What the 5% Deposit Scheme Means for Buyers
September 2025
What the 5% Deposit Scheme Means for Buyers
Melbourne Market Update
On‑the‑Ground Insight
Step Inside!- This Stunning Surrey Hills Property
What the 5% Deposit Scheme Means for Buyers:
The federal government has expanded its First Home Guarantee, allowing singles, couples, and now even siblings or friends to buy with just a 5% deposit and no LMI. For a $950,000 purchase (the new cap in metro Melbourne), that means saving $38,000 - $47,500 in lenders mortgage insurance costs alone.
Who benefits most?
First-home buyers in Box Hill, Ringwood and Burwood, where quality units and townhouses fall under the $950K threshold.
Young professionals pooling incomes to secure a property in lifestyle-rich areas like Camberwell or Surrey Hills.
While this is a welcome leg-up, it also means more buyers are competing at the same price points this Spring, amplifying auction intensity in Melbourne’s east.
Interest Rate Cuts - The Real Impact on Borrowing Power
Since February, the RBA has made three cuts (not three consecutive meetings), reducing the cash rate from 4.35% to 3.60%. Lenders have passed on much of this, and typical household borrowing capacity has lifted by about 7–10% depending on circumstances. This can shift an upgrader’s search range from roughly $1.5m to $1.65m, while lower repayments are giving downsizers more confidence and drawing some investors back in Melbourne’s east, where rental markets remain tight.
But there’s a paradox
By making it easier for everyone to borrow more and save a smaller deposit, buyers are effectively able to spend more money on the same property. This is already putting upward pressure on the lower end of the market. The challenge is that while access to finance has improved, true affordability hasn’t - and many first-home buyers may still struggle to compete once bidding pushes prices beyond the new limits of their budget.
Melbourne Market Update
Prices: Melbourne dwelling values have now posted four consecutive months of gains. CoreLogic’s Home Value Index shows a 0.5% rise in August, driven largely by renewed first-home buyer and upgrader activity.
Auctions: Clearance rates remain in the low 70% range, with many eastern suburbs properties attracting multiple bidders. REIV reported 1,382 auctions across Melbourne last week, with Doncaster East and Box Hill North both clearing above 75%.
Finance: With three rate cuts since February, the typical dual-income household can now borrow roughly $90K - $110K more than at the start of the year. ABS data shows first-home buyer finance approvals in Victoria are up 21% year-on-year, boosted by the expanded 5% deposit scheme.
On-the-Ground Insight:
Spring inspections are heating up:
At a recent auction for a townhouse in Burwood East, I watched very competitive bidding between 6 bidders. Located close to schools, shops, and parks multiple bidders pushed the price well passed the reserve. With a price guide of $1,150,000 - $1,250,000 the property eventually sold for $1,458,000 ($258,000 above the top of the guide or 16.6%).
However in Donvale, I went to another auction for a brand new modern house that didn't generate the same level of interest. Despite being turnkey and in a good location (albeit fairly close to a main road), at auction there was only 1 bid made before the property was passed-in.
Step Inside!
15 Scheele Street, Surrey Hills
This architect-designed home offers a rare blend of form and function, nestled on a quiet, tree-lined street in Surrey Hills. Clean lines and marble finishes give the interior a sense of calm luxury, while every element, from the dual kitchens to the plunge pool and piano lounge, has been considered for modern family life.
Key Features:
5 bedrooms, 5 bathrooms and multiple living zones
Miele-appointed kitchen with second prep kitchen
Marble ensuite, dual dressing rooms, skylit shower
Alfresco deck, pool, sauna and wine bar
Five-car garage with secure auto gates
All within walking distance to the 109 tram and the newly opened Union Station.
Price Guide: $6,000,000 - $6,600,000
5 Beds | 5 Baths | 5 Cars | 847 m²
Buyer’sTip
If you’re purchasing under the 5% deposit scheme, check suburb caps carefully - in Melbourne’s east, properties over $950K aren’t eligible, meaning some suburbs require sharp targeting.
Closing Thoughts
The combination of smaller deposit requirements, lower rates, and Spring momentum is setting up a fiercely competitive few months in Melbourne’s property market. While more buyers feel they can afford to enter, the reality is that increased borrowing capacity often fuels higher prices rather than easier access. This means first-home buyers, in particular, may find themselves priced out just as they thought the door was opening.
This is where a buyer’s agent can be invaluable. We help clients cut through the noise, from identifying off-market opportunities, to bidding strategically under pressure. Having a local advocate on your side can make the difference between repeatedly missing out and securing the right home with confidence.
If you’d like to discuss how these changes affect your buying position, let’s set up a 20-minute strategy call. I’ll help clarify your borrowing power, shortlist suburbs, and prepare for Spring’s auction intensity.
Note: This is general advice and does not take into consideration your objectives, situations or needs. Please consider if this advice is suitable for you and your circumstances and speak to a professional before making any financial decisions.
Justin Valentine
0439 690 248
