First Home Guarantee 2026: how the uncapped 5% deposit scheme now works

Buying a first home with just a 5% deposit used to mean paying thousands in lenders mortgage insurance and clearing a strict income hurdle. In 2026 that equation has flipped. The Federal Government’s First Home Guarantee (FHBG) is now truly open: no income cap, no annual limit on the number of guarantees, and property price ceilings that reflect genuine home values in Australia’s priciest capitals.

Whether you’re a single applicant on a six-figure salary or a couple pooling two incomes, the scheme can get you into the market sooner – provided you understand the new rules and the real borrowing cost at today’s interest rates. Here’s exactly how the uncapped 2026 version works, what you’ll need to qualify, and the pitfalls to watch for.

What is the First Home Guarantee in 2026?

The FHBG allows eligible first home buyers to purchase a property with as little as 5% saved deposit without paying lenders mortgage insurance (LMI). The government – through Housing Australia – acts as a guarantor for up to 15% of the property’s value (or 18% if your lender participates in the expanded 18% Home Guarantee window). The guarantee fills the gap between a 5% deposit and the 20% equity threshold that lenders normally require to waive LMI.

From 1 July 2026 the scheme is uncapped in two critical ways:

1. · No annual limit on the number of guarantees issued – every eligible applicant who meets the serviceability and deposit hurdles can receive one.
2. · No income test – previously singles were capped at $125,000 and couples at $200,000. Now high-earning singles and households can apply, making the FHBG accessible to a much broader group of buyers.

The Reserve Bank of Australia’s cash rate sits at 4.35% in mid-2026. While that is unchanged from late 2023, lenders’ discounted variable rates for FHBG loans are hovering around 6.10–6.50% depending on your financial profile. Fixed rates are slightly lower, with some major banks offering sub-6% terms for three-year locks. Regardless of the rate you lock in, avoiding LMI on a $1 million purchase can save roughly $35,000–$45,000 upfront compared to a standard low-deposit loan.

Key changes in 2026: No income cap and higher price caps

The removal of the income test is the headline change. Previously, many dual-income professional couples in Sydney or Melbourne exceeded the $200,000 joint limit and were shut out. Now a couple earning $250,000 or more can still use the scheme if they meet the borrowing capacity and price cap for their region.

Property price caps have also been recalibrated to 2026 market conditions. The caps vary by location, reflecting median dwelling values plus a buffer. The new limits are:

1. · Sydney and major NSW regional centres – $1,500,000
2. · Melbourne and Geelong – $950,000
3. · Brisbane, Gold Coast and Sunshine Coast – $1,000,000
4. · Perth – $850,000
5. · Adelaide – $800,000
6. · Hobart, Darwin and Canberra – $750,000
7. · Rest of state capitals and large regional areas – typically $650,000–$700,000

These caps apply to the purchase price, not the property valuation. If you buy a $1.5 million apartment in Sydney and put down $75,000 (5%), the government guarantees $225,000 of the loan’s value, enabling a $1,425,000 mortgage without LMI. That same deposit on a $950,000 Melbourne home is $47,500, with the government backing $142,500.

How the 5% deposit works in practice

The mechanics are simple but the fine print matters. Your deposit must be genuinely saved – typically held in a bank account, term deposit, equity from an existing property (if you owned one previously) or from the sale of shares, provided it’s not borrowed. Cash gifts from parents are usually accepted if they are unconditional and not repayable.

The property must be a residential dwelling you intend to live in. Investment properties, holiday homes and vacant land without a construction contract aren’t eligible. You can buy an established home, a townhouse, an apartment, or a house-and-land package where the builder starts construction within 12 months.

Once your 5% deposit is verified, the lender funds the remaining 95%. The government guarantee stumps the 15% shortfall, so the bank treats you as a 20% equity borrower. That means:

1. · No LMI premium is charged.
2. · You may receive a sharper interest rate than a standard 95% loan – often 0.15–0.30% lower.
3. · The guarantee remains in place until your equity (measuring your regular repayments plus any capital growth) hits 20% of the original purchase price.

You must still pass a standard home loan serviceability assessment. Lenders will test your ability to repay at an interest rate buffer of 3 percentage points above your product’s rate. For a 6.25% variable loan, they’ll assess your income against a notional 9.25%. If your borrowing capacity falls short of the required loan size, the scheme won’t bridge the gap.

Price caps across major cities and what they mean for borrowing

The $1.5 million Sydney cap opens up nearly 85% of suburbs to FHBG buyers, based on June 2026 median house and unit prices. A couple buying a median-priced Sydney unit at $980,000 needs a deposit of $49,000 and avoids roughly $37,000 in LMI. On a $1.5 million house the deposit is $75,000 and LMI savings climb past $50,000.

Melbourne’s $950,000 cap is tight for houses in inner and middle-ring suburbs but works well for apartments and townhouses. A single buyer targeting a $900,000 apartment can enter with $45,000 deposit. The current median house price in Greater Melbourne is around $950,000, so the cap effectively lets you buy at the citywide median without paying LMI.

Brisbane’s $1,000,000 ceiling and Perth’s $850,000 cap align closely with median house values in those capitals as of mid-2026. First home buyers in Adelaide ($800,000) and Hobart/Darwin/Canberra ($750,000) still find the caps generous enough to cover a wide range of detached homes and quality units.

Crucially, the caps apply to the combined purchase price of a house-and-land package, not just the land component. If your build contract totals $890,000 in Perth, the entire price is assessed against the $850,000 cap – meaning you would need to look at a slightly cheaper package or add extra cash to reduce the effective price. State-based stamp duty concessions still sit alongside the FHBG but have their own separate thresholds. In NSW, for example, the full stamp duty exemption for first home buyers cuts off at $800,000, with concessional rates phasing out by $1,200,000. In Victoria, the exemption ends at $600,000 and concessions taper to zero at $750,000. So even though the FHBG price cap is higher, you may still need to budget for stamp duty if your purchase exceeds the state’s concession limit.

Eligibility criteria simplified

The 2026 FHBG eligibility checklist is refreshingly short:

1. · You must be an Australian citizen or permanent resident aged 18 years or older.
2. · You cannot have previously owned or held an interest in residential property in Australia (including an investment property, commercial residence or leasehold longer than 50 years).
3. · You must intend to move into the purchased property within six months of settlement and continue living there while the guarantee is in place.
4. · You must have a 5% deposit (or more) from genuine savings.
5. · The property price must not exceed the cap for its location.
6. · You must apply through one of Housing Australia’s participating lenders – currently 32 lenders including the big four banks, several customer-owned banks and a handful of non-bank lenders.

No income test applies. No annual cap on places. No requirement to stay in the property for a minimum period beyond the guarantee’s life; once your equity reaches 20%, you can refinance to a standard loan without a guarantee and potentially rent out the home if circumstances change.

Potential risks and considerations

An uncapped, no-income-test government guarantee is a powerful entry ticket, but it’s not a free ride.

The most obvious risk is borrowing at today’s elevated rates. With the cash rate at 4.35% and lender variable rates around 6.25%, a $1,425,000 loan in Sydney (95% of $1.5M) generates monthly repayments of roughly $8,780 (principal and interest over 30 years). Even a Melbourne purchase at $950,000 results in a $5,440/month repayment on a $902,500 loan. Households must be confident they can handle those repayments if rates stay high or edge up further.

Negative equity is also a real possibility in a flat or falling market. If property values dip 5% after purchase, your 5% deposit evaporates. While the guarantee protects the lender, not you, a forced sale in a downturn could leave you with a shortfall.

You must also be aware that the guarantee is not a cash gift. If you sell the property while the guarantee is still active, the proceeds go first to repay the loan, and you cannot extract any equity until the guarantee is released. If the sale price is less than the loan balance, you remain liable for the difference unless you have a limited-recourse arrangement (unlikely for standard owner-occupier loans).

Finally, stamp duty costs can surprise buyers. Even though the FHBG removes LMI, stamp duty in some states can add $30,000–$50,000 to the upfront cost. Check your state revenue office’s first-home buyer concessions and factor them into your deposit plan. Some buyers use the saved LMI money to cover stamp duty instead, but that still requires cash on hand.

How to apply and prepare

Applying for the 2026 FHBG is a five-step process:

1. · Check your city’s price cap and confirm the property type you want is eligible. Use Housing Australia’s online lookup tool to verify an address.
2. · Build your 5% deposit plus an additional buffer of about 2–3% for upfront costs like stamp duty, legal fees and moving expenses.
3. · Approach a participating lender. It’s wise to talk to at least two lenders – a major bank and a smaller mutual bank – because serviceability calculators and interest rates vary. The guarantee