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What Is the Government 5% Deposit Scheme?
If you live in Melbourne and you are saving every spare dollar for a first home, the government 5% deposit scheme can feel like a breath of fresh air. You no longer have to wait until you hit a full 20% deposit to buy; in many cases you can purchase with five per cent, skip Lenders Mortgage Insurance, and get the keys sooner.
From 1 October 2025 the scheme has been broadened in important ways that matter in Victoria's capital: there are now unlimited places, no income caps, and higher price caps, including a Melbourne limit of $950,000 for eligible properties.
Understanding Housing Australia's Role
Before we dive into the how, let's set the scene. The scheme sits under the umbrella known as the Home Guarantee Scheme, administered by Housing Australia. Think of it as a safety net for your bank, not a cash payout to you. The government provides a guarantee on part of your loan so you can borrow up to 95% of the property value without paying LMI. That guarantee protects the lender, not the buyer; it is not money in your hand.
Key Changes for Melbourne Buyers in 2025
Major Updates to the Scheme
Unlimited places: there is no longer a race to secure a limited allocation.
No income caps: higher earners can use the scheme if they meet other criteria.
Higher price caps: in Victoria's capital city and Geelong, the cap is now $950,000. The rest of Victoria stays at $650,000.
One pathway, simpler rules: the Regional First Home Buyer Guarantee has been folded into the First Home Guarantee, which helps if you have been splitting your search between the CBD fringe and regional options.
Single parents: the Family Home Guarantee continues to allow a 2% deposit for single parents and single legal guardians, accessed via participating lenders.
How Does the 5% Deposit Work?
Here is the plain English version. You save a minimum of five per cent of the property value. You apply for a standard home loan through a participating lender. If you qualify, Housing Australia issues a guarantee to that lender, covering up to 15% of the property value. That lets you borrow up to 95% without paying LMI, which is the insurance that normally kicks in when your deposit is under 20%.
The guarantee lowers your upfront costs and can shave months, even years, off your savings timeline, although your monthly repayments will be higher than if you had a 20% deposit.
Applying Through Participating Lenders
You do not apply directly to Housing Australia. You go through participating lenders, who check whether you and the property meet the rules and then send the application on. Different banks have slightly different credit policies, so a 'no' from one lender is not always the final word.
Eligible Properties in Melbourne
What Properties Qualify Under the $950,000 Cap?
With the Melbourne cap now at $950,000, many townhouses and family homes across middle ring suburbs sit within reach, from units in Brunswick or South Yarra through to newer townhouses in Preston, Reservoir or Coburg North. If you are venturing further out, much of the growth corridor stock in places like Tarneit, Craigieburn, Cranbourne and Pakenham also fits the cap.
The property must be an owner occupied home, not an investment, and it needs to pass the lender's valuation and standard checks.
Understanding Lenders Mortgage Insurance (LMI)
Why You Don't Pay LMI Under This Scheme
A note on LMI, because it causes confusion: LMI protects the lender, not you. Under the scheme, the guarantee takes the place of LMI, which is why you save that cost. Without the scheme, many buyers putting down five or ten per cent would face LMI premiums that can run to many thousands of dollars. The guarantee is a legal agreement between Housing Australia and your lender; you never 'receive' that money.
Combining Federal and Victorian Government Benefits
Victorian Stamp Duty Concessions for First Home Buyers
In Victoria, first home buyers get stamp duty relief on homes up to $750,000. There is a full exemption up to $600,000 and a sliding concession between $600,001 and $750,000. That is separate from the federal guarantee, but in practice they work together to reduce your upfront costs.
If you are buying a brand new home up to $750,000, you may also be eligible for the First Home Owner Grant. The State Revenue Office site has a good explainer and calculator to estimate duty on different price points.
Victorian Homebuyer Fund Update
What about the Victorian Homebuyer Fund? Plenty of Melburnians used the state's shared equity option in recent years. As of 10 September 2025, the Victorian Homebuyer Fund is closed to new participants. If you are already in the programme, your agreement continues with annual reviews, but new buyers need to look at alternatives such as the federal guarantee or the forthcoming national Help to Buy shared equity scheme.
Step by Step Guide: Using the 5% Deposit Scheme in Melbourne
1. Create Your Budget
Sketch your budget. Work backwards from realistic repayments rather than the maximum a bank will lend. Melbourne living has its own rhythm and costs, from Myki and weekend footy trips to childcare and parking in the CBD. Keep some breathing room.
2. Choose a Participating Lender or Broker
Ask three questions: does the bank participate in the scheme, what is its appetite for 95% loans, and how do they assess overtime or shift work if that is part of your income. Then get a written pre approval.
3. Verify Property Price Caps
Check the cap and property type. If your shortlist includes a $930,000 townhouse in Northcote and an $870,000 unit in South Melbourne, you are within the Melbourne cap, so the scheme can apply. If you wander into Geelong, the same cap applies; if you look beyond the capital city and regional centre list, the rest of Victoria cap is $650,000.
4. Arrange Conveyancing Early
Line up conveyancing early. Get a contract and section 32 statement reviewed before you sign. In Melbourne's private sales, you usually pay a small initial holding deposit with the balance to 10% at an agreed time. At auction, there is no cooling off and the full deposit is due on the day, so it is crucial to confirm scheme eligibility and finance settings before bidding.
5. Conduct Thorough Property Inspections
Be methodical at inspection time. Bring a simple checklist: water stains, subfloor ventilation, age of the roof, evidence of movement at the kerb or driveway, body corporate fees for units. Organise a building and pest inspection once you are serious.
6. Budget for All Purchase Costs
Account for the real costs. Budget for lender fees, government charges, conveyancing, adjustments for rates and water, building and contents insurance, and moving. The guarantee saves on LMI, but those other items still stack up.
7. Prepare for Settlement
Settle with a clear head. Your lender and your conveyancer will coordinate the final steps. Keep your rate lock and your building insurance start date in sync with settlement day, so there are no gaps.
Real Melbourne Property Examples
Inner North Unit Purchase
You find a one bedroom unit in Carlton for $610,000. With a 5% deposit, that is $30,500 plus your costs. Because the price is just above $600,000, you may receive a reduced stamp duty bill under the first home buyer concession. The scheme removes LMI from the equation, so your upfront outlay is the deposit, duty, fees and inspections rather than deposit plus LMI.
Middle Ring Townhouse
A two bedroom townhouse in Preston for $840,000 sits below the $950,000 cap. With a 5% deposit of $42,000 you can apply under the scheme, noting that your borrowing is at a high loan to value ratio, so a strong savings pattern and clean credit file help satisfy the bank's policy settings.
Family Home on the Fringe
A newer four bedroom house in Cranbourne at $780,000 is beneath the cap and may offer more space for the money than closer in suburbs. The guarantee helps you avoid LMI, though your repayments will reflect a high LVR. Factor in time and costs for commuting, as well as the joy of a bigger backyard and easy parking near the local footy oval.
Benefits and Risks of the 5% Deposit Scheme
Key Advantages
The upsides are real. You can buy sooner with a smaller deposit, skip LMI, and potentially capture growth rather than chasing rising prices. In a city like Melbourne where prices have outpaced wages across much of the last decade, shaving years off the savings timeline matters.
Important Considerations
The trade offs deserve respect. A smaller deposit means larger repayments and less buffer if rates rise or life throws a curveball. Lenders still apply their credit rules; not every bank treats overtime or casual hours the same, and some will want extra evidence of genuine savings.
There is also a broader debate about whether low deposit buyer support pushes prices higher. Recent coverage notes affordability pressures persist even as access widens, which is a reminder to buy within your means and keep a rainy day fund.
Adopting a Realistic Mindset
A realistic mindset helps. In Melbourne, a 'hero' house hunt can quickly become a saga if you chase every auction across the tram network. Shortlist three suburbs, set a clear top price, and keep your focus on homes that meet most of your needs without stretching to the limit.
Melbourne Auction and Private Sale Tips
Auction Purchases
At auction there is no cooling off period in Victoria, so your due diligence needs to be finished before bidding. That means your finance settings, scheme eligibility, and section 32 review should be done, and your deposit arrangements confirmed.
Private Sales
For private sales, you may have a brief cooling off period unless you waive it, but the smart move is the same: organise checks in advance, and include any special conditions your lender requires in the contract. Having a conveyancer who is responsive on Thursday nights and Saturday mornings makes a huge difference in this city.
Frequently Asked Questions
Is the government 5% deposit scheme only for new builds?
No. Houses, townhouses and units, whether existing or new, can be eligible, subject to the price cap and standard rules.
Do I need to pay the guarantee back?
No. It is not a loan to you. It is a guarantee to the lender. Your obligations are your home loan, your costs, and staying within the scheme conditions, such as living in the property.
Can I apply directly to Housing Australia?
No. Applications run through participating lenders. They confirm your eligibility and lodge the request for the guarantee.
Are there still property price caps in Melbourne?
Yes. The cap from 1 October 2025 is $950,000 for Melbourne and Geelong. The rest of Victoria is $650,000.
What if I was planning to use the Victorian Homebuyer Fund?
It is closed to new participants. If you are already in the programme, your agreement continues; otherwise, consider the 5% deposit scheme or look out for the national Help to Buy shared equity programme.
Your Action Checklist
Get a quick eligibility sense check and then book a chat with a participating lender about the 5% pathway.
Set your budget ceiling using current repayments, not the bank's maximum.
Ask a conveyancer to review a section 32 before you sign anything.
Shortlist suburbs, focus on properties under the relevant cap, and organise a building and pest inspection early.
Keep a modest buffer, because rates, body corporate fees, and petrol for those ring road commutes add up.
Final Thoughts for Melbourne First Home Buyers
Buying your first place here is equal parts grit and heart. If the government 5% deposit scheme gets you from 'maybe next year' to 'we have the keys', it is worth considering, as long as you keep your repayments comfortable and your selection sensible. The broader market will do what it does. Your job is to buy a home you will enjoy living in, on terms that let you sleep at night.
Need Expert Conveyancing Support?
If you would like someone in your corner for the legal bits, we are here to help. Contact Pearson Chambers Conveyancing for details and a complimentary Section 32 contract review.