Why a 5% home deposit may cost Aussies more

By Anissa Cavallo, property expert and adviser from Eda Property

When the government announced it would expand and fast-track the First Home Guarantee Scheme to October 1st, there was a mixed reception.

On one hand, for Australians locked out of the property market, it's a chance for everyday people to get on the ladder with just a 5% deposit. On the other hand, it's going to increase house prices.

But behind the political spin and headlines lies a sobering truth: a 5% deposit means taking on a 95% mortgage.

I say this as someone who has lived on both sides of the equation. I've built a portfolio of 17 properties, but I'm also a single mum who once lost everything and had to start again from scratch on a $90K income.

I know the thrill of buying a home when it feels just out of reach. I also know how quickly financial stress can snowball when circumstances shift.

The problem with 95% mortgages

On paper, a 5% deposit looks like an instant leg-up. In practice, it leaves first home buyers exposed to four major risks:

1. Negative equity.

With only 5% equity, even a modest market dip can push a homeowner underwater. A 10% decline wipes out not just the deposit but leaves the buyer owing more than the property is worth. This isn't a hypothetical; the market cycles, and we've seen price drops of that scale in recent years.

2. Mortgage stress.

A high LVR means higher repayments relative to income. Add in future interest rate rises and cost-of-living pressures, and even middle-income households risk being stretched too thin and more Australians balancing on a financial knife-edge.

3. False security.

The "government guarantee" may give buyers comfort, but it doesn't erase the debt. It simply shifts risk from banks to taxpayers while leaving families shouldering the same financial burden. The guarantee may make approval for a loan easier, but it doesn't make repayments more affordable.

4. Demand without supply.

Stimulating demand without unlocking new housing stock pushes up prices further. It's the same cycle we've seen play out before: well-intentioned grants and schemes that ultimately feed the very affordability crisis they're designed to fix. Removing income caps means lower-income first home buyers will likely be priced out of the market and the wealth inequality between renters and homeowners will worsen.

The human side of debt

It's easy to reduce this debate to numbers. But debt isn't just a calculation. It's emotional. I know what it's like to put everything on the line for a home, and I know what it feels like when financial stress keeps you awake at night.

For many first-home buyers, the scheme will mean achieving something they've dreamed of for years. But home ownership should be the beginning of financial security, not the start of a dangerous balancing act.

What should change?

Helping first-home buyers is essential. But if we want these schemes to be genuinely sustainable, a few key changes are needed:

1. Tie incentives to new supply.

Instead of fuelling bidding wars over existing homes, incentives should be linked to new builds and urban infill projects. Supporting demand without increasing supply only drives prices higher. Right now, the construction industry is too slow, under-resourced, and not incentivised. Unless we fix this, the "Australian Dream" of home ownership will remain out of reach.

2. Rethink serviceability rules.

Current responsible lending benchmarks are blunt and unrealistic. Lenders are applying minimum expense levels regardless of what people actually spend. This means buyers who can demonstrate affordability are still locked out, while those who do manage to purchase are pushed towards properties with little or no capital growth - undermining their ability to build asset wealth. Serviceability requirements need urgent review.

3. Pair access with education.

Guarantees shouldn't just give buyers access to debt. They should come with financial literacy support, ensuring buyers understand not only repayments, but budgeting, repayment buffers and the risks of over-leveraging. Every few weeks, we see a new study or report in the media about Australia's poor financial literacy. This isn't an individual issue - it's something we need to be addressing as a nation, not left to chance.

4. Restructure equity models.

Shared-equity programs, as they stand, can trap buyers - especially if their financial or family situation changes and they need to sell the property. The government takes its share first, along with a portion of any capital growth, and owners are left with less flexibility, limited access to equity, and high transaction costs if they need to sell. If we want shared equity to work, it needs to be redesigned so it helps people build stability, not dependence.

A better way forward

The First Home Guarantee Scheme isn't inherently bad. For some buyers, it will be life-changing. But we need to be honest - it's a band aid solution to the bigger, core problem with the Australian housing market: affordability for homeowners and renters alike.

I believe in home ownership as a pathway to security, wealth, and independence - especially for women, who are too often excluded from the market. But I also believe we have a duty to ensure that government support doesn't trap people in financial stress or set them up for loss.

Helping first-home buyers is vital. But unless we balance access with protection, today's boost could be tomorrow's burden.

Anissa Cavallo is a property expert and adviser from Eda Property empowering and educating Australians to achieve financial freedom through property.

Editor's note: This is an opinion piece by Anissa Cavallo The views expressed are her own.