It’s an odd moment to be a first home buyer. On one hand, the Australian Government’s expanded 5% deposit scheme (the First Home Guarantee) has never been easier to access: no income caps, no place limits, and higher property price caps since 1 October 2025. On the other hand, the headlines are full of falling prices, sub-50% auction clearance rates and warnings that recent low-deposit buyers are already in negative equity. So which is it: a once-in-a-cycle opportunity to buy without a decade of deposit saving, or a trap that locks you into a shrinking asset with almost no buffer?
As with most things in lending, the honest answer is: it depends on how you use it. This guide works through what the scheme actually offers in 2026, what the falling market genuinely means for a 5% deposit buyer, and the practical steps that separate buyers who use the scheme well from those who get caught out. It’s the framework we walk through with first home buyers across Geelong, Armstrong Creek, Lara, the Bellarine Peninsula, Torquay and the Surf Coast, and with buyers we help across Melbourne, Ballarat and Australia-wide. If you’re starting from scratch, our first home buyer’s complete guide covers deposits and grants from the ground up.
Under the First Home Guarantee, Housing Australia guarantees part of your loan so that you can buy with as little as a 5% deposit without paying lenders mortgage insurance (LMI): a premium that typically runs into the thousands, and can reach five figures at high loan-to-value ratios. Since the scheme was expanded on 1 October 2025, the previous income caps ($125,000 for singles, $200,000 for couples) have been removed, annual place limits have gone, and property price caps were lifted: with the cap for Melbourne and Geelong reported at $950,000 and around $650,000 for the rest of Victoria. Core eligibility still applies: you need to be an Australian citizen or permanent resident aged 18 or over, buying as an owner-occupier, and a first home buyer (or someone who hasn’t owned Australian property in the past 10 years). Caps and settings are updated from time to time, so confirm the current figures with Housing Australia or your broker before you shortlist properties.
The arithmetic is what makes the scheme so popular. On a $600,000 first home (a realistic entry point in much of Greater Geelong) the difference between deposit paths looks like this:
| Path to buying at $600,000 | Deposit needed | LMI payable | Starting loan |
|---|---|---|---|
| Traditional 20% deposit | $120,000 | None | $480,000 |
| 10% deposit outside the scheme | $60,000 | Usually payable: often thousands (varies by lender and LVR) | $540,000 (plus any capitalised LMI) |
| 5% deposit under the First Home Guarantee | $30,000 | None: the government guarantee replaces it | $570,000 |
Note what the table also shows: the scheme lowers the entry barrier, not the debt. The 5% buyer starts with a $570,000 loan against a $600,000 home (a 95% LVR) and pays interest on a much larger balance than the 20% buyer. That’s the trade-off the falling market puts under a microscope. (Stamp duty concessions can help too (see our Victorian stamp duty guide) and buyers comparing schemes should also read our Help to Buy guide, which works differently via shared equity.)
The number of guarantees reportedly issued in the first nine months after the 5% deposit scheme was expanded on 1 October 2025: a scale of take-up that has itself supported demand (and prices) at the entry level of the market. Figures are as reported at publication; confirm current scheme data with Housing Australia.
First, the data, as reported, not as vibes. Cotality’s Home Value Index recorded a 0.7% national fall in July 2026, described as the largest monthly decline since December 2022, with more than three-quarters of capital city suburbs recording falls over the past three months. Melbourne has posted eight consecutive monthly declines and sits roughly 5.1% below its November 2025 level, while regional Victoria’s index slipped 0.2% in July (its first monthly fall in over three years). Some commentators forecast a national correction of around 5-8% peak to trough. Nobody (including us) knows exactly where it lands, which is why our guide to buying now versus waiting argues for anchoring the decision to your own finances rather than a forecast.
Now apply that to a 5% deposit. Your buffer between loan and value is thin by design, so even a modest fall can put you (on paper) into negative equity, where the loan exceeds the home’s value. Here’s the same $600,000 purchase under different market outcomes, before any repayments are made:
| If values move… | Home worth | 5% deposit buyer (loan $570,000) | 20% deposit buyer (loan $480,000) |
|---|---|---|---|
| No change | $600,000 | $30,000 equity (95% LVR) | $120,000 equity (80% LVR) |
| Fall of 3% | $582,000 | $12,000 equity (98% LVR) | $102,000 equity (82% LVR) |
| Fall of 5% | $570,000 | Zero equity (100% LVR) | $90,000 equity (84% LVR) |
| Fall of 8% | $552,000 | −$18,000 (negative equity) | $72,000 equity (87% LVR) |
That looks alarming, and it’s exactly the maths behind this month’s headlines about scheme buyers in negative equity. But three things put it in perspective. First, negative equity is only a realised loss if you sell (or need to refinance early). A buyer who holds, keeps making principal-and-interest repayments and lets the cycle turn will usually see the position repair from both sides: our negative equity guide covers this in depth. Second, the current downturn has reportedly been sharpest at the premium end, with upper-quartile values down more than 3% in three months while lower-priced housing (where scheme caps push buyers) has held comparatively firm. Third, the alternative isn’t free: national rents have reportedly grown around 5.9% over the year, so waiting has a running cost while you save against a deposit target that scheme access has already solved. None of this makes buying automatically right: it makes the decision about your stability, not the index.
Consider a scenario we’re seeing often this spring. A couple renting in Belmont (both working, solid incomes, but only $38,000 saved) had planned another two years of saving toward a 10-15% deposit. Under the expanded scheme, their savings already clear the 5% threshold (plus costs) for an established three-bedroom home in Armstrong Creek at around $620,000. Their worry is the headlines: what if it’s worth $590,000 next year? We model it both ways. If they buy and values dip 5%, they’re on paper roughly at break-even equity for a while: uncomfortable, but irrelevant to their plan to live there for seven-plus years, and their principal-and-interest repayments rebuild the buffer every month. If they keep renting at current rents while saving, they’re paying their landlord tens of thousands over two years for the chance to buy later at an unknowable price. They decide the real risk isn’t the index: it’s overpaying for the wrong house in a hurry. So they set a strict budget under the cap, get pre-approved, and shop patiently in a market with little competition. That’s the scheme used well: as breathing room, not as permission to stretch.
The difference between a smart scheme purchase and a risky one in 2026 comes down to a handful of controllable decisions. Buy under your maximum, not at it. A falling market with sub-50% clearance rates is a buyer’s market: you have time to negotiate, and every dollar under budget is instant equity. Plan to stay put. Thin-equity buying works when your horizon is five years or more; if a job move or family change within two years is realistic, the maths changes and renting longer may serve you better: our rent vs buy calculator lets you test your own numbers. Favour quality over quantity of house. Well-located established homes near transport, schools and employment tend to hold value better in downturns than identical stock in heavily supplied new releases. Keep a genuine buffer. Don’t empty the account at settlement: moving costs, rates and a repair bill always arrive early, and a few months of repayments in an offset is the cheapest insurance there is.
And get your finance sorted before you shop. Pre-approval tells you exactly what a lender will do under the scheme, protects you from falling for homes above the cap, and lets you move decisively when the right property appears: spring listings are lifting across Geelong and the Bellarine right now, as we covered in our spring 2026 preparation guide. Our pre-approval guide explains the process step by step. It’s also worth comparing alternatives before you commit: a guarantor loan can achieve a similar result using family equity instead of the government guarantee, other low deposit options exist outside the scheme, and paying LMI on a slightly larger deposit is occasionally the sharper deal once lender pricing is compared. Not every lender participates in the scheme, and rates and policies differ between those that do, which is where a broker comparing across the panel earns their keep.
The scheme removes LMI, but it doesn’t change how lenders assess you, and with only 5% down, lenders look hard at your spending conduct and savings pattern in the months before you apply. Three to six months out, tidy up the things you control: cancel unused subscriptions and buy-now-pay-later accounts, avoid new personal loans or car finance, keep credit card limits modest (lenders assess the limit, not the balance), and show a steady savings rhythm. In a falling market, lenders are also more conservative on valuations, so if a property you love is listed optimistically, your broker ordering the valuation early can save the contract. Small housekeeping, big difference to what a 95% LVR application gets approved.
Geography matters more than usual for scheme buyers because the price caps draw real lines on the map. Melbourne and Geelong share the higher reported cap (around $950,000), which comfortably covers most established family homes in Corio, Lara, Armstrong Creek, Grovedale and much of Greater Geelong, and takes in a meaningful slice of Werribee, Laverton and Melbourne’s west, where values sit inside the index that has fallen furthest this year. The rest-of-state cap (around $650,000) still works for large parts of Ballarat and regional Victoria, but choosier coastal markets like Torquay, Ocean Grove and Barwon Heads often price above it: buyers there may need the Melbourne-Geelong cap boundary checked for their exact suburb, a bigger deposit, or a different strategy. Cap boundaries and figures are set by Housing Australia and do change: confirm your suburb’s cap before you fall in love with a listing. First home buyers on the coast can start with our Bellarine broker page, and buyers anywhere in Australia can work with us by phone and video: the scheme is national, and so are we.
It can be, if your plans match the risk. A 5% deposit leaves a thin equity buffer, so a further price fall can put you into paper negative equity, which mainly matters if you must sell or refinance early. Buyers with stable incomes, a five-year-plus horizon, a purchase price below their maximum and a cash buffer are usually well placed to ride out a dip while principal repayments rebuild equity. Buyers with short horizons or stretched budgets carry genuinely higher risk and should compare renting longer, a guarantor loan or a larger deposit first.
Nothing changes day to day: your repayments, your loan and the government guarantee all continue as normal, and your lender doesn’t call in the loan because the value fell. The practical effects are that refinancing to another lender becomes difficult until your equity recovers, and selling during the dip would crystallise a loss. Keeping repayments on principal and interest, adding to an offset account and simply holding through the cycle are the standard responses: see our negative equity guide for the detail.
Following the 1 October 2025 expansion, the cap reported for Melbourne and Geelong is $950,000, and around $650,000 for the rest of Victoria. Which cap applies depends on how Housing Australia classifies your suburb, and caps are reviewed and updated over time, so confirm the current figure for your target suburb with Housing Australia or your broker before making offers. Income caps and annual place limits no longer apply under the expanded scheme.
Waiting is a legitimate strategy, but it isn’t free: rents have been rising, nobody can reliably pick the bottom, and entry-level homes (where scheme buyers compete) have so far held firmer than the premium market. A falling market also rewards buyers who are ready: less competition, more negotiating room and time for due diligence. A middle path many of our clients take is getting pre-approved now, setting a firm budget below the cap, and only buying when the right home appears at the right price: letting the market, not fear of missing out, set their timing.
We’ll check your eligibility for the 5% deposit scheme, compare participating lenders against guarantor and low-deposit alternatives, and build a buying plan with a realistic budget and buffer for today’s market. Serving first home buyers across Geelong, Armstrong Creek, the Bellarine Peninsula, Torquay, the Surf Coast, Melbourne, Ballarat and Australia-wide.
With years of experience in mortgage broking and finance, Melanie helps first home buyers, refinancers, investors and business owners across Geelong, the Bellarine, the Surf Coast, Melbourne and regional Victoria make their money work harder. Contact our team on 03 9020 2699.
