Forget the 20% deposit. Here’s what first-home buyers are doing instead

For first-home buyers, it can feel like the goal posts are constantly moving: save more, earn more. But buying property has changed, and so have the associated strategies. 

The next generation of home owners are not doing things the way their parents did. Most are finding smarter, faster and more creative ways to get on the ladder, without waiting another five years to scrape together a 20 per cent deposit.

In Australia, there are state-based and federal schemes available to help people buy a home. These change over time, and the best way to stay up to date is by speaking with your mortgage broker.

You can’t control what grants or incentives will be available when you’re ready to buy. The goal is to get into the market and make the most of the government schemes available at the time. 

First Home Super Saver (FHSS) scheme

The First Home Super Saver (FHSS) scheme is a federal government initiative that allows first-home buyers to add voluntary contributions into their superannuation fund as a way to save faster towards a first-home deposit. It can only be used for a property that you will live in, not an investment property.

You make extra contributions into your super fund on top of what your employer pays. When the time comes to buy your home, you can withdraw that extra money plus any earnings (a deemed amount set by the Australian Tax Office) to put towards your deposit. You may contribute up to $15,000 per year and a total of $50,000 over your lifetime. 

The big win is the tax rate: instead of paying your normal income tax, which could easily be over 30 per cent, these contributions (or first-home savings) are only taxed at 15 per cent.

If your employer contributions are already at or near the $32,500 concessional contribution cap, you might not have as much room to use this scheme, unless you’ve got unused ‘carry-forward’ contributions from previous years.

Australian Government 5% Deposit Scheme

The Australian Government 5% Deposit Scheme is a national initiative designed to help eligible buyers purchase a home with a low deposit and no Lenders Mortgage Insurance (LMI). It works like a parental guarantee, except the guarantor is the government.

Buyers can enter the market with only a 5 per cent deposit (or 2 per cent for eligible single parents), avoiding tens of thousands of dollars usually charged in LMI fees when borrowing more than 80 per cent.

The scheme was originally for first-home buyers only, but it has since expanded to include anyone who hasn’t owned property in the previous 10 years. 

The main restriction is that the property must remain owner-occupied for as long as the scheme is in place. There is no fixed time period: the guarantee ends when your loan to value ratio (LVR) reaches 80 per cent, either through property value growth, paying down the loan or both. 

Australian Government Help to Buy Scheme

The Help to Buy scheme is a shared equity program. You only need a 2 per cent deposit and the government’s share reduces the size of your loan.

You don’t pay rent on the government’s share, but the government owns a percentage of your home (typically 30 to 40 per cent) and any increase in the property’s value applies to their share. 

The scheme is intended to make home ownership possible for people who may otherwise struggle to enter the market. This scheme has a few rules:

• Property must be owner-occupied for the duration of the scheme.
• You can’t already own property in Australia or overseas (exceptions for single parents buying out an ex-partner).
• Income caps: $100,000 for singles, $160,000 for couples and single parents.
• State and regional price caps apply.
• Must be an Australian citizen (if buying as a couple, both must be).
• Not all lenders offer this; criteria and pricing vary.

The Help to Buy scheme is not a lifelong commitment. Once you’re in your home, you can exit by:

• Making incremental payments to increase your equity.
• Refinancing to buy out the government’s share when your borrowing capacity allows.
• Selling the property.

As your property value rises, the government’s share value also increases. When you buy them out or sell, you pay their current share value, not the original contribution.

This scheme is especially useful for buyers who have no other options available to them. It enables them to buy where they want to live, though it’s less flexible if you want to relocate or rent out the property at some stage.

Federal vs state-based assistance

Traditional state-based incentives such as stamp duty concessions or the First Home Owner Grant typically come with a clear and limited requirement: you must live in the property for a defined period, often six or 12 months. After that, you’re generally free to make decisions that suit your circumstances. 

The national schemes are different. They introduce ongoing obligations that don’t always have a clear end date.

Two conditions of these national schemes in particular raise concerns for us:

1. You must live in the property for an undefined period. Until that point, you generally can’t lease out the property. This removes a strategy that many first-home buyers rely on when circumstances change.
2. There are limits on how much cash you’re allowed to retain. For buyers already stretching to enter the market, this can be risky.

Why flexibility matters

These schemes aren’t inherently bad. For buyers with very stable circumstances, they may be appropriate. But first-home buying is rarely static. Careers change. Relationships change. Health and family needs change. Flexibility is often more valuable than getting into the market slightly sooner. 

For this reason, we encourage buyers to consider all available options – not just the ones that appear cheapest upfront. This may include:

• Paying LMI
• Using a parental guarantee
• Buying at a lower price point with stronger buffers.

Sometimes the ‘more expensive’ option on paper is the safer one in practice.

This is an edited extract from the book The quick-start guide to your first property: Pick up your keys simpler, smarter and sooner by Glen James and Rachelle Kroon, available at all leading retailers.