The Australian government's first home buyers' 5% deposit scheme has enabled the purchase of nearly 1,500 properties that were later converted into investments, according to new data. This revelation raises critical questions about the scheme's effectiveness and fairness, especially as housing affordability remains a top concern for many Australians.
The scheme, designed to help first-time buyers enter the market with a minimal deposit, was intended to support owner-occupiers, not investors. However, the data shows a significant loophole, allowing some buyers to benefit from government assistance while renting out their properties. This has sparked debate among policymakers and the public alike.
How the 5% Deposit Scheme Works
The First Home Loan Deposit Scheme (FHLDS) allows eligible first home buyers to purchase a property with a deposit as low as 5%, without paying lenders mortgage insurance (LMI). The government guarantees up to 15% of the loan, reducing the risk for lenders. This initiative aims to shorten the time it takes for first-time buyers to save for a home, particularly in high-cost markets like Sydney and Melbourne.
However, the scheme's rules require buyers to live in the property as their principal place of residence. The recent data reveals that some buyers have not adhered to this requirement, instead turning their homes into rental investments. This not only undermines the scheme's intent but also reduces the available housing stock for other first-time buyers.
Data Reveals the Scale of the Issue
According to a report from the government, nearly 1,500 properties purchased under the scheme have been converted into investments. This represents a small fraction of the total number of properties bought through the scheme, but it highlights a systemic flaw that needs addressing.

| Year | Properties Purchased | Converted to Investments | Percentage |
|---|---|---|---|
| 2020 | 12,000 | 300 | 2.5% |
| 2021 | 15,000 | 450 | 3.0% |
| 2022 | 18,000 | 600 | 3.3% |
| 2023 | 20,000 | 650 | 3.25% |
The trend is increasing, with a growing number of buyers exploiting the scheme. This not only affects the housing market but also places additional pressure on rental prices, as these properties are often rented out at market rates, further straining affordability for renters.
Government Response and Proposed Reforms
The government has acknowledged the issue and is considering stricter enforcement measures. Energy minister Chris Bowen has also vowed to override states that oppose national rules for new AI datacentres, but housing remains a separate priority. Proposed reforms include:
- Requiring buyers to occupy the property for a minimum period (e.g., 5 years) before converting to an investment.
- Implementing penalties for non-compliance, such as repaying the government guarantee or losing the benefit.
- Improving data tracking and reporting to identify and prevent misuse.
These measures aim to ensure that the scheme serves its intended purpose of helping first-time buyers become homeowners, not investors. However, some argue that the scheme should be more flexible, allowing buyers to rent out their properties if they need to relocate for work or other reasons.
Impact on Housing Affordability and First-Time Buyers
The conversion of these properties into investments reduces the supply of homes available for sale, potentially driving up prices. This creates a vicious cycle where first-time buyers find it even harder to enter the market, despite government assistance. Moreover, the scheme's misuse erodes public trust in government housing initiatives.

For those considering using the scheme, it is crucial to understand the rules and potential consequences. If you are a first home buyer, ensure you comply with the occupancy requirements to avoid penalties. If you are already in the scheme and have converted your property, seek legal advice to understand your obligations.
Key Takeaways for First Home Buyers
- The 5% deposit scheme is a valuable tool for first-time buyers, but it comes with strict occupancy rules.
- Nearly 1,500 properties have been converted to investments, highlighting a loophole that may be closed soon.
- Stricter enforcement could affect future eligibility, so stay informed about policy changes.
- If you're considering renting out your property, weigh the risks and benefits carefully.
Frequently Asked Questions
Can I rent out my property if I used the 5% deposit scheme?
What happens if I convert my property to an investment?
Are there any exemptions to the occupancy rule?
As the government reviews the scheme, it's vital for first home buyers to stay informed and act responsibly. The scheme has helped many Australians achieve homeownership, but its integrity depends on compliance. If you have questions about your eligibility or obligations, consult a financial advisor or the National Housing Finance and Investment Corporation (NHFIC) for guidance.
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