit can help buyers enter the market sooner, but it’s still essential to ensure repayments remain comfortable and sustainable.
How Home Loans Australia Can Help
We help Melbourne and Victorian buyers navigate the home loan process with clear, personalised advice.
Whether you’re:
- buying your first home,
- refinancing,
- comparing lenders,
- or exploring low deposit home loan options,
our team can help you understand your choices and structure a loan that suits your goals.
Frequently Asked Questions
Can I buy a home with a 5% deposit in Australia?
Yes. Eligible buyers may be able to purchase a property with just a 5% deposit through the Australian Government’s First Home Guarantee Scheme.
Do I have to pay Lenders Mortgage Insurance with a 5% deposit?
Under the government scheme, eligible buyers can avoid paying Lenders Mortgage Insurance (LMI), even with a smaller deposit.
Is a 5% deposit home loan a good idea?
For some buyers, entering the market earlier may be beneficial, particularly if property prices continue rising. However, affordability, repayments, and loan structure should always be carefully assessed.
What is the best way to compare home loans in Melbourne?
Speaking with Home Loans Australia can help you compare lenders, interest rates, loan features, borrowing capacity, and government schemes based on your personal situation.
Can first home buyers still get government support in 2026?
Yes. Various federal and state-based schemes remain available for eligible first home buyers, including low deposit initiatives and stamp duty concessions.
