What the scheme actually is
The expanded Home Guarantee Scheme lets eligible first home buyers purchase with just a 5% deposit — without paying Lenders Mortgage Insurance (LMI). Housing Australia guarantees the lender for the extra risk, effectively covering the gap between your deposit and the usual 20% threshold.
In Canberra, that applies up to a $1 million price cap, and you need to be a first home buyer (or haven’t owned property in the last decade) to qualify.
Why it’s the biggest property story in Canberra this year
Domain is forecasting Canberra property prices will climb around 5% this year to a median price of $1.18 million, and the scheme is one of the main reasons why.
Real estate agents report the fiercest buyer competition sits right in the $800,000–$1 million bracket, which is exactly where many first home buyers using the scheme are shopping. Anything above $1.5 million by contrast, seems to be moving much slower.
Why the 5% Deposit Scheme can be a good option
Let’s give credit where it’s due: for a lot of Canberrans, saving a 20% deposit while renting and dealing with cost-of-living pressure was simply never going to happen in a reasonable timeframe.
This scheme genuinely helps first home buyers get into the market years earlier than they otherwise could, without the extra cost of LMI. For someone who’s financially disciplined and buying the right property, the head start that the 5% Deposit Scheme provides is worth a lot.
The case for caution with the 5% Deposit Scheme
Here’s the part that doesn’t get talked about enough though… several economists and reports have highlighted that schemes like this tend to push up prices in exactly the price bracket they’re designed to help. Because when everyone eligible suddenly has more borrowing power, sellers simply ask for more. So some of the “help” ends up being absorbed straight back into the purchase price.
There’s also the maths of a thin deposit. Borrowing 95% instead of 80% on an $800,000 property means roughly an extra $120,000 in debt (or about $745 extra a month in repayments). And if there’s only 5% equity as a buffer, even a modest dip in property values could tip you into the situation where you owe more for your property than it’s actually worth.
We’ve talked about the risks of purchasing at auction with a high Loan to Value Ratio (LVR) previously here.
A rule of thumb worth following
Just because you can borrow up to 95% of the property’s value doesn’t mean you necessarily should.
A few things genuinely matter here:
- Buy a property you’re confident will hold its value over time, not just a property that the scheme’s price cap allows you to squeeze into.
- Expect to stay put for a good few years, not try to flip the property after twelve months. A thin equity buffer plus a short hold period is a risky combination if the market softens.
- Have a genuine plan to pay higher repayments than the minimum . Every extra dollar you pay off the principal brings your Loan to Value Ratio (LVR) down, helping you to build real equity and shrink the risk you’re carrying.
- Also, you don’t need to borrow up to 95% of the property value to qualify for the scheme; this is just the maximum LVR you can go up to. For example, you can contribute 10% deposit or a 15% deposit and still benefit from a scheme loan. This can be a good way to get in to the market a little earlier, but have a bit more equity from the start.
The balanced take
The 5% deposit scheme isn’t good or bad on its own. It’s a tool, and like any tool, it matters how you use it.
Accessed thoughtfully, with a realistic property choice and a plan to pay down your loan quickly, the 5% deposit scheme can be a genuine leg-up.
But if you’re using it to stretch into the biggest, priciest property the cap allows, it can leave very little room to move if things get tight.
As always, the right approach depends on your personal situation. We can help you explore all your options before deciding which way to go.
