Understanding the Home Guarantee Scheme: How More Australians Can Enter the Property Market with a 5% Deposit

What Is the Home Guarantee Scheme in Australia?

The Home Guarantee Scheme (HGS) is a federal government initiative that enables first home buyers to purchase a property with a smaller deposit, as low as 5%, without paying Lenders Mortgage Insurance (LMI).

In short: The government acts as a guarantor for up to 15% of the loan amount, allowing borrowers to meet a lender’s 20% equity requirement sooner.

Key features:

• Backed by the National Housing Finance and Investment Corporation (NHFIC).
• Designed for first home buyers and Australians re-entering the property market.
• Lets buyers avoid paying Lenders Mortgage Insurance (LMI) — a cost that normally applies when your deposit is under 20%.
• Available through participating lenders, including major banks and selected regional institutions.

“It’s a great way to get into the market sooner,” explains Jake de Ruyter, broker at UNO Home Loans. “Instead of needing that traditional 20% deposit, eligible buyers can enter with as little as 5%, and avoid paying thousands in LMI.”

How Does the Home Guarantee Scheme Work?

The Home Guarantee Scheme allows a buyer to purchase a property with a smaller deposit while the government guarantees the shortfall between their deposit and the 20% threshold.

Here’s how it works step-by-step:

1. The buyer provides a minimum 5% deposit.
2. The government guarantees up to 15% of the property’s value to the lender.
3. The lender treats the borrower as if they had a 20% deposit, meaning no LMI applies.
4. The buyer repays the full loan amount, there’s no government cash contribution, just a guarantee.

“It’s not free money,” says host Vincent. “The government doesn’t give you $150,000, they simply guarantee it. Your loan and repayments are still based on the full borrowed amount.”

This distinction is important. The government guarantee reduces upfront costs, not your debt.

Who Is Eligible for the Home Guarantee Scheme?

The scheme targets first home buyers, eligible citizens or permanent residents, and Australians re-entering the property market after 10 years.

Eligibility criteria include:

• Must be an Australian citizen or permanent resident.
• Must be purchasing an owner-occupied property (not an investment).
• Available for singles, couples, or even friends or siblings buying together.
• All applicants must be first home buyers or have not owned a home in the past 10 years.
• The property price must fall under the regional or city-specific price cap.

Recent changes (effective 1 October):

• Property caps increased e.g., Brisbane from $700,000 to $1 million; Sydney from $1 million to $1.5 million.
• Income caps removed previously $125,000 for singles and $200,000 for couples.
• Unlimited scheme places previously capped at 35,000 spots per year.

“These updates are huge,” says Jake. “Lifting the caps and removing income limits means more Australians especially those on higher incomes or with growing families can now access the scheme.”

Can You Combine the Home Guarantee Scheme with Other Incentives?

Yes, the Home Guarantee Scheme can be used alongside state-based incentives such as stamp duty concessions and first home owner grants.

For example:

• Federal scheme: covers the LMI guarantee.
• State scheme: provides stamp duty waivers or cash grants for eligible buyers.

“You can layer them,” Jake explains. “For instance, in Queensland you might use the federal scheme for your 5% deposit and still claim the $30,000 first home grant for a new build.”

Important caveat

While the Home Guarantee Scheme property price cap has risen, many state-based stamp duty concessions haven’t.

“In Brisbane, the federal cap is now $1 million, but the state stamp duty concession still stops at $700,000,” says Jake. “That means you could owe up to $30,000 in stamp duty, so your deposit effectively jumps from 5% to closer to 9%.”

What Does ‘Genuine Savings’ Mean Under the Scheme?

Genuine savings refers to money a buyer has personally saved over time, demonstrating a habit of saving, not lump-sum gifts or windfalls.

Banks typically want to see:

• At least 5% of the property value saved personally.
• These funds held in your account for a minimum of 3 months.

This helps lenders confirm that borrowers can manage repayments responsibly.

“The banks just want to know you can save and budget,” says Jake. “You can’t just have $50,000 appear overnight and expect that to count as genuine savings.”

Some lenders may also consider consistent rental payments as proof of genuine savings, showing a similar capacity to manage regular repayments.

How Do You Apply for the Home Guarantee Scheme?

Applying for the Home Guarantee Scheme typically happens through your lender or mortgage broker as part of your loan application.

The process generally follows these steps:

1. Speak to a broker early. They’ll assess your eligibility, borrowing power, and savings.
2. Submit a pre-approval application with an eligible lender participating in the scheme.
3. Include your scheme application alongside your home loan paperwork.
4. Once approved, you’ll have 90 days to find a property and sign a contract.
5. Final approval occurs after lender checks and property valuation.
6. You settle, move in, and celebrate, all without paying LMI.

“I always tell clients, even if you think you’re a year or two away, start the conversation now,” Jake advises. “You might be closer than you think.”

What Are the Key Benefits of the Home Guarantee Scheme?

The scheme’s primary advantage is reducing upfront costs for buyers.

Main benefits include:

• Enter the market sooner with only a 5% deposit.
• Avoid Lenders Mortgage Insurance (LMI), which can save $10,000–$30,000.
• Access higher property caps under new 2024–25 updates.
• No income limits, now open to higher-earning Australians.
• Unlimited spots mean no rush or missed opportunities.

It’s particularly helpful for Australians who’ve been priced out due to rising housing costs.

“The removal of limits and caps gives buyers breathing room,” says Vincent. “It means you can focus on buying well, not racing against deadlines.”

What Are the Common Pitfalls or Misunderstandings?

While the scheme provides a boost, it’s not without risks.

Watch out for:

• Bigger loans mean bigger repayments. A 5% deposit on a $1M property still means borrowing $950,000.
• Not a cash gift. The government doesn’t contribute money, only a guarantee.
• Ongoing eligibility. You must live in the property (owner-occupied) until you reach at least 20% equity.
• Market pressure. Increased demand could push up property prices.

“The biggest misconception,” notes Vincent, “is thinking the government gives you a 20% deposit. They don’t, they just guarantee it so you can avoid LMI.”

What Happens If You Move Out Before Reaching 20% Equity?

You must continue meeting the scheme’s requirements while the guarantee is in place.

If you move out before reaching 20% equity, your loan may be reassessed as an investment loan, triggering Lenders Mortgage Insurance or higher interest costs.

“The guarantee stays until your loan-to-value ratio (LVR) hits 80%,” explains Jake. “Once you’ve built enough equity, the guarantee naturally drops off.”

How Could the Scheme Affect the Property Market?

While Treasury modelling suggests only a modest 0.5% property price increase over six years, brokers like Jake believe the actual impact could be stronger.

“With unlimited spots and no income caps, we’re expecting more competition,” he says. “Entry-level properties between $700,000 and $1 million could see the most pressure.”

However, both Jake and Vincent emphasise smart buying:

• Choose the right property at the right time.
• Avoid FOMO or rushing into unsuitable purchases.
• Seek advice from a broker or buyers’ agent to assess value.

Key Takeaways

• The Home Guarantee Scheme helps Australians buy a home with just 5% deposit and no LMI.
• Eligibility now extends to higher-income earners and previous homeowners (10+ years ago).
• Unlimited places and higher property caps make it easier to access nationwide.
• You can combine it with state-based grants, but watch for stamp duty thresholds.
• It’s not free money, and buyers should ensure they can handle the repayments.

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