5% Is All You Need: The New Rule Helping First-Home Buyers

After years of soaring housing prices and seemingly impossible savings targets for deposits, the government has thrown would-be buyers a lifeline. From 1 October 2025, the First Home Guarantee scheme will let Australians enter the market with just a 5% deposit and avoid paying Lenders Mortgage Insurance (LMI). 

By fast-tracking the scheme’s start date by three months, policymakers are signalling they know the deposit hurdle is a real barrier. Cutting tens of thousands off the upfront cost could mean the difference between buying in your 20s or your 30s. 

Still, the question remains: will this move genuinely help first-home buyers get ahead, or simply fuel more competition in an already overheated property market? 

What are The New Rules for First-Time Home Buyers 

Until now, the First Home Guarantee had plenty of roadblocks including tight income limits, price caps that left out most city homes, and a limited number of spots each year. From October, that’s all shifting: 

• Income caps scrapped. It doesn’t matter if you earn $60,000 or $200,000 – anyone buying their first home can now apply. 

• Unlimited places. Forget racing to secure one of 35,000 spots. From October, there’s no cap on numbers. 

• Higher property caps. Price ceilings are moving with the market. In Sydney, it rises to $1.5 million, Melbourne to $950,000, and Brisbane to $1 million. That means far more homes will qualify. 

 The 20% deposit hurdle has always been the biggest barrier for first-home buyers. Now with a 5% deposit and avoiding LMI you could save thousands. It won’t make homes cheaper, but it will cut some of the steepest upfront costs. 

E.g. For a $1,000,000 home in Brisbane, you used to need $200,000 upfront. From October, it’s just $50,000. That’s a $150,000 difference. Add in savings on LMI (possibly $20,000+), and you’re looking at a huge cut to the cash barrier. 

What It Doesn’t Do 

It’s important to stay realistic. The scheme helps with the deposit, but it doesn’t remove the financial responsibility of owning a home: 

• Banks still check affordability. Your income, spending, and credit history will all be assessed. 

• Extra costs still apply. Stamp duty, legal fees, and moving costs sit outside the 5%. 

• More debt, bigger repayments. A smaller deposit means borrowing more, with higher monthly repayments and often a longer loan term. 

• Equity risk. With such a small deposit, you don’t have much equity. If property values fall, you could end up owing more than your home is worth. 

A Note for Doctors, Dentists and Healthcare Professionals 

If you’re in healthcare, the new 5% rule is just one piece of the puzzle. Specialist lenders offer policies designed specifically for medical and dental professionals, and those policies can be even more powerful than what’s available in the general market. 

Here’s why: 

• Future earnings potential. Banks know your income trajectory is different. As a doctor or dentist, you may still be in training or early career, but lenders factor in your strong long-term earning potential when assessing your application. 

• Specialist lending policies. Medical lending packages allow you to borrow at higher loan-to-value ratios (LVR) without LMI, even outside government schemes. That can mean more flexibility and less red tape. 

• Bigger opportunities with 5%. The combination of government support and specialist lending can make it possible to secure a higher-value property sooner. 

The bottom line? Working with a specialist broker or advisor who understands the industry can put you in a stronger position. 

Next Steps 

Thinking of using the scheme? Here’s how to prepare: 

1. Save your 5% plus extras. Stamp duty, moving costs, and legal fees add up. 
2. Talk to your accountant. Get a clear picture of your borrowing power. 
3. Check the property cap in your city. Make sure you know what’s realistically in range. 
4. Stress-test your repayments. Be confident you can still manage if interest rates climb. 

If you’re realistic about your budget and plan carefully, this could be the chance to secure your first home much sooner than you thought. 

If you’re interested in making the most of the new %5 deposit scheme, talk to the finance experts at Cutcher & Neale today.