What is the catch with the 5% deposit scheme?

The main one is that you must live in the property as an owner occupier while the guarantee is on. You can't rent it out until your loan is 80% or less of the property's value and you've exited the scheme.

How long do I have to stay in the 5% scheme?

Until your loan is 80% or less of what the property is worth. That generally takes a few years on a 95% loan, sooner if the property's value grows strongly or you pay the loan down faster.

Is there an income cap on the 5% scheme?

Not anymore. Since 1 October 2025 there are no income caps and no limit on the number of places. Property price caps still apply depending on where you buy.

Is it risky to buy with a 5% deposit when prices are falling?

You start with a thin equity cushion, so a price dip can put you behind for a while. It mostly matters if you need to sell or refinance soon. If you plan to live there for years, it matters a lot less.

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What is the catch with the 5% scheme?

Bayley Clarke · Mortgage broker on the road · Last checked 16 October 2026 · 4 min read

The short answer

The only real catch is that you can't rent the property out while you're still in the scheme. Other than that, no real catch. It's unreal for first home buyers.

With 5% down you're borrowing 95%, and you can't come out of the scheme until your loan is 80% of what the property is worth. So go in planning to live there for at least a couple of years, long enough for that number to move from 95% to 80%.

The 60 second version, filmed from the driver's seat. The rest of this page is the detail underneath it.

The one rule that catches people

The 5% scheme, the Home Guarantee Scheme, lets you buy with a 5% deposit and skip lenders mortgage insurance, because the government guarantees part of your loan. In exchange, you have to live in the property as an owner occupier the whole time the guarantee is on.

Here's where people come unstuck. A common plan is to buy, live in it for the minimum time to keep the stamp duty exemption, then put tenants in. You can't do that under the scheme. The stamp duty rule and the scheme rule are two separate rules, and the scheme's one is stricter.

If you stop living there while the guarantee is still on, the lender may require you to pay lenders mortgage insurance or other costs, and that can come with higher rates. The bank catches you out, and the cheap way in becomes the expensive way out.

How you get out of the scheme

You come out of the scheme once your loan is 80% or less of what the property is worth. That's the point where you'd have had a normal 20% equity position anyway, so the guarantee has nothing left to do.

Two things get you there: paying the loan down, and the property going up in value. On a 95% loan that generally takes a few years. If you've bought something that needed a lot of love, done the work yourself and it's grown in value, a fresh valuation can sometimes get you there sooner.

So be very clear going in. If you're buying under the scheme, you're living there for at least a couple of years, maybe more, while that equation changes from 95% to 80%.

Why it's still a great deal

Other than that, there's no real catch. You get into the market with a 5% deposit instead of 20%, years sooner than you would by saving, and you don't pay lenders mortgage insurance, which on a 95% loan can run into the tens of thousands. Since October 2025 there are no income caps and no limit on places.

The market's soft at the moment and there's chatter about negative equity, about prices dropping below what you owe. Look, property's a long-term game. If you're buying a home to live in for years, short-term movements matter a lot less than getting in. Don't let the chatter spook you out of a good deal.

The honest bit: a 5% deposit means a thin cushion

Buying with 5% down means you own very little of the property on day one. If prices dip in the first couple of years, you could owe more than it's worth for a while. That only hurts if you have to sell or refinance during that time.

Which is why the scheme suits people who are genuinely planning to stay put. If there's a real chance you'll need to move or rent it out in the next year or two, we should talk about that before you buy, not after.

Want to know if the 5% scheme suits your plans?

A 30 minute call. We go through how long you're likely to live there, what you can borrow, and how long it might take to get from 95% to 80%.

Book a 30 minute call Call 0437 189 939

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Next question

Guarantor loan or the government 5% scheme: which one is best?

You can't combine them, so it's a real choice. No deposit yet and family who own property: guarantor gets you in now.