On 1 October 2025 the federal government removed the annual places cap on the First Home Guarantee. The scheme that since 2020 had been allocated in tranches of 10,000, then 35,000, then 50,000 places per financial year, became uncapped. All eligible applicants can now apply, subject only to property price caps, income caps, and lender participation. Six months on, the scheme has reshaped the 5 to 10 per cent deposit segment of the home-loan market, and not in the ways policy makers expected.
The headline mechanic has not changed. An eligible first home buyer can purchase a property with a 5 per cent deposit without paying lenders mortgage insurance (LMI). The Australian government acts as guarantor for the gap between the borrower's deposit and the 20 per cent LMI threshold. The borrower still draws down a normal home loan from a participating lender; the lender simply does not levy the LMI premium. The saving is between $9,000 and $35,000 in upfront LMI on a typical first-home purchase, depending on price and deposit size.
What the cap removal actually changed
Before October 2025, the scheme operated as a rationed allocation. Places opened on 1 July, were allocated to lenders in pre-set tranches, and were typically exhausted within 8 to 12 weeks. Buyers who missed the early window either paid LMI or waited for the next financial year. Lenders gamed the system by reserving places against pre-approvals that did not always settle. The unused places that fell out of those reservations were rare for outsiders to access.
The cap removal eliminated the scarcity. From the buyer's perspective, eligibility is now the only gating question. From the lender's perspective, the scheme has become a standard product feature alongside owner-occupier and investor loans, rather than a scarce resource to manage. Banks that used to ration scheme places by deposit size now treat the scheme as a default for any sub-20 per cent-deposit first home buyer who otherwise qualifies.
Who is using it in 2026
Treasury data published in April 2026 shows scheme uptake in the first six months of uncapped operation reached approximately 41,000 applications, ahead of the prior-year run-rate but lower than the 50,000-place cap that had applied in 2024-25. The composition has shifted. Joint applications now make up 64 per cent of the total (up from 51 per cent under the cap), suggesting couples are using the scheme more confidently when the scarcity premium is gone. Median deposit at application is 8 per cent (down from 11 per cent), suggesting buyers are now using the scheme as designed rather than topping up to the cap to hedge against approval delay.
Removing the cap changed the scheme from a lottery into infrastructure. The behavioural shift it triggered, more couples, smaller deposits, faster decisions, was bigger than the headline policy change implied.
The catches that did not go away
Eligibility criteria did not change with the cap removal. Income caps still apply: $125,000 for singles and $200,000 for couples, assessed against the previous financial year's notice of assessment. Property price caps still apply, set per state and capital-city band, and last reviewed in late 2025. The buyer must be 18 or older, an Australian citizen, never have owned residential property in Australia, and intend to occupy the property as their principal place of residence within 12 months of settlement. The 12-month occupancy commitment runs for at least 12 months continuous residence; rentvesting is not allowed under the scheme.
Three operational catches still trip applicants. First, the scheme is administered by Housing Australia (formerly NHFIC) but applications run through participating lenders. Not all lenders participate; the panel is roughly 32 lenders in May 2026, dominated by majors and customer-owned banks. Some non-bank lenders have not joined the scheme. Second, eligible property types are narrower than the general home-loan market: house-and-land packages, established homes, and most apartments qualify, but some serviced apartments, vacant land without a build contract, and some company-title properties do not. Third, the scheme applies at point of approval and settlement; refinancing out of the scheme later does not retroactively impose LMI, but a top-up loan above 80 per cent LVR on the same property may.
How to position an application in 2026
- Confirm eligibility against the current income caps and the property price cap for your specific location. Both can change; check the Housing Australia site for the live numbers.
- Choose a participating lender. The roster is 32 lenders strong in May 2026 and includes all majors plus most customer-owned banks. A broker can match you to the lender whose serviceability calculations work best for your income profile.
- Get a pre-approval before you offer on a property. Pre-approval is conditional and lasts 90 days. Without it, scheme places used to be a competitive crunch; with the cap removed, the issue is more about being a serious buyer at offer time than about racing other applicants.
- Understand your post-purchase repayment cushion. With the cap removed, more buyers are entering the scheme at 5 per cent deposit, which means they are starting at the maximum loan size their income can carry. The May 2026 RBA hike has materially increased what that loan now costs in monthly minimums.
- Plan for the LMI saving. Preserve the saving as an offset balance or extra principal repayment for the first 12 months. The biggest behavioural risk is treating the saving as a discount on the property price.