How the Home Guarantee Scheme affects your maximum borrowing capacity

Why does the Home Guarantee Scheme matter for borrowing power?

The Home Guarantee Scheme matters for borrowing power because it reduces one of the biggest financial barriers facing first home buyers: the deposit. Under the scheme, eligible buyers can purchase a home with as little as a 5% deposit without paying lenders mortgage insurance.

By removing the need to pay lenders mortgage insurance upfront, more of a buyer’s savings can go towards the property itself. While the scheme does not change how lenders assess income, expenses, or serviceability, it can influence how much buyers are able to borrow by lowering initial costs and making loan structures more accessible for first home buyers.

How does avoiding LMI affect your borrowing capacity?

Avoiding lenders mortgage insurance can have a meaningful impact on borrowing capacity, particularly for first home buyers using the Home Guarantee Scheme. 

Normally, buyers who have a deposit of less than 20% are required to pay lenders mortgage insurance, which protects the lender if the loan goes into default. This cost is often added to the home loan, increasing the total amount borrowed and, in turn, the size of ongoing repayments.

Under the Home Guarantee Scheme, eligible first home buyers can purchase a property with a deposit as little as 5% without paying lenders mortgage insurance. By removing this cost, buyers may be able to borrow a larger portion of the property price without increasing the overall loan balance. This can help improve affordability, reduce loan repayments, and make it easier to stay within lender serviceability requirements.

While avoiding LMI does not change how lenders assess income, expenses, or credit history, it can still support borrowing power by lowering upfront and long-term costs. For many buyers, this can mean entering the property market sooner without the financial pressure of paying lenders mortgage insurance.

How do lender policies under the scheme impact what you can borrow?

While the Home Guarantee Scheme can help first home buyers enter the property market with a smaller deposit, lender policies still play a major role in determining how much you can borrow. The scheme does not replace standard loan assessments or guarantee approval.

Instead, all loans are assessed by participating lenders using their usual lending criteria to ensure repayments are affordable and sustainable.

Key factors that can affect borrowing capacity include:

• Income and employment stability, which help determine borrowing power and repayment capacity.
• Living expenses and existing debts, such as personal loans or credit cards, can reduce the loan amount offered.
• Serviceability buffers, applied to ensure buyers can manage repayments if interest rates change.
• Income caps under the scheme, which affect eligibility for first home buyers.
• Participating lender policies, which may differ slightly between banks and lenders offering the scheme.

These assessments help determine borrowing capacity and whether a buyer can comfortably meet loan repayments over time. Even under the Home Guarantee Scheme, lenders apply buffers to account for interest rate changes and long-term affordability.

As a result, borrowing power can vary between lenders, even when buyers are eligible under the scheme. Understanding how lender policies work alongside the Home Guarantee Scheme can help first home buyers form realistic expectations about what they may be able to borrow.

What personal financial factors will limit your borrowing capacity?

Even with support from the Home Guarantee Scheme, a first home buyer’s borrowing capacity is still closely linked to their personal financial situation. Lenders assess a range of factors to determine how much can be borrowed and whether loan repayments are affordable over time. These include the following:

• Income level and stability, which directly affects how much a buyer can borrow
• Living expenses, such as household costs, utilities, and lifestyle spending
• Existing debts, including personal loans, car finance, and credit cards
• Credit history and credit profile, which reflect past repayment behaviour
• Dependants and financial commitments, which can impact serviceability

These factors apply to all first home buyers, regardless of whether they are purchasing under the Home Guarantee Scheme.

Ready to find out how much you can borrow with the Home Guarantee Scheme?

Understanding how the Home Guarantee Scheme affects borrowing capacity can help first home buyers make more informed decisions when entering the property market. While the scheme does not change how lenders assess income or expenses, it can reduce deposit requirements and remove the cost of lenders mortgage insurance, which may make it easier to purchase a property sooner.

For buyers planning a new home, knowing how borrowing power, loan structure, and eligibility work together is an important part of the journey. Get in touch with Carlisle Homes to book a consultation and discuss your borrowing power under the Home Guarantee Scheme, so you can explore your options with clarity and confidence.