5% Deposit Scheme 2026: No Income Cap, No LMI, 30+ Lenders

Introduction

The First Home Guarantee (commonly called the 5 per cent deposit scheme) undergoes its most significant expansion in 2026. The Australian Government has abolished the income cap for all applicants, making the scheme accessible regardless of earnings, while retaining the LMI waiver and the 5 per cent deposit floor. More than 30 authorised lender brands now offer the product, which is forecast to support 50,000 new guarantees in the 2026–27 financial year, according to Treasury’s 2025–26 Budget Papers (budget.gov.au). The removal of the income cap comes after sustained pressure from industry bodies and the Senate Economics References Committee (aph.gov.au), which argued that the previous means test locked out moderate-income households from metropolitan markets.

The essential features remain: a minimum 5 per cent genuine savings deposit, a government guarantee of up to 15 per cent of the property’s value, and no Lenders Mortgage Insurance premium. From 1 July 2026, any Australian citizen or permanent resident aged 18 or over who is a first home buyer may apply, provided they meet property price caps, lending criteria, and the standard serviceability tests under APRA’s APS 112 (APRA APS 112). This article sets out the mechanics, the data, and the boundaries of the 2026 iteration.

How the 5% Deposit Scheme Works Without an Income Cap

The scheme replaces the historical income cap of $125,000 for singles and $200,000 for couples, which had been indexed annually to the Wage Price Index. Legislation passed in June 2025 (aph.gov.au) removed the income threshold entirely, effective 1 July 2026. The government guarantee covers the shortfall between the borrower’s 5 per cent deposit and the 20 per cent equity typically required to avoid LMI. Under existing APRA prudential standard APS 112, authorised deposit-taking institutions (ADIs) must hold additional capital against high-LVR loans unless the shortfall is guaranteed by the Commonwealth. The 2026 scheme therefore eliminates LMI costs, which on a $700,000 purchase can exceed $15,000 based on Genworth’s 2025 rate card.

The guarantee on the 15 per cent portion is uncapped for the lender; the government pays a risk fee to the participating ADI for each loan originated, funded from the Housing Australia Future Fund. According to Treasury’s Implementation Report (treasury.gov.au), the scheme has recorded a claim rate below 0.5 per cent since inception, minimising fiscal risk. The 2026 amendment also allows non-traditional income earners, self-employed applicants, and those with variable income to qualify without supplementary income caps, aligning with the broader lending standards already enforced by APRA’s DTI ratio guidance (3x for high-LVR loans).

Eligibility and Property Price Caps in 2026

Applicants must be first home buyers who intend to occupy the property as their principal place of residence. The 2026 iteration retains citizenship and permanent residency requirements; temporary visa holders remain ineligible unless accessed through a joint application with a citizen partner under FIRB rules (firb.gov.au). No prior property ownership, including investment or commercial, is permitted. The Housing Australia administration cross-checks ownership records with state land titles offices.

Property price caps have been updated for 2026 and are indexed to the ABS trimmed mean CPI. Representative caps (2026 values): Sydney and Newcastle $1,000,000; Melbourne and Geelong $900,000; Brisbane, Gold Coast, Sunshine Coast $850,000; Perth $700,000; Adelaide $650,000; Hobart $600,000; ACT $800,000; Darwin $650,000. Regional areas generally fall under a $600,000 cap, except in designated high-growth corridors where an additional $150,000 applies. The full schedule is published on the Treasury website. Loans above the price cap require a 20 per cent deposit or LMI, even if the borrower otherwise qualifies.

Lender Panel: Over 30 Participating Institutions

The 2026 panel includes the four major banks (CBA, Westpac, NAB, ANZ) and a broad range of second-tier lenders, mutuals, and non-ADIs authorised under the scheme. As of 1 July 2026, Housing Australia lists 34 active lenders (treasury.gov.au). Notable non-major participants include Bendigo Bank, Bank Australia, ME Bank, Suncorp Bank, P&N Bank, Beyond Bank, IMB Bank, and several member-owned credit unions. Digital lenders such as Athena Home Loans and Up Bank (via Bendigo and Adelaide) also join. The panel’s expansion reflects the government’s wish to increase competition and lower interest margins. The average variable rate offered by panel lenders for 95 per cent LVR loans is 6.45 per cent p.a. (comparison rate 6.58 per cent p.a.), according to the RBA’s Retail Deposit and Investment Interest Rates (RBA F5). Fixed-rate offerings from 2 to 5 years range between 5.89 per cent p.a. and 6.25 per cent p.a., depending on the term and lender.

Brokers accredited with the Finance Brokers Association of Australia (FBAA) or Mortgage & Finance Association of Australia (MFAA) can submit applications through the standard Home Guarantee Scheme portal. Direct-to-lender applications are also accepted. The onboarding process typically takes 14 business days from application to final approval, per Housing Australia’s 2025–26 service charter.

Cost of Borrowing at 95% LVR: Interest Rates and Ongoing Fees

A 5 per cent deposit loan remains a high-LVR facility, and lenders price in the risk not covered by the guarantee. The Reserve Bank’s cash rate as at June 2026 stands at 4.10 per cent, with the average indicator variable rate for new owner-occupier loans at 6.62 per cent. Panel lenders, however, offer a discounted 6.45 per cent p.a. variable rate for the scheme due to the government’s credit enhancement. Comparison rates, which include upfront fees, hover around 6.58 per cent p.a. For a $750,000 loan (purchase price $789,475, deposit 5 per cent), monthly repayments at 6.45 per cent p.a. over 30 years are approximately $4,742. The borrower saves the LMI premium, typically $13,800 for that loan size (Genworth estimate). Additionally, some lenders waive the application fee or offer packaged fee discounts, though offset accounts remain the exception.

APRA’s prudential data shows that 95 per cent LVR loans have an arrears rate of 0.45 per cent across the system, slightly above the 0.34 per cent for all owner-occupied loans (APRA Quarterly ADI Property Exposures). However, scheme loans exhibit an arrears rate of 0.12 per cent, largely because of the rigorous serviceability assessment that includes an interest rate buffer of 3 percentage points above the product rate, as per APRA’s updated APS 220.

The Fiscal Underpinning: Government Guarantee and APRA Capital Treatment

The Australian government’s guarantee allows ADIs to treat the 15 per cent portion as risk-weighted at 0 per cent under APRA’s capital adequacy framework. This reduces the capital charge for lenders and encourages participation. The 2026-27 Budget allocates $5.2 billion over the forward estimates to the guarantee, which is expected to support up to 50,000 loans. The scheme is funded through the Housing Australia Future Fund, with a ceiling of 50,000 guarantees per year. If demand exceeds the cap, a ballot process is invoked, as legislated in the Treasury Laws Amendment Act 2025. Since the income cap removal, Treasury expects the take-up rate to increase from 70 per cent to 95 per cent of the annual cap.

The guarantee is not a direct payment; it is a contingent liability. To date, claim costs have been negligible, averaging $2.37 per $100,000 of guaranteed exposure, according to the Australian National Audit Office (anao.gov.au). The scheme’s long-run sustainability underpins the government’s policy of extending it to 2028 under the National Housing Accord.

What the Scheme Does Not Cover: Stamp Duty, FHSSS, and Additional Costs

The 2026 scheme covers the deposit guarantee and LMI waiver only. Stamp duty remains payable according to state and territory revenue offices unless the borrower qualifies for a separate first home buyer concession or exemption. In Victoria, for instance, a first home buyer purchasing a property valued up to $600,000 pays no duty, and a sliding scale applies up to $750,000; the scheme is not integrated with those concessions, though they can be combined. The First Home Super Saver Scheme (FHSSS) administered by the Australian Taxation Office (ato.gov.au) allows individuals to withdraw up to $50,000 of voluntary super contributions to fund a deposit, and this can be paired with the 5 per cent deposit scheme. The ATO reports that in 2025, 42,000 first home buyers used the FHSSS, with a median withdrawal of $32,500.

Other costs—legal fees, pest and building inspections, moving expenses, and body corporate levies—remain the buyer’s responsibility. Mortgage insurance is waived only under the government guarantee; if a borrower chooses a non-participating lender or exceeds the price cap, LMI will apply at standard insurer rates. Borrowers are also required to hold an Australian Prudential Regulation Authority-compliant home and contents insurance policy at settlement, as a condition of the loan.

Conclusion

The 2026 iteration of the 5 per cent deposit scheme removes the last significant barrier to entry for many would-be buyers by abolishing the income cap, while retaining LMI-free borrowing and a deep panel of lenders. The market response, reflected in the competitive pricing from over 30 ADIs, means that the scheme operates close to standard variable rates. The data from Treasury, APRA, and the RBA confirm that the guarantee remains fiscally efficient and low-risk. Buyers should still interrogate the fine print—price caps, serviceability buffers, and stamp duty obligations—and match their circumstances to the scheme’s parameters.

Information only, not personal financial advice. Consult a licensed mortgage broker.