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I asked a mortgage broker what the average first home buyer can get with a 5% down payment (not much)
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I asked a mortgage broker what the average first home buyer can get with a 5% down payment (not much)

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In the past week, mortgage broker Damian Wallace has received double the number of calls from prospective first home buyers.
His office is in the harborside business district of North Sydney, where the average house price is a cool $3 million.
With recent policy changes allowing first home buyers to purchase property with as little as a 5 percent deposit, many are hoping this is their chance to enter the housing market.

But Wallace says it’s not that simple in reality: there are plenty of additional costs to consider.

“Don’t get me wrong, I think this is a good scheme for the right people. It’s not a 5 per cent deposit scheme,” he told The Feed.
“I think this would better be called the 95% loan scheme.”

We asked him to calculate what a person with the average Australian income could borrow. Tip: it’s not much.

What will change for first home buyers?

From October 1, all first home buyers will be entitled to purchase a home with a 5 percent down payment instead of the usual 20 percent, with the federal government guaranteeing the other part of the down payment.

The Home Guarantee Scheme, now renamed the 5% deposit scheme, has been expanded and previous ceilings on incomes and available places have been abolished.

The idea is to help first home buyers purchase a home faster, saving the years it takes to save for a down payment. Buyers can also avoid having to pay for Lenders Mortgage Insurance (LMI), which is payable if you borrow more than 80 percent of the value of your property.

Price ceilings for homes have also been lifted to keep pace with rising real estate prices. Homes ranging from $500,000 in regional South Australia to $1.5 million in Sydney are now included in the scheme.

New real estate price caps are in place to keep pace with the growth of the real estate market. Source: SBS / Caroline Huang

While a 5 percent down payment sounds relatively small ($75,000 on a $1.5 million property), your ability to afford a home is affected by a host of other costs and your borrowing power.

Housing Minister Clare O’Neil has called the scheme ‘life-changing’, saying it would help young people build equity instead of paying off someone else’s mortgage.
“[First home buyers] could shave up to a decade off the time it takes to save for a down payment,” she said in a joint online statement with Prime Minister Anthony Albanese in early October.
But others disagree: Greens senator Barbara Pocock said the plan will boost demand for homes, putting property prices further out of reach for first-home buyers.

“[It will] make it harder, not easier, for first-time buyers desperate to put a roof over their heads and have a livable mortgage debt,” Pocock said, also early this month.

Single with an average income? Maybe you’re out of luck

“I’m sorry to tell you,” mortgage broker Damian Wallace said as he consulted his paperwork.
“Your maximum loan with that income will be… $250,000 to $275,000.”
He’s talking about the borrowing capacity of someone earning $1,400 a week, or roughly $73,000 a year – the average income in Australia.
This is evident from figures from the Australian Bureau of Statistics (ABS). Release of employee earnings from August 2024, which we asked Wallace to use in his calculations.
A man in a dark suit and white shirt smiles sideways as he sits in a booth

Mortgage broker Damian Wallace says the 5% Deposit Scheme is a bit of a misnomer – there are other costs to consider that can add up quickly. Source: SBS

“That… wage is even hard to buy a unit that’s somewhere on the outskirts of Sydney,” he said.

“When we talk to first home buyers in other states like South Australia or Tasmania who are buying a house to live in, it’s a lot more accessible for a unit.”
But because two people earn the average income, the borrowing capacity skyrockets to between $755,000 and $775,000.

“If you add the same salaries together, your borrowing capacity more than doubles because your cost of living… doesn’t double,” Wallace said.

Federal Parliamentary Library data (commissioned by The Greens) shows that most people in the ten most common occupations could not afford mortgage repayments on the average home without falling into housing stress – that is, spending more than 30 percent of their income on housing.
For example, a teacher could spend as much as 87 percent of his income if he bought a house in Sydney, where the average house price is $1.5 million.
To qualify for a loan for a $1.5 million home with a 5 percent down payment, Wallace said you would need to make $325,000 – $330,000 as a single applicant, or $330,000 – $335,000 as a couple.

Other factors, such as your credit history, savings, assets, debts and expenses, also influence how much you can borrow.

The real cost of buying a house

So you have been approved for a loan. Even before you start paying off your mortgage, there are a lot of other costs you need to prepare for.
Most states and territories offer stamp duty concessions to first-home buyers, but only up to a certain threshold – meaning you could still be on the hook for tens of thousands of dollars.
“You pay full stamp duty on any property over a million dollars,” Wallace said.
He said you should also set aside about $3,000 for attorneys’ fees, $1,000 to $1,500 for settlement adjustments and extra for bank fees.
“So that can all add up to about $5,000 on top of your stamp duty. So the total deposit you would need for a $1.5 million property works out to… about 9.5 percent of the purchase price,” Wallace said.

“So it’s almost $150,000.”

Rear view of an embraced couple looking at the built structure from outside

Married couples have a much greater borrowing capacity than single applicants. Source: Getty / skynesher

Some banks also charge higher interest rates on a loan with a 5 percent down payment.

It’s important to note: The government doesn’t give you a cash benefit by guaranteeing 15 percent of your down payment. It means that if you default on your loan and the sale of the house does not cover the money owed, the government agrees to pay the lender the 15 percent.
A smaller down payment means you’ll take out a larger loan (95 percent versus 80 percent of the purchase price) and pay more interest in the long run.
Suppose you wanted to buy a $1 million home, the 5 percent down payment would cover $50,000 of the purchase price and you would need a $950,000 loan. That’s compared to an $800,000 loan if you had the standard 20 percent down payment ($200,000 in this example).
“If we’re talking about a $1 million purchase, you’ll pay about $150,000 more in interest over the life of the loan,” Wallace said.

“Some people now say, that’s money well spent, because if I waited to save that 20 percent down payment, the real estate market would rise.”

High-income couples are the winners

There are some clear winners from the program: Wallace said high-income couples will benefit the most.
“This scheme is good for anyone who has the income to demonstrate to the bank that they can afford the loan repayment, and who doesn’t actually have the down payment to get an 80 percent loan,” he said.

“So these are basically new couples that usually get together and they don’t have the savings, but they have a very strong income.”

Unless you’re comfortably making over six figures, it’s unlikely you’ll be able to snag properties at the top end of the price range. For young, middle-income singles, Wallace said they might benefit from looking for more modest homes.
“Depends on whether you can find a one-bedroom apartment… for $400,000, $500,000, $600,000,” he said.
“The greater the savings you have, the more likely you are to get into your home. You should also continue to try to grow your salary.

“Let’s get started: owning a house in Sydney is hard.”

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