The 2025 federal-election campaign has thrust housing affordability back into the spotlight. Labor has pledged that, from 1 January 2026, every first-home buyer will be able to purchase with just a 5 per cent deposit. Under the plan, the Commonwealth will guarantee the remaining 15 per cent of the property’s value, wiping out the need for lenders’ mortgage insurance (LMI) a fee that currently adds about $23,000 to a typical loan (via ABC).
If the scheme becomes law, it will transform the existing First-Home Buyer Guarantee (which now caps places at 50,000 per year and imposes income limits of $125,000 for singles and $200,000 for couples). Under Labor’s plan there will be no income cap and no limit on places (via ABC).
Below we unpack the proposal, weigh the pros and cons, and outline practical steps you can take today, especially if you hope to secure a property loan through Australian Lending Centre.
1 | Potential benefits for borrowers
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No LMI premium – avoiding LMI can save first-timers tens of thousands up-front.
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Faster market entry – a $40,000 deposit on an $800,000 home (5 %) is far more attainable than the $160,000 traditionally required.
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Broader eligibility – higher-income singles and couples, previously excluded, could finally access the guarantee.
2 | Key risks & trade-offs
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Risk |
Why it matters |
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Bigger loan size |
Smaller deposit = larger principal and more interest paid over time. |
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Price pressure |
Economists warn that extra demand may push house prices higher. |
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Low equity buffer |
With only 5 % equity, even a modest market dip could put new owners into negative equity. |
3 | Will a 5 Per Cent Deposit Really Be Cheaper? A Quick Illustration
For an $800,000 purchase:
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Traditional 20 % deposit = $160,000 up-front.
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Current 5 % scheme + LMI ≈ $40,000 deposit + $23,000 LMI = $63,000.
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Proposed 5 % scheme = $40,000 deposit, no LMI.
Borrowers would still face higher monthly repayments than if they had a 20 % deposit, but the barrier to entry is dramatically lower.
(Figures are illustrative; actual LMI varies by lender and LVR.)
4 | Five steps to get “loan ready” before 2026
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Run the numbers now
Use ALC’s online calculators to see how repayments change at 5 %, 10 %, and 20 % deposits. -
Strengthen your credit profile
Even with a government guarantee, lenders will assess credit scores, spending habits, and job stability. -
Build a buffer
Aim to save more than the bare 5 % to cover stamp duty, legal fees, moving costs, and an emergency fund. -
Reduce other debts
Lower credit-card balances and personal-loan repayments boost your borrowing capacity. -
Seek pre-qualification early
If the policy passes, competition for entry-level properties may intensify. Having conditional approval from ALC puts you ahead of the pack.
By following these steps now, you’ll arrive at January 2026 in a far stronger position to act quickly when the scheme launches. Remember, securing a 5 per cent deposit isn’t just about scraping together the minimum cash, lenders still expect evidence that you can manage repayments, absorb unexpected costs, and maintain healthy credit behaviour. The more disciplined you are today, the better your chances of converting that small deposit into a sustainable long-term mortgage tomorrow.
5 | How Australian Lending Centre can help
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Credit coaching – Practical steps to lift your credit score before you apply.
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Tailored strategy – Whether you buy before or after 2026, we design a funding roadmap that matches your income, deposit size, and long-term goals.
Labor’s 5 per cent deposit promise could make the dream of home ownership a reality for many Australians who struggle to save a traditional deposit. Yet it also means taking on a larger loan and navigating a market that may become even more competitive. Preparation is everything.
If you want to understand how the policy might affect your borrowing power or if you hope to lock in a property loan sooner, talk to the team at Australian Lending Centre today. We’ll help you line up the right finance, so you step onto the property ladder with confidence, no matter which way the political winds blow.