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You don't need a 20% deposit any more. Here's what actually changed.

Bayley Clarke · Mortgage broker on the road · Last checked 20 September 2026 · 5 min read

The short answer

For years the bank had one answer for first home buyers. Save 20%, or pay lenders mortgage insurance on top of everything else. That rule doesn't apply any more.

Since 1 October 2025 the Australian Government 5% Deposit Scheme has had no income caps, no limit on places and no lenders mortgage insurance. Most of the people I talk to are still working off the old version of it. This page is what changed, what the insurance was actually costing in real money, and what dropping from 20% to 5% does to the maths. The full walk through of how the guarantee works lives in the First Home Guarantee, explained.

What changed

I've settled over $110 million in loans and there are 120+ Google reviews from the people I've done it for. The question I field more than any other right now is still this one: do I need to wait until I have 20%?

In most cases, no. Three things went at once from 1 October 2025.

The income caps are gone. It used to be $125,000 for a single applicant and $200,000 combined for a couple. Earn slightly over and you were locked out, no matter how far off a 20% deposit you were.

The limit on places is gone. No queue, no waitlist, no racing to get in before the year's allocation ran dry.

And the guarantee replaces the insurance. You bring 5%, the government stands behind the gap, and the premium never gets charged. You don't apply to Housing Australia yourself. It goes through your broker or lender as part of the loan application.

What the insurance was actually costing you

Lenders mortgage insurance gets talked about in vague terms, so here is a real number instead.

Take a $350,000 purchase with $17,500 saved. That's a 95% loan, first home buyer, owner occupier, thirty year term. Run those exact inputs through the insurer's own premium estimator and the upfront premium comes back at about $8,830 including GST.

That's the shape of a file I settled in July. Same price, same deposit.

Eight and a half thousand dollars, for a policy that protects the lender, not you. That figure is the insurer's estimate on those inputs. It isn't a quote and it won't be your number, because yours moves with your price, your deposit and your lender. If you're weighing the premium against another year of saving, should I pay LMI or keep saving? walks through that trade off properly.

Under the guarantee, that premium isn't part of the conversation at all.

The deposit maths

5% of $350,000 is $17,500. The 20% version of the same purchase is $70,000.

That's not the whole story though, and this is the part worth sitting with. The 20% target is set against today's price. While you're saving toward it, the price it's calculated on keeps moving. The finish line moves with it. A 5% deposit is a target that stops moving the day you buy.

So for you that means the question isn't only how much you've saved. It's what you can actually borrow on top of it, which is its own piece of maths: how much can I actually borrow? And no, a bigger deposit doesn't lift your borrowing power the way most people assume, which is covered in does a bigger deposit change how much I can borrow?

There's a price cap on the scheme and it's set by location. Across most of regional New South Wales it's $800,000. The capital and the larger regional centres sit at $1.5m. Check your own postcode, because some suburbs straddle two caps.

The income cap thing

This is what surprises people most.

A household where both of you earn solid money, health, trades, local government, agriculture, could easily have sat above the old combined threshold. The scheme simply wasn't available.

That ceiling is gone.

I'll tell you straight: if you ruled the scheme out because of what you earn, you were reading a rule that no longer exists. What matters now is that you haven't owned property in Australia before, you're a citizen or permanent resident, and you're buying inside the cap. If your partner has owned before, it gets more complicated, and what happens when your partner owned a home before is the page for that.

Rates move. So does your number.

There's a Reserve Bank decision at the end of September and more after it.

If rates rise, borrowing capacity normally falls. Lenders have to assess you at a buffer above the going rate, so when the rate moves, the ceiling moves with it. That mechanism is the whole of why is my borrowing power so low?

That's not a reason to rush. No rush on my end. It's a reason to know your actual number now rather than guess at it, so a decision made in a boardroom isn't the thing that tells you where you stand.

The other doors into the same room

The guarantee isn't the only way in, and it isn't always the right one.

If a parent is willing to help with security rather than cash, that's a different structure with different consequences: guarantor loan or the 5% deposit scheme? sets them side by side, and you can't stack the two. If you're a single parent or legal guardian, there's a stream that goes further again: can I buy with a 2% deposit? And if you have nothing saved at all, can I buy with zero deposit? is the honest answer to that one.

The risk nobody advertises: buying at 95% means very little equity to start with, so what happens if prices fall after you buy with a 5% deposit is worth reading before you sign anything, not after.

The honest part

A 5% deposit gets you in the door sooner. It also means a bigger loan, so the repayment is higher than it would be with 20% down, and you carry almost no equity for the first stretch. That's a real trade and you should make it with your eyes open, not because a page told you the 20% rule was dead.

If the guarantee isn't the right path for your situation, I'll say that too. And if the honest answer is that another six months of saving puts you somewhere better, you'll hear that from me as well.

You don't pay me for any of it. I get to charge the bank for the work that I do, not you. I don't care which bank we go to, so there's nothing in it for me to push you somewhere that doesn't fit.

Want to know what you could actually buy?

A 15 minute call. Tell me what you earn, what you've saved and what you owe, and I'll tell you whether the guarantee applies to you and what your real buying power looks like. Takes five, ten minutes to find out where you stand.

Book a 15 minute call Call 0437 189 939

No application, no credit check, nothing on your file. The bank pays me when a loan settles.

Common questions about the 5% deposit scheme

Do I still need a 20% deposit to buy my first home?+

No, not under the Australian Government 5% Deposit Scheme. You bring 5%, the government guarantees the gap, and lenders mortgage insurance never gets charged. You still have to show the lender you can afford the repayments, and you still have to buy inside the price cap for your area.

How much does lenders mortgage insurance actually cost?+

It depends on your price, your deposit and your lender. As an indication, on a $350,000 purchase with $17,500 saved, first home buyer, owner occupier, thirty year term, the insurer's own premium estimator returns an upfront premium of about $8,830 including GST. That is an estimate on those inputs, not a quote, and not your number.

Does the scheme cover established homes or only new builds?+

Both, subject to the price cap for where you are buying. Check your own postcode before you fall in love with something, because some suburbs sit across two caps.

Do lenders still want to see genuine savings?+

Yes. Most want to see the 5% saved and held for a period of time. Gifted deposits and first home owner grants get treated differently by different lenders, so that one is worth a conversation before you assume either way.

Can I use the guarantee and a guarantor at the same time?+

No. It is one or the other, and which one suits depends on your situation. They pull in different directions, so it is worth working out which door you are walking through before you apply.

What if I am buying on my own?+

Single applicants are eligible. There is also a separate stream for single parents and legal guardians with dependants that allows a 2% deposit.

Next question

The First Home Guarantee, explained

The whole thing in order: what the guarantee actually does, who can use it, why it can't be stacked with a guarantor, what it doesn't do, and how it ends.