First home buyers: 12 months of the 5% deposit scheme

In collaboration with Loan Market.

Saving a 20% deposit has always been a huge achievement, but with rising house prices and wages that can’t keep up, it’s now arguably harder than ever. In 1976, a 20% deposit was about 67% of the average individual income, whereas today it's 203%.

October marks exactly 12 months since the Australian Government significantly expanded its 5 per cent deposit scheme by removing strict income caps, lifting regional price thresholds, and eliminating the annual cap on available places. Under the policy shift, eligible first home buyers were given the green light to purchase a home with as little as a 5 per cent deposit while avoiding tens of thousands of dollars in lenders mortgage insurance (LMI).

One year on, has the scheme delivered on its promise?

Easing upfront costs against growing rate pressures

From a finance perspective, the expanded 5 per cent deposit pathway has delivered immediate relief on initial capital requirements. According to Loan Market data, prior to the expansion, 20.28 per cent of first home buyers with less than a 20 per cent deposit were forced to pay LMI. Over the past 12 months, that figure has plummeted to just 7.8 per cent, saving thousands of Australians substantial upfront sums or preventing them from adding heavy insurance fees onto their total loan balance.

This policy relief drove a sharp 36.9 per cent increase in average first home buyer loan lodgements in the first four weeks of the scheme compared to September 2025. However, broader macroeconomic pressures have seen first home buyer lodgements decrease, equating to a 1.6 per cent increase in overall loan lodgements through Loan Market over the 12 months following the expansion (YoY). Comparing September 2026 to September 2025, first home buyer loan lodgements fell 8.9 per cent.

This recent decline aligns closely with housing market trends tracked in the October 2026 edition of Ray White Now. Following the Reserve Bank of Australia’s late-September decision to lift the cash rate by 0.25 percentage points to 4.60 per cent, the fourth increase of the year, borrowing capacities have tightened significantly. Combined with national unemployment rising to 4.7 per cent in October, buyers are acting with heightened caution despite the easier deposit entry point.

Less competition on the floor translates to the negotiating table

For first home buyers who are finance-approved, today's market conditions offer a rare tactical advantage: significantly reduced competition.

Ray White property data shows national median house prices currently sitting at $980,000, down 1.2 per cent over the month and unchanged year-on-year, while national median units fell 0.8 per cent over the month to $730,000. For entry-level buyers, units have held value slightly better than houses, falling 1.1 per cent annually compared with a 2.0 per cent decline for houses. Regional units offer an even more accessible entry point, with a median of $670,000 - a $70,000 discount compared to capital city unit medians.

As higher interest rates trim maximum loan amounts, crowd sizes at open homes and auctions have thinned:

• Open home attendance: Ray White’s four-week rolling average for open home attendance slipped to 2.0 attendees per open home in early October, roughly half the level recorded in spring 2025 (3.9 attendees) and well below January's peak of 4.7
• Auction bidders: While spring auction listings rose to 2,850 over the four weeks to October 3 (matching last year’s volume), active bidder depth sits at just 1.8 bidders per auction, compared to 3.2 a year ago

With property stock coming to market but meeting fewer active bidders, qualified first home buyers using the 5 per cent deposit scheme hold far greater negotiating power than they did 12 months ago.

The ongoing rental trap

While lower borrowing power makes buyers cautious about committing to higher mortgage payments, staying in the rental market carries its own persistent financial burden.

Ray White rental data highlights that average weekly rents in major capital cities surged 6.1 per cent year-on-year for houses (median $700/week) and 4.6 per cent for units (median $680/week). On a national scale, house rents reached $670/week (+3.1 per cent YoY) and units $660/week (+4.8 per cent YoY).

This relentless rise in weekly rent can make saving a full 20 per cent deposit particularly difficult, reinforcing why the 5 per cent deposit scheme has been a crucial circuit-breaker for many tenants looking to convert rent payments into home equity.

Is the 5 per cent deposit scheme right for you?

While skipping the 20 per cent deposit requirement can unlock homeownership much faster and save thousands in LMI, purchasing with a 5 per cent deposit - which is a 95 per cent loan-to-value ratio (LVR) - in a 4.60 per cent cash rate environment requires disciplined budgeting. Borrowing a larger proportion of the purchase price means higher ongoing monthly repayments.

As property prices decline, buying a property on a high LVR means a small percentage of buyers also sit at risk of negative equity if property prices continue to go down.

Before jumping in, prospective buyers should carefully weigh up key factors:

1. Repayment stress-testing: Ensure your household budget can comfortably absorb monthly repayments at current interest rates, with a buffer for potential future shifts
2. Rent vs. interest calculation: Compare your current annual rent against the interest cost of a 95 per cent LVR loan to establish your net financial gain
3. State boosts: Factor in state-based first home owner grants (FHOG) and stamp duty concessions, which can be combined with the federal guarantee to further lower upfront entry costs.

Next steps

Navigating the property market requires pairing local real estate opportunities with clear financial planning:

• Find an agent: Connect with a local Ray White agent to explore suitable homes and understand what's happening in your local market, from recent sales to buyer competition
• Find a broker: Speak with a Loan Market broker to verify your eligibility under the expanded 5 per cent scheme, test your exact borrowing capacity, and model monthly repayments across different rate scenarios