The Home Guarantee Scheme: What You Need to Know Before You Dive In

The Home Guarantee Scheme (HGS) is a breath of relief to many first-time homeowners. The extended scheme offers property ownership to first-time buyers, single parents, and regional buyers with as low as a 5% deposit without Lenders Mortgage Insurance (LMI). That’s a game changer for many Australians. But before you sign on the dotted line, it’s vital to consider what’s not talked about as often, the hidden financial risks that can impact your ability to hold onto that home in the long term.

At Capital Connections Finance, we work with families, individuals, and investors every day to help them make informed, sustainable decisions. Let’s break down the opportunity and the real risks you need to prepare for.

What is the Home Guarantee Scheme?

The Home Guarantee Scheme is an initiative carried out by Housing Australia with the support of the Australian Government and is intended to help eligible Australians to afford a house earlier.

Guarantees are of three kinds:

1. First Home Guarantee (FHBG): To first-home buyers who purchase new or existing houses with a deposit of five percent.
2. Regional First Home Buyer Guarantee (RFHBG): To qualified purchasers in regional areas.
3. Family Home Guarantee (FHG): A single parent with a dependent or several dependents with a minimum 2% deposit will be able to purchase a home. 

With these guarantees, Housing Australia acts as a guarantor for up to 15–18% of the loan, removing the need for costly LMI and potentially saving buyers thousands of dollars.

What You Might Not Know

Despite the benefits, borrowers must consider critical financial risks and market factors before deciding on the home guarantee scheme.

1. Repayments Are Still High

Just because you can buy with a small deposit doesn’t mean the monthly loan repayments will be affordable.

Let’s take Sydney as an example. The maximum property price cap in Sydney under the first home guarantee is $1.5 million. A 95% loan on that amount means borrowing $1.425 million.

• With current variable interest rates ranging from 5.34% to 6.2%, your monthly repayments could easily reach $7,500 to $8,000.
• In Melbourne, where the limit is 1 million, the repayment is still above 5,000/month at a 95% LVR loan.
• Even homes of up to $650,000 to $750,000 can fetch between four and five thousand dollars per month in repayment in South Australia.

On this level, you should feel sure of the level of income that you will continue to earn, the job security, and the ability to repay even when interest rates increase further.

2. Property Prices May Rise Further

The access of more buyers will result in more demand, which may drive up property prices, particularly in the high-demand suburbs.

This increase in eligibility by the Home Guarantee Scheme has been cautioned by economists to hike the price up to 5% in the short term. This can make homes less affordable and increase the risk of buying at the peak of the market, especially if interest rates rise or prices correct later.

For example:

• In areas like Blakeview, Lightsview, or Mawson Lakes (SA), prices have already seen upward pressure due to demand from first-home buyers and limited land releases.
• If you’re stretching to meet repayments now, and prices dip slightly, you may end up in negative equity, where you owe more than the property is worth.

3. Interest Rates Can Change and Often Do

Even though you may qualify for a loan today, that doesn’t mean you’ll be able to comfortably repay it tomorrow.

Lenders now apply a “serviceability buffer” of 3%, meaning they assess whether you could still afford the loan if interest rates rise by 3%.

You should do the same. For example:

• If your current rate is 5.34%, will you be able to repay if it increases to 8.34%?
• If you’re at 6.2%, would you manage at 9.2%?

This is especially risky for first home guarantee borrowers in high-LVR loans (90–95%) who may have less equity and fewer refinancing options if things go sideways.

Why Expert Guidance Makes a Huge Difference

This is where we come in.

At Capital Connections Finance, we don’t just compare interest rates, we look at the bigger picture:

• Can you afford repayments comfortably today and in 3 years?
•  Is your purchase location growing or prone to oversupply?
• Are you able to model your loan such that you have flexibility and safety buffers?
• Are you entitled to either government assistance, the First Home Owner Grant (FHOG), or stamp duty concessions in SA?

We’ll help you:

•  Run in-depth stress tests
• Arrange your loan in offset or redraw facilities, or split it.
• Calculate the total cost of ownership, which includes council rates, maintenance, and insurance.
• Know the future refinancing capabilities.
• Build equity over time with the right repayment strategy.

With Capital Connections, you’re not just getting a loan. You’re getting expert local advice from a mortgage broker in Adelaide who understands your goals.

Example Case Study: 95% Loan vs 80% Loan

Final Thoughts from the Capital Connections Finance Team

The Home Guarantee Scheme can absolutely work in your favor, especially if you’re buying your first home, supporting your family, or moving to a regional area. However, wise choices in the present will pay off tomorrow. In South Australia, we are aware of the local property trends, grants, and risks related to such suburbs as Netley, Christie Downs, Blakeview, and Dernancourt. Whether you want to purchase land or create a house or are seeking investment chances, we are there to make the whole hassle as easy, risk-free, and economical as possible. 

FAQs on The Home Guarantee Scheme

Am I required to be Lender’s Mortgage Insured (LMI)?

No. The government guarantee is up to 15-18% of your loan, eliminating the necessity of LMI.

Can the payments be affordable with a 5% deposit?

Not always. Small deposits translate into large loans and increased monthly payments.

Is the scheme capable of increasing the prices of property?

Yes. Demand can be raised by more buyers entering the market, which will drive prices up.

What are the additional expenses that I should expect?

Council rates, insurance, maintenance, utilities, and potential stamp duty.

What could Capital Connections Finance do?

We take you through each process, narrow down options, and assist you in picking a safe and right loan product.