5% Deposit Scheme: What It Actually Means for Inner North Buyers

The 5% Deposit Scheme just got bigger, and more first home buyers are using it than most people realise. According to Hotspotting’s Week In Real Estate (12 September 2026), over 120,000 first home buyer households have already used the expanded scheme to get into the market with a smaller deposit.

That’s a national number, but the effect of it is entirely local. If you’re buying in Thornbury, Northcote or Preston, this changes who you’re competing against, not just what you can borrow.

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What Is the 5% Deposit Scheme?

The 5% Deposit Scheme (formally the Australian Government 5% Deposit Scheme, previously known as the Home Guarantee Scheme) lets eligible first home buyers purchase with as little as a 5% deposit, without paying Lenders Mortgage Insurance. Single parents and legal guardians can access it with a deposit as low as 2%.

As of October 2025, the scheme carries no income caps and no waitlists, which is part of why uptake has accelerated so quickly. Applicants still need to meet standard lending criteria and apply through a participating lender, and the scheme applies within set property price caps that vary by location. For Melbourne, which includes Thornbury, Northcote and Preston, the cap is $950,000.

Why Does This Matter If You’re Buying in the Inner North?

More first home buyers able to move with a smaller deposit means more of them competing at the same time, for the same kind of property. In Thornbury, Northcote and Preston, that pressure lands squarely on the entry-level units and smaller houses that first home buyers are actually shopping for.

In practice that means more people at the same open homes, more competing offers on the same shortlist, and less room to wait and see before making a decision.

Does Waiting to Save a Bigger Deposit Still Make Sense?

For a lot of buyers, no. The logic behind saving a bigger deposit was always to reduce risk and avoid Lenders Mortgage Insurance. The 5% Deposit Scheme already removes the LMI cost for eligible buyers, so the main thing a longer savings period buys you now is more time for prices to move and more competition to show up at the properties you actually want.

The real risk for a lot of Inner North buyers isn’t moving too early on a 5% deposit. It’s spending another 12 months saving while the pool of buyers competing for the same entry-level stock keeps growing.

What Should First Home Buyers Actually Do With This Information?

Three things worth doing before you assume the scheme changes your plans:

Check your eligibility and the price cap for the specific area you’re looking at, since caps vary by location and a property just over the cap won’t qualify. Talk to a broker early, before you fall in love with a property, so you know exactly what you can borrow and under what terms. And get someone assessing properties on your side of the transaction, since more competition at the entry level is exactly when buyers are most likely to overpay or skip a proper inspection just to keep up.

Frequently Asked Questions

What is the 5% Deposit Scheme? It’s the Australian Government’s scheme (previously the Home Guarantee Scheme) that lets eligible first home buyers purchase a property with as little as a 5% deposit and no Lenders Mortgage Insurance, subject to price caps and lender approval.

Who is eligible for the 5% Deposit Scheme? First home buyers generally need a minimum 5% deposit, while single parents or legal guardians can qualify with as little as 2%. As of October 2025 there are no income caps, though applicants still need to meet standard lending criteria through a participating lender.

Does the 5% Deposit Scheme apply everywhere in Melbourne’s Inner North? Yes, as long as the property is priced at or below the cap. The cap for Melbourne is $950,000, and that covers Thornbury, Northcote and Preston. Caps can change, so confirm the figure with your lender for any property you’re considering.

Is it better to save a bigger deposit instead of using the scheme? For many buyers, no. The scheme already removes the Lenders Mortgage Insurance cost that a bigger deposit was partly designed to avoid, and a longer savings period usually means more competition at the entry level of the market, not less.

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More first home buyers are moving sooner because of the 5% Deposit Scheme, and that means more competition across Thornbury, Northcote and Preston.

External source cited: Australian Government 5% Deposit Scheme, Housing Australia / First Home Buyers portal.