5% Deposit Scheme vs Rent-to-Own: Which Suits You?

The 5% Deposit Scheme explained

The Australian Government 5% Deposit Scheme helps first home buyers purchase with a 5% deposit, or 2% for single parents and legal guardians, without paying Lenders Mortgage Insurance. The government guarantees part of your loan to the lender. Rent-to-Own is a different path: with Rent-to-Own homes you rent a home you'd love to buy, with no deposit, and build one while you live there.

The scheme was formerly called the Home Guarantee Scheme, and its first home buyer stream was known as the First Home Guarantee. From 1 October 2025 it has had no income caps and no waitlists, with unlimited places. You apply through a participating lender as part of your home loan, not directly to Housing Australia, which runs the scheme.

The guarantee replaces LMI. It does not lend you money or pay your deposit. You still need the deposit in cash, plus stamp duty unless a concession applies, and the costs of buying.

5% Deposit Scheme vs Rent-to-Own compared

The 5% Deposit Scheme gets you a mortgage now with a small deposit. Rent-to-Own gets you into the home now with no deposit and gives you four to eight years to build one before you switch to a mortgage. The table compares them on the points that usually decide which one fits.

5% Deposit Scheme eligibility

You need to be an Australian citizen or permanent resident aged 18 or over, with at least a 5% deposit saved. You must be a first home buyer, or not have owned property or land in Australia in the last 10 years, and you must live in the home. Your loan must be a principal and interest owner-occupier loan from a participating lender.

• Every applicant must be an Australian citizen or permanent resident on the day you sign the loan. Temporary visa holders are not eligible.
• You can apply as one person, or two applying jointly (partners, friends or family members). Loans with three or more borrowers do not qualify.
• Your deposit must be at least 5% of the property value, and less than 20%. You must use as much of your savings as possible for the deposit. If you have 20% or more left after stamp duty and legal costs, the loan is not eligible.
• The home must be a residential home you will live in. Investment properties are not eligible. Both the price and the lender's valuation must sit at or below the price cap.
• The loan must be principal and interest, up to 30 years, from a participating lender. You must also meet that lender's own credit criteria, so being eligible for the scheme does not guarantee a loan.
• Afterwards, you must keep living in the home. If you stop meeting the ongoing obligations, the guarantee may no longer apply and your lender may require LMI.

Once you're pre-approved, you have 90 days to find a home and sign a contract of sale.

5% Deposit Scheme price caps

Your purchase price and the lender's valuation must both be at or below the cap for the location. Caps are higher in capital cities and regional centres than in the rest of each state. Check the exact suburb with the postcode search tool on firsthomebuyers.gov.au, then confirm with your lender.

The cash you need upfront: a worked example

On a $750,000 established home in Brisbane, a first home buyer using the 5% Deposit Scheme needs about $51,425 in cash. Rent-to-Own on the same home needs much less, because there is no deposit, stamp duty or LMI to pay at the start. Before you move in you pay for legal advice ($1,100 with our referral), the bond and the first 12 weeks of our fee at signing, with the $357.50 signing fee credited against them. On Standard, the first 12 weeks are $913.85 for a $650,000 home and $1,066.15 for an $800,000 home.

The gap narrows on a new home. Queensland first home buyers pay no transfer duty on a new home, with no value cap, so the scheme needs about $40,500. In New South Wales, first home buyers pay no transfer duty on a new or existing home valued up to $800,000.

What each option costs every week

With the 5% Deposit Scheme you borrow $712,500. At 6.3% a year over 30 years, which is in line with the average rate on new owner-occupier loans in August 2026, repayments are about $1,018 a week. As the owner you also pay council rates, insurance and maintenance.

With Rent-to-Own you pay $650 rent, plus an extra 50% of $325 that becomes your deposit, plus our weekly fee instalment (on Standard, $84.62 on this $750,000 home ($22,000 over 5 years)). The owner pays the rates, insurance and maintenance during the lease. Both include money that comes back to you. The extra $325 a week is credited to you as your deposit when you buy. In year one, about $159 a week of the mortgage repayment pays down your loan.

How PublicSquare's Rent-to-Own works

You find a home listed for rent that you'd love to buy, the owner agrees to rent it to you on a Rent-to-Own basis, you move in, and you hold an option to buy it. PublicSquare acts for you as your buyer's agent. Each week you pay the listed rent plus an extra 50% of your first-year rent on top. That extra amount never changes and becomes your deposit, and in years 4 to 8 you switch to a mortgage when you're ready, with your choice of lender.

• Your rent is reviewed once a year by the property manager's rental appraisal, and increases are capped at 4% or the legal maximum, whichever is lower. The extra 50% never rises.
• Your purchase price is the higher of a contracted minimum or an independent valuation, with no maximum. The minimum grows by 8% a year if you buy in year 4, stepping down to 4% a year in year 8. The rate applies to the completed years before the year you buy, so each year's minimum can be quoted in advance. These rates apply to houses; apartments typically appreciate more slowly, so they may have lower minimum growth rates in the contract.
• The owner pays the rates, insurance and maintenance during the lease, and you get up to eight years of housing security with no forced moves.
• If you can't get a mortgage in years 4 to 8, the Owner's Sell-Back Guarantee lets you request an open-market sale and receive your contributions back, less any unpaid amounts and any shortfall. You pay a fixed $3,300 marketing cost.
• You will need a mortgage to buy, usually 4 to 8 years in, so lenders will assess your age and credit then. Pre-approval is a few quick questions online, it's free and it does not affect your credit history. A call with a PublicSquare rep is optional, at any stage.
• PublicSquare's buyer's agency fee is spread over 260 weekly instalments over 5 years, with no interest. Apart from the $325 + GST signing fee, nothing is payable until your Contract with the owner is signed.

For every step in detail, read How Rent-to-Own Works in Australia, or see your own figures in the Deposit Builder calculator.

Using the 5% Deposit Scheme after Rent-to-Own

Possibly, when you buy. Your Rent-to-Own contributions become your deposit, and because you haven't owned the home before, you would usually still be a first home buyer. A participating lender can assess you for the scheme then, if you still meet every rule on that day and the price is under the cap.

Two things to watch:

• Watch the price cap. On the $750,000 example, the year-6 contracted minimum is $1,003,669, which is just above today's $1,000,000 Brisbane cap. Caps change over time, so check them again when you are ready to buy.
• Watch the deposit test. The scheme is for deposits of at least 5% and under 20%. A year-6 deposit of about 10% sits inside that range. If your deposit is under 20% and you do not use the scheme, your lender may charge Lenders Mortgage Insurance.

Rules for the scheme are set by the Australian Government and can change before you buy, so treat this as a possibility to check, not a plan to rely on.

Which suits you: the 5% Deposit Scheme or Rent-to-Own

The 5% Deposit Scheme may suit you if

• you already have at least 5% saved, plus stamp duty and buying costs;
• you are a citizen or permanent resident and a first home buyer (or haven't owned property in Australia for 10 years);
• the home you want is under the price cap for its location;
• a participating lender will approve your loan today, and you are ready to take on rates, insurance and maintenance.

PublicSquare Rent-to-Own may suit you if

• you have steady income and could service a mortgage later, but don't have, or don't want to pay, the deposit and upfront costs now;
• you want to rent a home you'd love to buy and stay four years or more;
• you want rent rises capped at 4% a year, with the owner covering rates, insurance and maintenance during the lease;
• you want to build a deposit inside the home you plan to buy, instead of saving while you rent somewhere else.

For the other low and no-deposit routes, including high-LVR loans with LMI, see How to Buy a Home With No Deposit in Australia.

Questions to ask before you choose

1. Do I have at least 5% saved, plus stamp duty, legal fees and moving costs, without emptying my emergency savings?
2. Is the home I want under the price cap for its exact suburb, and will the lender's valuation be under it too?
3. Will a participating lender approve me today, and what will my repayments be at today's rates?
4. Can I comfortably cover rates, insurance and maintenance as an owner from day one?
5. If I choose Rent-to-Own, who owns the home, how is the purchase price set, and what happens to my contributions if I can't get a mortgage?
6. Have I had independent legal and financial advice on both paths?

When Rent-to-Own isn't the right choice

Rent-to-Own is not automatically better than the 5% Deposit Scheme. It is usually the wrong fit if any of these apply:

• You qualify for the scheme and have the cash today. If you have 5% plus costs and a lender will approve you, buying now with the scheme usually costs less over time.
• You may move within four years. The option to buy opens in year 4, so it suits people planning to stay.
• You can't see a path to a mortgage. You will need a lender to approve you when you buy. Years of on-time payments help, but no lender approval is certain.
• You want the lowest possible weekly cost. Your payment is the rent plus the extra 50% and our fee instalment, so it is higher than renting the same home.
• You expect prices to fall. You pay at least the contracted minimum, so a falling market does not lower your price.

PublicSquare's Rent-to-Own program operates only in Queensland and New South Wales. Check availability for your area before you plan around it.

Written by

Jarrod Wills

Buyer's Agent

Licensed agent · Former mortgage broker

Over 10 years’ experience as a mortgage broker and real estate agent, now a licensed buyer’s agent with PublicSquare since 2021. He has worked on 100+ property transactions and knows the Queensland and New South Wales markets and the Rent-to-Own model well.

Reviewed by

Dean Arnold

Founder & CEO

Licensed real estate agent

I started PublicSquare in 2021 to give homebuyers a real path to ownership without a deposit, and landlords a stronger-cashflow alternative to a standard rental. I hold real estate licences in Queensland and New South Wales and personally review every property that enters the program.

Read more about Rent-to-Own.

This article is general information only and does not take your personal circumstances into account. PublicSquare is a licensed real estate agency, not a financial adviser or credit provider. Consider seeking independent advice before making a decision.