If you are saving for a first home under the Australian Government 5% Deposit Scheme and you also need a car, the order you do things in matters. The scheme lowers the deposit you need, but it does not lower the repayment test. A car loan repayment is one of the first things a home loan lender takes off your income, so it can shrink the home loan you are offered.
The short answer: yes, a car loan can affect the 5% Deposit Scheme. Your Participating Lender still checks that you can afford the home loan, your car loan repayment counts as an existing commitment, and it usually reduces the amount the lender will let you borrow.
This guide covers how the scheme works in 2026, what the latest property price figures show, and how a car loan fits into a first home application.
What the latest property prices show
The Australian Bureau of Statistics reported on 8 September 2026 that the mean price of residential dwellings fell by $8,200 to $1,100,400 in the June quarter 2026. The total value of Australia's homes fell by $34.1 billion to $12,688.9 billion over the quarter, while the number of dwellings rose by 54,400 to 11,531,100.
Prices still vary widely between states. The ABS mean price was highest in New South Wales at $1,304,900, followed by Queensland at $1,130,600 and Western Australia at $1,123,700. The Northern Territory had the lowest mean price at $614,400.
A small quarterly fall does not change much for a first home buyer. At these price levels even a 5% deposit is a large sum, and the loan for the other 95% is what a lender has to be satisfied you can repay. We looked at the quarter in more detail in what falling property values mean for your borrowing.
How the 5% Deposit Scheme works in 2026
The 5% Deposit Scheme, formerly known as the Home Guarantee Scheme, is run by Housing Australia. According to the scheme's official First Home Buyers website:
- first home buyers can buy with a minimum 5% deposit, and eligible single parents or legal guardians with a minimum 2% deposit
- since the changes that started on 1 October 2025 there are no income caps, no waitlists and no Lenders Mortgage Insurance on eligible loans
- more than 320,000 Australians have been helped since the scheme began in 2020
- you cannot apply to Housing Australia directly, only through a Participating Lender as part of a home loan application
Housing Australia guarantees part of your home loan to the lender, up to 15% of the property value. The scheme's Information Guide, dated 1 July 2026, is clear that this guarantee protects the lender, not you. It is not a cash payment or a deposit, and you remain responsible for all repayments and costs. The loan must be an owner-occupier home loan with principal and interest repayments and a term of up to 30 years. The guide also says you must use as much of your savings as possible for the deposit, and that if you have 20% or more saved after costs such as stamp duty and legal fees, your loan will not be eligible.
The 2026 price caps by state
Both the purchase price and the lender's valuation must be at or below the price cap for the location. The caps published on the First Home Buyers website are:
- New South Wales: $1,500,000 in Sydney and regional centres, $800,000 elsewhere
- Victoria: $950,000 in Melbourne and Geelong, $650,000 elsewhere
- Queensland: $1,000,000 in Brisbane, the Gold Coast and the Sunshine Coast, $700,000 elsewhere
- Western Australia: $850,000 in Perth, $600,000 elsewhere
- South Australia: $900,000 in Adelaide, $500,000 elsewhere
- Tasmania: $700,000 in Hobart, $550,000 elsewhere
- Australian Capital Territory: $1,000,000
- Northern Territory: $750,000 in Darwin, $600,000 elsewhere
Housing Australia says to confirm the cap for your exact suburb and postcode with your Participating Lender, because some suburbs span more than one postcode.
Why the scheme does not change the serviceability test
This is the part many buyers miss. The scheme removes the need for a 20% deposit and Lenders Mortgage Insurance, but it does not change how a lender tests your repayments. The Information Guide states that the Participating Lender assesses your application against both the scheme's eligibility criteria and its own lending criteria.
That means normal home loan serviceability applies. The Australian Prudential Regulation Authority (APRA) confirmed on 28 May 2026 that the mortgage serviceability buffer stays at 3 percentage points. Banks test whether you could still afford the home loan if its interest rate were 3 percentage points higher than the rate you are offered.
Your existing debts are part of that test. A car loan repayment is money that cannot go toward a mortgage, so lenders commonly deduct the full repayment from the income they assess, however much of the car loan is left to pay.
How a car loan reduces your home loan borrowing power
To work out your borrowing power, a lender starts with your income, subtracts tax, living expenses and existing repayments, and then asks how large a mortgage the remaining surplus could support at the buffered rate. Every dollar of car repayment comes out of that surplus.
Because the home loan is tested at a higher rate and over a term of up to 30 years, a monthly car repayment can reduce the maximum home loan by more than the car loan's remaining balance. The exact effect depends on each lender's calculator, your income and the car loan's repayment, which is why two lenders can give different answers for the same buyer.
APRA's debt-to-income rules add a second check. Since 1 February 2026, banks can make no more than 20% of their new owner-occupier lending, and separately 20% of their new investor lending, at a debt-to-income ratio of six times income or more. APRA said in May that this type of lending was well below the limits, so the cap is not restricting overall bank lending. It can still matter at the margin. Many lenders count existing debts such as car loans in their debt-to-income calculations, so a buyer stretching for a large loan may find a car loan pushes them closer to that level.
Buying the car before or after the home
There is no single right order, but these general patterns are worth knowing:
- Buying the car first adds a new repayment and a fresh credit enquiry to your file shortly before the home loan application. If you already have a car loan, many lenders will want to see statements showing it is being repaid on time.
- Paying out or reducing a car loan before you apply can lift your borrowing power, but spending savings that way can shrink your deposit. Because the scheme expects you to use as much of your savings as possible for the deposit, talk to your lender before you move money around.
- Buying the car after settlement keeps the home loan assessment simpler, but the car lender will then assess you with a new mortgage repayment in your budget. The Information Guide also warns that a smaller deposit gives you less buffer if property prices fall.
- Taking on new debt while you look for a home may mean the lender needs to reassess you. The scheme gives you 90 days to find a home and sign a contract once you have your lender's initial approval, and a new car loan in that window can change the numbers.
What to do if you need both a home and a car
- Use our loan repayment calculators to see what a car repayment costs you each month before you commit to one.
- Compare advertised ranges on our car loan rates page and review the lenders we compare, looking at comparison rates and fees rather than headline rates alone.
- If you already have a car loan on a high rate, refinancing it may lower the repayment a home loan lender sees. Check the costs of ending it early first with our guide to paying out a car loan early.
- Keep your accounts tidy in the months before you apply. Our guide to what lenders check on your bank statements explains what they look for.
- Count every commitment, including a HECS-HELP balance, which we cover in how HECS-HELP debt affects your borrowing power.
The interest rate backdrop
The Reserve Bank's cash rate target is 4.35%, after increases in February, March and May 2026 and holds in June and August. The Monetary Policy Board meets on 28 and 29 September 2026, with its decision due on 29 September. Whatever it decides, the serviceability buffer means lenders already test your home loan at a rate well above the one you would pay, which is why your existing commitments carry so much weight in the assessment.
For more on how property prices and car finance interact, see do falling house prices affect your car loan application.
