Help to Buy vs the 5% Deposit Scheme: What First Home Buyers in Melbourne Need to Know

Buying your first home is one of the most exciting milestones you will ever reach. It can also feel overwhelming, especially when your deposit isn’t quite there yet. Lenders Mortgage Insurance (LMI) is eating into your budget, or your borrowing capacity doesn’t stretch to the property you want.

That’s where Australian Government first home buyer schemes come in.

The two main federal options are the Help to Buy Scheme and the 5% Deposit Scheme (the 5% Deposit Scheme was previously known as the First Home Guarantee). Both are designed to help eligible buyers enter the property market sooner. However, they work very differently, and choosing the wrong one can create problems down the track.

As a Melbourne first home buyer mortgage broker, we help Australians navigate both schemes every day. This guide breaks down everything you need to know.

The Key Question That Determines Which Scheme Suits You

Before comparing the detail, there’s one question every first home buyer should answer:
Is your biggest challenge your deposit size or your borrowing capacity?

If you can comfortably afford repayments but haven’t saved a large enough deposit, the 5% Deposit Scheme may be the better fit.

If limited borrowing capacity is holding you back, the Help to Buy Scheme may be your option. Here the government’s contribution reduces the amount you need to borrow. Understanding this distinction upfront will save you a lot of time and confusion.

What Is the Help to Buy Scheme?

Help to Buy is the Australian Government’s shared equity scheme for first home buyers.

Under this scheme, the government contributes part of the purchase price. It can provide up to 40% for a newly built home or up to 30% for an existing home in exchange for a shared equity interest in your property. There are 10,000 places available each year.

Eligibility at a glance:

You only need a 2% deposit to access the scheme. Since the government contributes part of the purchase price, your required loan from the bank is smaller, which can mean lower repayments and a better chance of approval.

However, this is not a grant or cash handout. The government holds a shared equity interest in your property. That interest is tied to the property’s value, not just the original dollar amount contributed. When you sell, refinance to buy the government out, or repay its share over time, the cost is calculated based on what the property is worth at that point in time.

What Is the 5% Deposit Scheme?

The 5% Deposit Scheme works differently. Rather than contributing to your purchase price, Housing Australia provides a guarantee to your lender, allowing you to borrow with a smaller deposit without paying LMI.

First home buyers may purchase with a deposit of just 5%, while eligible single parents or legal guardians may qualify with as little as 2%.

Importantly, the government does not take any stake in your property. It does not share in your capital growth and there is nothing to repay or buy out later.

The scheme became significantly more accessible following changes introduced on 1 October 2025. The reforms removed income caps and limits on the number of guaranteed places, while increasing property price caps across Australia. This means more first home buyers can now qualify for the scheme and purchase higher-value properties than was previously possible.

You remain fully responsible for all standard costs: mortgage repayments, council rates, insurance and maintenance. And while the government guarantee removes the LMI hurdle, it does not guarantee loan approval. Your lender will still assess your income, expenses, debts, employment type, credit history and the property itself.

Property Price Caps Matter Too

While income eligibility is important, many first home buyers overlook property price caps when comparing government assistance programs.

Both the Help to Buy scheme and the 5% Deposit Scheme apply maximum purchase price limits based on the property’s location.

As part of the 1 October 2025 reforms, property price caps increased across Australia, making the scheme available to a broader range of homes.

Property Price Caps by Scheme

Since price caps can vary between suburbs and even neighbouring postcodes, buyers should always verify the latest limits before making an offer.

The Australian Government’s eligibility and postcode checker can help confirm whether a property falls within the applicable price threshold.

Help to Buy vs 5% Deposit Scheme: Side-by-Side Comparison

The Risks of Help to Buy Every First Home Buyer Should Understand

Help to Buy can sound appealing on the surface. A smaller deposit, a smaller bank loan, lower repayments. But there are trade-offs that first home buyers in Melbourne and across Australia need to fully understand before committing.

You Pay All the Costs, but Share the Growth

The government’s equity interest grows with your property’s value. That means if you buy wisely, maintain your home, and the market performs well, the government also benefits from that growth. This occurs even though you have paid for every repair, rate notice, and insurance premium along the way.

The Buyout Cost Grows With the Property

When you’re ready to buy back the government’s share, the cost is based on the property’s value at that time, not what the government originally contributed.

Here’s an example. You purchase an existing home for $800,000. The government contributes 30%, which is $240,000.

If the government contributes 40% on a new home, the impact is even greater. A property worth $1,000,000 at buyout time would carry a $400,000 government share.

A Pay Rise May Trigger New Obligations

Help to Buy is designed for low-to-middle income earners. Income isn’t just assessed at the time you apply; your circumstances may be reviewed while you remain in the scheme. If your income rises above the relevant threshold and you can afford to buy out part of the government’s share, you may be required to reduce that equity under the scheme rules.

Earning more is a positive thing. But under Help to Buy, a pay rise can also create a new financial obligation. It is not a set-and-forget arrangement.

Renovations Come With Extra Steps

Any planned renovations need to be thought through carefully under Help to Buy. Unlike a standard home loan, where the conversation is generally between you, your lender, and possibly the council, shared equity rules may apply depending on the work you are planning.

A renovation can improve your lifestyle and increase the value of your home. However, it may also create additional valuation requirements and questions when it comes time to buy out the government’s share.

Only Two Lenders as of July 2026

This is one of the most significant practical limitations of Help to Buy. Currently, as of July 2026, the scheme is only available through two participating lenders: Commonwealth Bank and Bank Australia.

This matters because different lenders assess income differently. Some are better suited to applicants with casual income, self-employment, HELP debt, or multiple dependants. With only two lenders, if your financial position doesn’t fit their credit policies, you may be technically eligible for Help to Buy but still declined by the lender.

Additionally, Commonwealth Bank’s Help to Buy applications can be submitted through a broker via Bank Australia, although CBA applications must be made directly. This makes the comparison and advice even more important before you commit.

Refinancing Is More Complex

Refinancing under Help to Buy involves more than simply switching lenders. The shared equity structure demands that you consider participating lender rules, the government’s equity share, valuations, loan-to-value ratios, and whether any buyout obligations are triggered. You cannot assume you’ll be able to move freely between lenders in future.

The Risks of the 5% Deposit Scheme

The 5% Deposit Scheme is generally more straightforward, but it also comes with its own considerations. When you borrow more of the purchase price upfront, your loan balance gets higher. This means higher repayments compared to someone with a larger deposit, and less equity in the early years of ownership.

You generally cannot borrow additional funds for renovations, debt consolidation, or any other purpose until your loan is at or below 80% of the property’s value. Dollar-for-dollar refinancing may be possible before that point (subject to lender and scheme rules), but borrowing extra is restricted until the 80% threshold is reached.

Here’s how that plays out using an example. You buy for $800,000 with a 5% deposit, so your loan is $760,000.

The 80% mark is where your flexibility significantly increases.

Which Scheme Gives You More Control?

For most first home buyers, the 5% Deposit Scheme offers more flexibility and control over the long term:

• Broader choice of lenders
• No government share in your property’s value
• No equity to buy back later
• Simpler structure that’s easier to plan around
• Easier refinancing pathway
• No income reassessment during the scheme

Help to Buy provides more upfront support, particularly for buyers with limited borrowing capacity. However, it also comes with greater ongoing complexity and obligations. Learn more about no LMI home loans and how they work.

Which Scheme Suits Which Buyer?

Scheme Eligibility Is Not the Same as Loan Approval

This is where many first home buyers get caught off guard. Being eligible for either government scheme does not mean your home loan is approved.

Your lender will still assess your income, employment type, living expenses, credit cards, personal loans, HELP debt, dependants, credit conduct, savings history, and the property being purchased. A government guarantee or equity contribution does not override lender credit policy.

This is why we always recommend starting with your full financial position, not the scheme.

Can a First Home Buyer Mortgage Broker in Melbourne Help?

Yes, and in the case of Help to Buy, it matters more than ever.

Since Commonwealth Bank’s Help to Buy pathway is not available through brokers, buyers may feel they need to go directly to a lender without guidance. That’s exactly when advice becomes most valuable.

Before approaching the participating lender, a mortgage broker can help you compare the full picture. This includes your deposit, borrowing capacity, repayments, lender suitability, renovation plans, future buyout costs, refinance flexibility, and whether a different pathway may better suit your needs.

At What If We Finance, we compare over 50 banks and lenders to help first home buyers in Melbourne find the right option before they commit. That includes comparing Help to Buy against broker-accessible options like the 5% Deposit Scheme, low deposit home loan options, family guarantor pathways, and professional niche policies.

Getting into your first home isn’t just about getting the keys. It’s about buying well, with a clear plan for what comes next.

Frequently Asked Questions