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If you live in Melbourne and you've been watching listings while your deposit grows at a snail's pace, this is genuinely big news. From 1 October 2025, the federal Home Guarantee Scheme is expanding so that all first home buyers can purchase with as little as a 5% deposit, without paying lenders mortgage insurance. There will be no income caps and, crucially, no limit on the number of guarantees. Property price caps are being lifted too, including a new cap of $950,000 for Melbourne and Geelong.
Below, I'll walk you through what's changing, what it means on the ground in Melbourne, and how to use the scheme sensibly so you're not stretching beyond comfortable limits.
What's Changing on 1 October 2025: The Quick Version
Start date brought forward: the enhanced 5% deposit access begins on 1 October 2025.
No income caps and no limit on places: if you're a first home buyer with at least a 5% deposit and you pass a lender's assessment, you can apply.
Higher property price caps: Melbourne and Geelong move from $800,000 to $950,000.
Regional simplification: the separate regional guarantee is being folded into the First Home Guarantee to streamline access.
The government guarantee lets you avoid LMI: it 'tops up' your deposit to the equivalent of 20% for LMI purposes.
One industry estimate suggests the expansion could save buyers billions in LMI collectively, although individual savings vary with property price and lender. The Prime Minister's office highlights typical savings in the tens of thousands in avoided LMI.
How the Home Guarantee Scheme Works
Normally, buyers with less than a 20% deposit must pay lenders mortgage insurance. Under the Home Guarantee Scheme, the government acts as a guarantor for up to 15% of the property value, so your 5% deposit plus the government's guarantee effectively substitutes for a full 20% deposit from an LMI perspective. You still borrow up to 95% of the property price, you still make repayments, and you must meet a lender's servicing rules. The big difference is you don't pay LMI. The scheme is administered by Housing Australia and delivered through a panel of participating lenders, including customer owned and regional banks as well as majors.
Melbourne Property Market: The Numbers That Matter
Price Cap Changes
From 1 October 2025, Melbourne and Geelong have a $950,000 cap under the scheme. That sets a practical ceiling for eligible purchases.
Deposit Requirements Examples
- At $700,000, a 5% deposit is $35,000
- At $850,000, a 5% deposit is $42,500
- At the $950,000 cap, a 5% deposit is $47,500
With the guarantee in place, you avoid LMI on these purchases, which can run into the tens of thousands at high loan to value ratios.
Victorian Stamp Duty and Grants
In Victoria, first home buyers can receive a full land transfer duty exemption at $600,000 and a sliding concession from $600,001 to $750,000, subject to eligibility. For brand new homes only (not established), the $10,000 First Home Owner Grant applies up to $750,000. These state incentives still operate alongside the federal guarantee, so budgeting needs to consider both.
A quick reality check for inner Melbourne seekers: many established homes now sit above the $600,000 exemption threshold, so plan for duty unless you are buying below those limits or purchasing off the plan where additional concessions may apply from time to time. Always verify current concessions before you sign.
Who Can Use the Home Guarantee Scheme
From 1 October 2025, 'all first home buyers' means no income caps and no place limits. You still need to be an owner occupier, meet citizenship or permanent resident rules, and pass a lender's serviceability test. The separate Family Home Guarantee for single parents and single legal guardians continues to support eligible buyers with as little as a 2% deposit, which can be life changing if you fit the criteria.
A nice touch for competition, particularly relevant in Melbourne's suburban bank branches, is the government's push for a more diverse lender panel, which should make it easier to compare customer owned banks with the majors.
Will This Push Melbourne Property Prices Up?
Probably a little, according to Treasury modelling cited by industry media. Estimates suggest a modest uplift in prices as more buyers compete, although supply settings and interest rates will ultimately pull the bigger levers. Practically speaking, Melbourne buyers might see more activity near the new cap, for example around $900,000 to $950,000, as bidders crowd into the scheme's upper band. That clustering effect has been observed historically where caps bite.
The Upsides for Melbourne First Home Buyers
You can buy sooner: shaving years off deposit saving timelines matters when rents rise and your ideal suburb edges away. The scheme's LMI saving keeps more of your cash in your pocket at settlement.
Wider property choice: lifting the Melbourne cap to $950,000 brings many established homes and family sized townhouses back into reach, especially in middle ring suburbs with tram or train links.
More lender options: customer owned banks often have sharp rates or friendlier features for first time buyers. Comparing them against the majors can be worthwhile.
The Risks You Still Need to Manage
Higher Repayments at 95% LVR
Without a bigger deposit buffer, your monthly repayments will be larger and more sensitive to interest rate rises. Build a stress tested budget before you shop.
Equity Risk
If prices dip, a highly leveraged loan can feel tight. Prioritise quality assets, good transport, and strong rental fundamentals, even if you plan to live in the property long term.
Serviceability Remains Strict
Lenders will still apply assessment buffers and expect stable income. Pay down consumer debt early and keep your file tidy.
Price Cap Crowding
Properties near $950,000 may attract more competition as the start date approaches. Consider properties just under your personal budget rather than chasing the cap.
A Melbourne Centric Roadmap to Using the Scheme Well
Step 1: Build a Target Budget and Deposit
Decide your true ceiling after repayments, rates, owners corporation fees, and transport costs. If you commute by tram or train, factor in location trade offs that reduce petrol and parking.
Step 2: Get Pre Approval with Two Lenders
Try a major and a customer owned bank so you can compare rates, fees, and turnaround times. Ask both how they treat overtime, bonuses, and overtime heavy professions that are common in Melbourne, such as healthcare.
Step 3: Use the Cap Smartly
The scheme's Melbourne cap is $950,000, not your compulsory spend. A two bedroom unit near a reliable train line might serve you better than a freestanding house in a location that stretches your budget and time.
Step 4: Layer State Incentives
If you are buying new and under $750,000, check FHOG eligibility. If you are buying under $600,000, confirm duty exemption; between $600,001 and $750,000, ask your conveyancer to model the concession.
Step 5: Scrutinise the Section 32 Early
In Victoria, the vendor must provide the Section 32 vendor statement before you sign. It sets out essential disclosures about the property. A professional review can uncover restrictions, planned works, or owners corporation issues that may not be obvious at inspection.
Step 6: Plan Contract Conditions
A finance clause and building and pest are your safety nets. In private sales, cooling off rights exist but can be limited and may not apply at auction. Have your conveyancer advise on timelines and any special conditions.
Step 7: Stay Ahead of the Calendar
With the start date on 1 October 2025, talk to your lender now about application timing and any pre approval expiry windows so you are not caught short.
Frequently Asked Questions
Can I combine the Home Guarantee Scheme with the First Home Owner Grant?
Yes, if you are purchasing a brand new home that meets the FHOG criteria, you can apply for both support measures. The grant is a state programme and the guarantee is federal, so they are assessed separately. Always check current thresholds before committing.
What if I am a single parent?
The Family Home Guarantee continues to allow eligible single parents and single legal guardians to buy with as little as a 2% deposit, subject to its own rules and caps. Some buyers will choose between the two options depending on property type and lender availability.
Is this only for brand new property?
No. Unlike the FHOG, the Home Guarantee Scheme can apply to established properties, as long as the purchase meets the programme's rules and the price cap. Your lender and conveyancer will confirm eligibility.
Can I buy with a friend?
Joint purchasing flexibility has improved in recent years. While some earlier expansions allowed friends and siblings to apply together under certain guarantees, the new 1 October settings focus on opening access to all first home buyers with a 5% deposit and removing income and place limits. Your lender can clarify how they accept joint borrowers under the updated First Home Guarantee.
Real World Example: Preston Townhouse Purchase
Let's say you find a townhouse in Preston for $850,000. Under the expanded scheme, a 5% deposit is $42,500. With the guarantee, you avoid LMI and borrow the remaining 95%, subject to servicing and lender approval. If you had waited to save a full 20% deposit, you would need $170,000 plus costs. For many Melbourne buyers, closing that gap sooner means leaving the rental cycle earlier, securing a home near a reliable tram route, and starting to pay down your own loan rather than a landlord's. Government examples suggest the LMI saving alone can run into the tens of thousands of dollars.
Final Thoughts: A Melbourne Perspective
This expansion is a genuine helping hand. It doesn't remove the need for careful budgeting, and it won't fix supply by itself, but it lowers the biggest hurdle for first timers, which is the deposit. In a city where a short train ride and a good local café can transform your daily rhythm, getting in one or two years sooner can be worth a lot.
If you are thinking of using the scheme, start with your numbers, shop lenders, then anchor the legal side. The Section 32 is your early warning system. Read it closely before you sign anything.
Talk to a Local Conveyancer Before You Make an Offer
For clear, practical guidance grounded in Victorian law, and a complimentary Section 32 contract review, contact Pearson Chambers Conveyancing today:
Phone: 03 9969 2405
Email: contact@pearsonchambers.com.au