Unlock the Secrets to Buying a Home with No Deposit

Buying a home with no deposit is not about skipping the deposit altogether.

It means using government guarantees, eligible guarantor arrangements, or specific lender products to reduce the cash you need upfront and avoid paying Lenders Mortgage Insurance. In greater Sydney, where property values remain high, this approach allows buyers to enter the market sooner without waiting years to save a full 20% deposit.

How the Australian Government 5% Deposit Scheme Works in Sydney

The Australian Government 5% Deposit Scheme lets first home buyers purchase with a deposit as low as 5% of the property value, while Housing Australia provides a guarantee to the lender of up to 15%. This removes the need for LMI, which would otherwise add thousands of dollars to your upfront costs.

In greater Sydney, the property price cap is $1,500,000 in capital cities and regional centres including Central Coast, Newcastle and Lake Macquarie, Illawarra, and Mid North Coast. Both the purchase price and the lender's assessed value must fall within this cap. Applications are made through participating lenders, not directly through Housing Australia. No income caps apply under this scheme, which makes it accessible to a broader range of buyers than previous iterations.

Consider a buyer purchasing in the Inner West at the current median for a two-bedroom unit. With a 5% deposit and the government guarantee covering the gap to 20%, the buyer avoids LMI and can apply for a home loan using a standard loan structure. The participating lender assesses serviceability using the same buffer and criteria as any other loan, so borrowing capacity remains the determining factor.

Help to Buy for Buyers Who Can't Reach 5%

Help to Buy allows eligible buyers to purchase with as little as 2% of the property value as a deposit. The Australian Government contributes up to 40% for a new home and up to 30% for an established home in exchange for a proportional equity stake.

Income limits apply. From 1 July, individual applicants are capped at $103,000 and joint applicants or single parents at $165,000, based on the previous year's ATO Notice of Assessment. Property price caps vary by postcode and can be confirmed using the postcode search tool at firsthomebuyers.gov.au. Up to 10,000 places are available in the current financial year, and applications are made through participating lenders.

This scheme suits buyers who have stable income but limited savings. The government holds an equity share in the property, which means you repay the contributed amount when you sell or refinance. You retain the right to live in the property and make decisions about renovations or improvements, subject to standard ownership rules.

Family Guarantee Arrangements Through Participating Lenders

Some lenders accept a family member's property as security to reduce the loan-to-value ratio on your purchase. This allows you to borrow with a smaller deposit or no cash deposit at all, depending on the equity available in the guarantor's property.

The guarantor does not hand over cash. Instead, they provide a limited guarantee over a portion of your loan, usually capped at 20% of the purchase price. Their property is used as additional security until you build enough equity to release them from the guarantee, which typically happens within a few years as you pay down the loan or the property increases in value.

In a scenario like this, a buyer purchasing in Western Sydney with parents who own their home outright in the same region could borrow the full purchase amount without paying LMI. The guarantor's exposure is limited to the guaranteed portion, and the buyer makes all repayments. The guarantor should obtain independent legal advice before signing, as their property remains at risk if the buyer defaults.

How Lenders Assess Borrowing Capacity with a Low Deposit

Lenders apply a serviceability buffer of at least 3.0 percentage points above the loan product rate when assessing your ability to repay. This means if the variable rate is 6.0%, the lender will test your capacity to service the loan at 9.0% or higher.

From 1 February, a debt-to-income lending limit applies to all authorised deposit-taking institutions. Each lender may approve up to 20% of new owner-occupier loans to borrowers with a total DTI ratio of six times or greater. If your household income is $100,000 and you are applying for a loan of $600,000 or more, you may be subject to closer scrutiny or declined if the lender has reached its quarterly limit.

Borrowing capacity is the primary constraint when buying with a low deposit. A buyer with a smaller deposit still needs to prove they can service a larger loan amount. Credit history, employment stability, and existing debts all factor into the lender's assessment. Buyers with irregular income or recent job changes may find it harder to gain approval, even when a government guarantee or family guarantee is in place.

NSW Stamp Duty Relief and How It Stacks with Federal Schemes

New South Wales offers a full transfer duty exemption on new and established homes valued up to $800,000 for eligible first home buyers. A sliding concession applies on properties valued between $800,001 and $1,000,000. Buyers must move into the home within 12 months of settlement and reside in the property as their principal place of residence for at least 12 continuous months.

This relief can be used alongside the Australian Government 5% Deposit Scheme or Help to Buy, which means a buyer in Sydney's south-west purchasing an established home under the cap could eliminate stamp duty and reduce the deposit required to 5%, or as low as 2% under Help to Buy. The NSW First Home Owner Grant of $10,000 applies only to new builds or substantially renovated homes with a purchase price cap of $600,000, or a combined land and build cap of $750,000.

Stamp duty savings can be redirected toward the deposit, though they do not count as genuine savings for lender assessment purposes. Genuine savings are funds held in your own name for at least three months, and most lenders require at least 5% of the purchase price to be demonstrated as genuine savings, even when using a government guarantee.

What Happens to Your Loan Structure After Settlement

Once your loan settles, you can choose between a variable rate, fixed rate, or split loan structure depending on what the participating lender offers. A variable rate allows you to make extra repayments and access an offset account, which reduces the interest charged on your loan without locking you into a fixed term.

A fixed rate provides repayment certainty for a set period, typically between one and five years, but restricts your ability to make extra repayments above a certain threshold and usually does not offer an offset account. A split loan divides your loan amount between fixed and variable portions, which gives you some certainty while retaining flexibility on part of the balance.

Buyers who enter the market with a low deposit should prioritise paying down the loan to at least 80% loan-to-value ratio within the first few years. This allows you to refinance without needing to account for LMI or a government guarantee on the new loan, and it improves your access to rate discounts and product features from a wider panel of lenders.

Call one of our team or book an appointment at a time that works for you to discuss which loan structure aligns with your income, repayment capacity, and plans for the property.

Frequently Asked Questions