For many Australians, buying a home has felt like a moving goalpost. Just when the deposit starts to look achievable, property prices move higher, rents keep climbing and another year passes while the dream of home ownership remains frustratingly out of reach.
That is why the Australian Government’s five per cent deposit scheme has attracted so much attention. By allowing eligible buyers to purchase a home with a deposit as low as five per cent, the scheme has helped some Australians get into the property market sooner, rather than spending years trying to save a traditional 20 per cent deposit.
But one year after the scheme was significantly expanded, the conversation has become more complicated. Falling property values in some markets have left some recent buyers facing negative equity, prompting legitimate questions about whether getting into the market with a smaller deposit is always a good idea.
The answer is not as simple as saying the scheme has worked or failed. There are real risks, and those risks deserve to be understood. But there is also a bigger picture: buying a home is generally a long-term decision, property markets move through cycles, and a temporary fall in value does not automatically mean a buyer has made a bad decision.
So, one year on, let’s look at what has changed, what the concerns mean for buyers, and why a little perspective matters.
What Changed on 1 October 2025?
The biggest change was the expansion of the Australian Government’s 5% Deposit Scheme, previously known as the Home Guarantee Scheme.
Before the expansion, access was limited by factors including income thresholds and the number of places available. From 1 October 2025, eligible first-home buyers could access the scheme without income caps or limits on the number of places, while higher property price caps opened up a broader range of homes. Eligible buyers could purchase with a five per cent deposit without paying lenders mortgage insurance (LMI).
That last point is particularly important.
Saving a deposit is often one of the biggest hurdles to home ownership. For someone trying to save while paying rent and managing everyday expenses, reaching a 20 per cent deposit can take years. During that time, property prices may rise, potentially making the target harder to reach.
The scheme offers a different path: buy sooner, begin paying down a mortgage and start building equity through repayments and any future growth in the property’s value.
It doesn’t make buying a home affordable for everyone, and it doesn’t remove the need to qualify for a loan. But it has made home ownership possible sooner for people who might otherwise have remained renters for longer.
One year on, how many buyers have benefited?
The expanded scheme has seen substantial take-up. Reporting in October 2026 indicated that more than 102,000 Australians had used the scheme since its expansion.
That represents a significant number of households who have been able to enter the property market with a smaller upfront deposit.
For those buyers, the benefits extend beyond the possibility of future capital growth. Home ownership can provide greater housing security, more control over where and how they live, and an opportunity to pay off an asset over time.
There are also potential lifestyle benefits. Buyers may be able to settle into a preferred neighbourhood, avoid repeated rental moves or create a more stable environment for their families.
Of course, these advantages depend on the individual circumstances of each buyer. A mortgage that stretches a household’s budget too far can undermine the security home ownership is intended to provide.
Still, it is worth recognising that the scheme was designed to address a genuine problem: the difficulty of saving a large deposit while trying to keep pace with the housing market.
The Negative Equity Debate: Understanding The Real Risk
Negative equity has become one of the most prominent criticisms of the scheme, and it is a risk that should not be dismissed.
Negative equity occurs when a property’s market value falls below the outstanding balance of its mortgage. In simple terms, the owner owes the lender more than the property is currently worth.
That is the vulnerability of buying with a small deposit. There is a much smaller buffer between the purchase price and the amount owed, so a relatively modest decline in value can wipe out the buyer’s initial equity.
Recent reporting has confirmed that this is not merely a hypothetical concern. An October 2026 analysis reported that an estimated 1,143 households who purchased using the expanded scheme were in negative equity in September, equivalent to approximately 2.4 per cent of participants. The estimate depends on assumptions about deposits, savings and property values, so it should be treated as an estimate rather than a definitive count of every affected household.
For those buyers, the situation can be stressful. It can become particularly difficult if they need to move for work, separate from a partner, relocate to support family or sell because they can no longer afford their repayments.
These are genuine risks, and anyone considering a low-deposit purchase should understand them before signing a contract.
But there is another important part of the story.
Negative Equity Doesn’t Automatically Mean a Financial Loss
The distinction between a property being worth less than its mortgage and an owner actually realising a loss is important.
Negative equity is a financial position, not necessarily a realised loss.
If a homeowner continues making their mortgage repayments and remains in the property, they do not automatically have to sell at the lower market value. Over time, they can reduce their loan balance through repayments. If the property market subsequently recovers, its value may also rise.
For example, imagine a buyer purchases a property for $700,000 and its value later falls to $630,000. The owner may temporarily have negative equity, but that doesn’t mean they have permanently lost $70,000 in cash.
They still own the property and can continue living in it. If they can comfortably meet their repayments, they may have the time to allow their loan balance to fall and the market to change.
There are important qualifications. Mortgage interest and ownership costs continue, property values may fall further, and there is no guarantee of recovery within a particular timeframe. Repayments reduce the principal only to the extent that they exceed the interest and other amounts charged.
Negative equity also matters before a sale because it can make refinancing or moving more difficult. If the owner must sell, the proceeds may not cover the outstanding mortgage and selling costs, potentially leaving a debt to repay.
So, it is not accurate to suggest negative equity is harmless. Rather, the consequences depend heavily on whether the owner can afford to hold the property and whether they are forced to sell.
That distinction matters when assessing the scheme’s overall impact.
Property Markets Move in Cycles, not Straight Lines
One of the difficulties with judging a property purchase after just 12 months is that property is a long-term asset being assessed over a very short period.
Markets rise, slow, fall and recover. The timing of a purchase can make a considerable difference to short-term results, but it doesn’t necessarily determine the outcome over a longer period.
Australia has seen this play out before.
Sydney and Melbourne experienced a significant downturn between 2017 and 2019. Sydney dwelling values fell around 13.8 per cent from their mid-2017 peak to a March 2019 trough, while Melbourne house prices also declined substantially during the period. Yet by the end of 2020, Sydney’s median house price had reached a new record, and Melbourne had recovered from its earlier downturn.
People who purchased during that weaker period and held their properties through the subsequent recovery could benefit from the later increase in values. Someone who bought near the peak and sold during the downturn, on the other hand, may have locked in a loss.
This is not a promise that today’s buyers will experience the same outcome. The economic conditions, interest rates, supply and demand, and local market dynamics are different in every cycle.
It does, however, demonstrate why a short-term price decline is not enough to determine whether a home purchase will ultimately prove successful.
A buyer who purchases in a softer market may also have advantages: less competition, more room to negotiate and a greater opportunity to take time assessing a property rather than rushing into a decision.
The challenge is that nobody can reliably identify the exact bottom of a market in real time. Waiting for prices to stop falling may mean missing opportunities, while buying too early can expose a buyer to further declines.
Rather than trying to perfectly time the market, buyers are generally better served by assessing whether a property suits their needs, whether the price is reasonable and whether they can comfortably afford the loan through different economic conditions.
The Scheme Isn’t A Guarantee of Rising Prices
It is also important to recognise that the scheme itself cannot guarantee that property values will rise.
The scheme helps eligible buyers overcome the deposit hurdle and avoid lenders mortgage insurance. It does not protect them against a fall in property prices, guarantee their mortgage repayments will remain affordable or ensure they will be able to sell for more than they paid.
Nor does the scheme operate in isolation. Interest rates, employment, household incomes, population growth, housing supply, lending standards and buyer confidence all influence the market.
There is also a legitimate debate about whether increasing the number of buyers who can enter the market adds to demand without addressing the underlying shortage of suitable, affordable homes. The National Housing Supply and Affordability Council has cautioned that demand-side assistance can place upward pressure on prices in the short term if housing supply does not keep pace.
That is a fair criticism to consider. Helping people save a deposit is one part of the affordability challenge; building enough well-located homes is another.
But it doesn’t follow that the scheme has no value. A policy can help some buyers enter the market while still needing to sit alongside broader measures to improve housing supply and affordability.
The question should be whether the scheme helps eligible buyers make sustainable purchases, not whether it can eliminate every risk associated with property ownership.
What Should Prospective Buyers Take Away From The First Year?
The first year offers some practical lessons for anyone considering buying with a small deposit.
- Don’t borrow at the absolute limit simply because you can.
The fact that a lender approves a mortgage doesn’t mean the repayments will be comfortable in every circumstance. Buyers should allow room in their budget for interest-rate changes, repairs, insurance, rates and unexpected expenses.
- Keep a financial buffer wherever possible.
A five per cent deposit may get you into the market, but using every available dollar to complete the purchase can leave little room for emergencies. Savings held after settlement can help with unexpected costs or a temporary loss of income.
- Choose the property carefully.
Location, property condition, future infrastructure, local employment and the supply of competing homes all matter. A property that suits your needs and is priced sensibly may be a more robust long-term purchase than one bought purely because you expect rapid capital growth.
- Think about how long you intend to stay.
Buying and selling property involves substantial transaction costs. If you expect to move within a year or two, a market decline could have a much greater impact than if you can remain in the home for many years.
- Understand the risks before making an offer.
Consider what would happen if your property’s value fell by 10 per cent, your repayments increased or your household income dropped. You don’t need to predict every outcome, but you should understand whether you could manage a difficult period.
- Seek independent advice.
A mortgage broker or financial adviser can help assess your borrowing capacity, repayment options and financial resilience. A property professional can help you investigate comparable sales and local market conditions. Neither can guarantee future property prices, so make sure you understand the limits of any advice you receive.
A More Balanced Verdict, One Year later
The five per cent deposit scheme has changed the home-buying landscape by allowing eligible Australians to enter the market sooner, without needing to save a traditional 20 per cent deposit or pay lenders mortgage insurance.
For some, that opportunity has arrived at a difficult time. Falling values have exposed the vulnerability of buyers with little initial equity, and those facing negative equity deserve to have their concerns taken seriously.
But a buyer’s first year is not necessarily the best measure of a 20- or 30-year home ownership journey.
The Reserve Bank‘s October 2026 Financial Stability Review noted that fewer than one per cent of borrowers nationally were estimated to owe more on their mortgage than their property was worth. It also highlighted that negative equity does not itself trigger a default when borrowers can continue servicing their loans. Recent buyers and those with high loan-to-value ratios are more exposed, however, and financial pressures remain a concern.
That broader picture is important. The risk is real, but it should not be confused with an inevitable outcome for everyone using the scheme.
For buyers who purchase carefully, maintain manageable repayments and can stay in their homes through market cycles, a temporary fall in value may be just that: temporary. History offers examples of buyers who purchased during downturns and later benefited from recovery, although there is no guarantee that every property or market will follow the same path.
Ultimately, the scheme should be viewed as a way to overcome one barrier to home ownership, not as a shortcut to wealth or a substitute for sound financial planning.
Getting into the market is an important milestone. Staying financially secure once you’re there is what makes home ownership sustainable.
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