Australian Government 5% Deposit Scheme: Eligibility, Benefits & Liberty Financial Update
Buying a home with a 5% deposit has become more accessible. Liberty Financial has joined the Australian Government 5% Deposit Scheme as the first non-bank lender, giving eligible home buyers another lending option while continuing to avoid Lenders Mortgage Insurance (LMI).
This is particularly important for self-employed borrowers, sole traders, contractors and Australians with non-standard income who may have struggled to meet traditional bank lending criteria. In this blog post, you will learn who is eligible, how the updated scheme works, current property price caps, and what Liberty Financial's inclusion could mean for your home loan application.
Key takeaways
- Buy your first home with just a 5% deposit while avoiding expensive LMI.
- Liberty Financial is the first non-bank lender to join the Australian Government 5% Deposit Scheme.
- Eligible single parents and legal guardians may be able to purchase with just a 2% deposit.
- The 5% Deposit Scheme supports existing homes, new builds, and eligible house and land packages.
- Property price caps differ by state and region, so checking local limits is essential.
- Working with lending specialists can simplify your application from eligibility assessment through to settlement.
What is the Australian Government 5% Deposit Scheme?
The 5% Deposit Scheme, formerly part of the Home Guarantee Scheme, is a federal initiative managed by Housing Australia. It lets eligible buyers purchase a home with a deposit as low as 5%, without paying Lenders Mortgage Insurance.
Normally, buying with less than a 20% deposit means paying LMI, a cost that protects the lender, not the buyer, and can run into tens of thousands of dollars. Under the Scheme, Housing Australia guarantees the participating lender for the difference: up to 15% of the property value for standard first home buyers, or up to 18% for eligible single parents and legal guardians.
What are the benefits of the 5% Deposit Scheme?
Here are some of the biggest benefits of using the 5% Deposit Scheme:
- Elimination of LMI costs: Avoid paying $15,000 to $40,000+ in non-refundable LMI fees.
- Faster market entry: Step into the property market years earlier, rather than trying to outpace inflation while saving a 20% deposit.
- Equity growth opportunities: Start building your home equity and capital gains immediately rather than paying rent.
What are the risks and limitations of the 5% Deposit Scheme?
Here are the key drawbacks and risks of using the 5% Deposit Scheme:
- Higher monthly repayments: Borrowing 95% of a property's value results in a larger principal loan balance, leading to higher monthly loan repayments.
- Sensitivity to interest rates: High Loan-to-Value Ratio (LVR) loans feel interest rate movements more sharply. For example, on a $700,000 loan, a 0.5% rate rise adds roughly $180 to $200 to your monthly repayment, worth factoring into your budget before you commit.
- Strict ongoing residence obligations: You must move into the property within 6 months of settlement and remain an owner-occupier. Converting the home into an investment property invalidates the government guarantee.
What has changed in the 5% Deposit Scheme recently?
A few big changes made the Scheme easier to use for more people:
- No more income caps. High earners who used to be locked out because they earned "too much" can now use the Scheme too.
- No more yearly limits. There used to be a cap on how many places were available each year, which meant waitlists and delays. That cap is gone.
- More people can buy together. You are no longer limited to married or de facto couples. Friends, siblings, and other family members can now apply jointly, too.
- Higher price caps. Price caps in cities and regional areas went up to better match current property prices.
Did you know?
More than 300,000 Australians have used the Scheme to buy or build a home. It now backs around 5,670 loans every month, which is over half of all first home buyer loans in Australia.
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Why does Liberty Financial's joining the 5% Deposit Scheme matter?
Housing Australia's panel previously consisted exclusively of traditional banks using automated scoring and rigid income verification rules. As the first specialist non-bank lender on the panel, Liberty Financial introduces flexible, manual underwriting, allowing self-employed buyers and non-standard earners to access government-backed LMI waivers without strict banking barriers.
How does Liberty Financial improve home loan approval?
This shift provides practical solutions for borrowers who struggle to meet standard banking requirements:
- Manual assessments: Evaluates actual bank statements, overall cash flow, and real debt serviceability rather than relying on automated scoring algorithms that trigger instant rejections.
- Alternative income verification: Replaces the rigid 2-year tax return requirement with 12 months of Business Activity Statements (BAS), bank cash flow analysis, or accountant declarations while factoring in allowable add-backs like depreciation and director wages.
- Turnover over net taxable income: Assesses real business revenue for sole traders and directors rather than relying on suppressed net taxable figures.
- Flexible income stream recognition: Accepts short contract histories, performance bonuses, overtime, commissions, and combined income from multiple casual or part-time roles.
- Streamlined single-parent approvals: Simplifies serviceability assessments for single parents and legal guardians accessing the 2% deposit provision.
Who is eligible for the 5% Deposit Scheme?
Applicants must satisfy the following eligibility requirements set by the Federal Government and Housing Australia before applying for the scheme.
- Citizenship: Australian citizen or permanent resident, aged 18+.
- First home buyer status: Must not have owned property or land in Australia in the past 10 years.
- Application type: Individual, or joint with another eligible buyer.
- Owner-occupier requirement: Must live in the property as your primary home; no investment properties.
- Loan terms: Principal and interest loan, maximum 30-year term (plus up to 3 years for new builds).
The 2% Deposit option for single parents and legal guardians
A specific part of the government program helps single parents and legal guardians buy homes. Under this rule:
- Deposit requirement: Eligible single parents can buy a home with as little as a 2% deposit.
- Property ownership rules: Applicants cannot own any other property or real estate when the new home settles.
- Application format: Single-parent applications must be submitted as individual applicants.
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Common mistakes to avoid when applying for the 5% Deposit Scheme
Even small oversights can delay your application or affect your approval. Keeping the following points in mind can help you avoid common mistakes and move through the home loan process with greater confidence.
- Choosing the wrong loan structure: The loan must be set up as a principal and interest loan with a maximum term of 30 years. Interest-only repayments are generally permitted only during the construction period for up to three years.
- Overlooking the 10-year property ownership rule: You must not have owned or held an interest in residential or commercial property in Australia within the previous 10 years.
- Not completing the home buyer declaration: Applicants must sign a Home Buyer Declaration confirming they meet the scheme's requirements.
- Confusing pre-approval with a guarantee reservation: Receiving home loan pre-approval does not automatically reserve a place under the scheme.
- Forgetting to budget for upfront purchase costs: The 5% deposit covers only the property's purchase price. You'll also need to budget for stamp duty, conveyancing, inspections, and registration fees.
- Changing jobs during pre-approval: Changes to your employment or income structure while your application is being assessed may affect your approval.
- Missing vacant land settlement timeframes: If you're purchasing vacant land with a separate building contract, settlement and title must occur within the required timeframe to remain eligible under the scheme.
Recent 5% Deposit Scheme updates: Property price caps, refinancing & savings limits
Recent adjustments introduced several key updates that home buyers should understand before applying:
Streamlined lender refinancing rules
- LMI-free portability: Borrowers with an existing scheme-backed home loan can refinance to another participating lender without forfeiting their government guarantee or paying LMI.
- Extended quote validity: Formal rate responses and refinancing pre-approval offers remain valid for 42 days (up from 30 days), giving borrowers a wider window to evaluate lender rates and terms.
- Cost capitalisation: Eligible administrative and settlement fees incurred when switching lenders can now be capitalised directly into the new loan balance, minimising out-of-pocket costs at settlement.
Post-settlement retained savings limits
For scheme places reserved on or after 1 July, buyers are restricted from retaining excessive liquid cash reserves post-settlement.
- Standard cap: Remaining cash savings after settlement cannot exceed the sum of 6 months of living expenses plus 6 months of mortgage repayments.
- Construction buffer: Buyers undertaking new residential builds are allowed an additional 5% buffer on top of the savings cap to cover unforeseen construction contingencies.
- Purpose: Ensures the government guarantee directly assists buyers who genuinely require deposit support rather than those holding substantial liquid capital.
Local market price cap adjustments
- Darwin cap increase: Darwin's cap rose from $600,000 to $750,000 from 1 July 2026, reflecting local market growth. The rest of the Northern Territory stays at $600,000.
- Expanded regional NSW caps: Four major regional New South Wales markets (Central Coast, Coffs Harbour-Grafton, Mid North Coast, and Richmond-Tweed) now share the top $1.5 million price cap alongside Sydney and major capital cities.
Australian Government Schemes Property Price Caps
The following list outlines the maximum property purchase price allowed under the 5% Deposit Scheme by state and region.
| Australian Government Schemes Property Price Caps | ||
|---|---|---|
| State/Territory | Capital City & Regional Centres | Rest of State |
| New South Wales | $1,500,000 | $800,000 |
| Victoria | $950,000 | $650,000 |
| Queensland | $1,000,000 | $700,000 |
| Western Australia | $850,000 | $600,000 |
| South Australia | $900,000 | $500,000 |
| Tasmania | $700,000 | $550,000 |
| Australian Capital Territory | $1,000,000 | n/a |
| Northern Territory | $750,000 (Darwin) | n/a |
| Northern Territory — rest of Territory | n/a | $600,000 |
Regional centres include: Central Coast, Coffs Harbour-Grafton, Illawarra, Mid North Coast, Richmond-Tweed, Newcastle and Lake Macquarie (NSW); Geelong (VIC); Gold Coast and Sunshine Coast (QLD).
Source: Housing Australia, firsthomebuyers.gov.au, correct as at August 10, 2026. Price caps are reviewed periodically, so check the official postcode tool for your suburb before relying on these figures.
What properties can you buy under the 5% Deposit Scheme?
The scheme allows various home types as long as the purchase price remains under the regional price limit:
- Existing houses, townhouses, and apartments.
- Off-the-plan apartments or townhouses.
- House and land packages.
- Vacant land with a separate building contract.
When buying vacant land with a separate building contract, the combined cost of the land and the build contract must stay under the local price limit.
What could a 5% Deposit Scheme look like in your state?
On an $800,000 property, saving a traditional 20% deposit requires $160,000 upfront. Through the Australian Government 5% Deposit Scheme, eligible buyers can secure the same property with just $40,000 upfront while waiving LMI fees entirely.
Note: Government price caps apply based on location. Additional settlement expenses, including stamp duty, conveyancing, inspection reports, and registration fees, must be saved and paid separately. Our home loan specialists will guide you through your total upfront contribution, verify local price limits, and structure your pre-approval application.
How ZedPlus helps you buy with a 5% Deposit
Meeting the Scheme's eligibility criteria is only half the equation; getting approved still depends on presenting the right application to the right lender. Our specialists work with first home buyers, self-employed borrowers, contractors, sole traders, and non-standard income earners every day, including buyers who've previously been declined by a bank.
Here's how we help improve your chances of securing the right home loan:
- Comprehensive income assessment: Reviewing your income, BAS, tax returns, bank statements, and legitimate add-backs to present your true borrowing capacity.
- Lender matching: Comparing policies across 30+ participating lenders, including Liberty Financial, to identify the lender best suited to your circumstances.
- Pre-approval management: Preparing and lodging your application while managing lender communication, so you can search for a property with confidence.
- End-to-end support: Managing the entire process, from document collection and valuation coordination through to settlement.
Ready to buy your first home with a 5% deposit? Book a free, no-obligation call with one of our lending specialists today.
5% Deposit Scheme FAQs
1. Does choosing a non-bank lender mean higher interest rates under the scheme?
Not necessarily. Interest rates vary across participating lenders based on loan features, product types, and individual risk assessments. Non-bank lenders like Liberty Financial offer competitive pricing structures designed for non-standard credit profiles while maintaining government-backed LMI waivers.
2. Are consumer protections and government safeguards the same with a non-bank lender?
Yes. All non-bank participating lenders must pass Housing Australia's formal selection process and comply with identical federal regulations. This includes standard consumer protection laws, National Consumer Credit Protection (NCCP) requirements, mandatory serviceability assessments, and ongoing audit obligations.
3. Do non-bank lenders charge extra processing or application fees for government scheme loans?
No. Participating non-bank lenders are prohibited from charging premium application fees simply for processing a government-guaranteed loan. Standard setup costs, valuation fees, and legal charges apply just as they would with any traditional participating bank.
4. Are upfront costs like stamp duty and legal fees included in the 5% deposit?
No. The 5% deposit covers your minimum equity contribution toward the property purchase price. Additional costs such as state stamp duty, conveyancing fees, pest and building inspections, and transfer registration fees must be saved and paid separately alongside your deposit.
5. Is the minimum deposit based on the purchase price or the lender's bank valuation?
The deposit percentage is calculated based on the official property valuation determined by your participating lender, not strictly the purchase contract price. If the lender's valuation comes in lower than the agreed purchase price, you may need to contribute additional funds to bridge the gap.
6. How quickly must I move into the property after settlement?
You must move into the home as your principal place of residence within six months of property settlement. You are required to remain living in the home as an owner-occupier for as long as the government guarantee remains active on your loan.
7. What happens to the loan guarantee if I decide to move out or rent the property later?
If you move out of the property or convert it into an investment rental, you breach the scheme's ongoing owner-occupier requirement. The government guarantee will be removed from your loan, and your lender may require you to pay LMI retroactively or restructure your mortgage.
5% Deposit Scheme: Final thoughts
The Australian Government 5% Deposit Scheme makes home ownership achievable with a much smaller deposit, and the addition of Liberty Financial as the first non-bank lender opens the door for self-employed borrowers, sole traders, contractors, and non-standard income earners who may have been locked out by traditional banking rules.
Because eligibility rules, property price caps, and savings limits can change, working with a lending specialist helps ensure your application is structured correctly from the start. At ZedPlus, our team handles everything from eligibility assessment and income presentation to lender matching and settlement support.
Ready to buy your first home with a 5% deposit? Book a free, no-obligation call with one of our lending specialists today.
Disclaimer
The information in this article is general in nature and has been prepared without considering your personal objectives, financial situation, or needs. Before acting on any information, consider its appropriateness to your circumstances and seek advice from a licensed financial or credit professional.
