Why More First Home Buyers Are Choosing the 5% Deposit Scheme
Buying your first home can feel out of reach when you’re trying to save a 20% deposit.
That’s one reason the Federal Government’s 5% Deposit Scheme has become an increasingly popular option for eligible first home buyers.
Since the scheme expanded in October 2025, more Australians have been exploring ways to enter the property market sooner, without paying Lenders Mortgage Insurance (LMI).
The 5% Deposit Scheme Is Driving Buyer Activity
The expansion of the scheme has had a noticeable impact on the home loan market.
According to Equifax, lenders participating in the scheme recorded a 16.4% increase in loan volumes between October 2025 and March 2026.
During the same period, demand for lenders not participating in the scheme fell by 6.5%.
The strongest increase in enquiries came from younger Australians, with:
- 22.8% growth among borrowers aged 18 to 25.
- 17.4% growth among borrowers aged 26 to 35.
These figures suggest that more first home buyers are actively looking for ways to purchase sooner.
Why Is the 5% Deposit Scheme So Popular?
Under normal lending requirements, buyers with less than a 20% deposit usually need to pay Lenders Mortgage Insurance (LMI).
LMI protects the lender, not the borrower, and can add thousands of dollars to the cost of buying a home.
Under the 5% Deposit Scheme, eligible buyers may be able to purchase with as little as a 5% deposit without paying LMI because the Australian Government guarantees part of the loan.
For many buyers, this can significantly reduce upfront costs and make home ownership achievable much sooner.
More Buyers Are Looking Beyond Their Current Suburb
Affordability is also influencing where Australians choose to buy.
Equifax found that 81.9% of first home buyers purchased outside their existing suburb.
Rather than focusing only on familiar neighbourhoods, many buyers are broadening their search to areas where their budget stretches further.
This may include:
- Emerging suburbs
- Growth corridors
- Regional centres
- New housing estates
Being flexible with location can often create more opportunities to enter the property market sooner.
What Are the Trade-Offs?
While a smaller deposit offers clear advantages, it’s important to understand the long-term considerations.
Buying with a 5% deposit may mean:
- Borrowing a larger amount.
- Paying more interest over the life of the loan.
- Building equity more gradually during the early years.
Every buyer’s circumstances are different, so it’s important to balance the benefits of buying sooner against your long-term financial goals.
Is the 5% Deposit Scheme Right for You?
The scheme can be an excellent option for eligible buyers, but it’s not the right solution for everyone.
Before applying, it’s worth considering:
- Your borrowing capacity.
- Deposit size.
- Monthly repayments.
- Property budget.
- Long-term financial goals.
- Eligibility requirements.
Understanding all your options can help you make a confident and informed decision.
How Home Loans Australia Can Help
At Home Loans Australia, we help Melbourne and Victorian first home buyers understand government support schemes, compare lenders and find home loan solutions that suit their individual circumstances.
Whether you’re ready to buy now or just starting your savings journey, we can help you explore what’s possible.
Frequently Asked Questions
What is the 5% Deposit Scheme?
The 5% Deposit Scheme allows eligible first home buyers to purchase a property with as little as a 5% deposit without paying Lenders Mortgage Insurance (LMI), because the Australian Government guarantees part of the loan.
Do I need to pay Lenders Mortgage Insurance?
Eligible buyers using the scheme generally do not pay LMI, which can save thousands of dollars in upfront costs.
Who can apply for the 5% Deposit Scheme?
Eligibility depends on factors such as income, property price caps and buyer status. A mortgage broker can help determine whether you qualify.
Can I buy anywhere in Australia?
The scheme applies nationally, but property price caps and eligibility requirements vary depending on location.
Is buying with a 5% deposit a good idea?
For many buyers, purchasing sooner can outweigh the benefits of waiting to save a larger deposit. The best option depends on your financial circumstances and long-term goals.
