Avoid These 3 First Home Buyer Mistakes in Australia

Most first home buyers underestimate how much deposit they actually need, and it costs them months in delays or thousands in avoidable insurance premiums.

If you're based in South Yarra and thinking about buying your first home, you're likely weighing up apartments in the neighbourhood against houses further out, trying to work out what you can afford and which government support applies to you. The question isn't whether schemes exist but whether you're structured to use them without limiting your options down the track.

Assuming You Need 20% Before You Can Buy

You don't need a 20% deposit to buy property. Under the Australian Government 5% Deposit Scheme, eligible first home buyers can purchase with just 5% down, and the government guarantees the gap between your deposit and 20% so you avoid Lenders Mortgage Insurance. No income cap applies, and the property price limit in Victoria for capital city and regional centres is $950,000, which covers most of the established apartments and newer builds in South Yarra.

Consider a buyer purchasing an apartment close to Toorak Road. With a 5% deposit and no LMI payable, they can enter the market years earlier than they expected. The scheme works with both variable and fixed rate loans depending on your lender, and you can layer it with Victoria's stamp duty concessions if you're buying an established home under $750,000 or a new build under the same threshold for the grant.

The catch is that lower deposits mean higher ongoing repayments relative to your property value, and your borrowing capacity tightens as serviceability tests apply at higher loan-to-value ratios. If you're comparing a 5% deposit purchase now against saving another 10% over two years, run the numbers on what rates and property prices could do in that window. Waiting doesn't always leave you better off.

Ignoring Stamp Duty Concessions Because You Think They Only Apply to Cheaper Properties

Victoria offers a full stamp duty exemption on properties valued up to $600,000 and a sliding scale concession between $600,001 and $750,000 for first home buyers. This applies to both new and established homes, provided you move in within 12 months of settlement and live there for at least 12 continuous months as your principal place of residence.

For a South Yarra buyer, this often means the difference between affording a one-bedroom apartment near the Botanic Gardens or needing to look at cheaper suburbs further from the city. At a $700,000 purchase price, the partial concession still saves several thousand dollars that can go toward furniture, moving costs or your offset account from day one.

Stamp duty relief isn't automatic. Your conveyancer or solicitor lodges the application on your behalf, but you need to meet residency requirements and cannot have previously owned property in Australia. If you've owned interstate or held an investment property years ago, you're ineligible. The definition of "first home buyer" under Victorian law is strict, and it's worth confirming your status with a broker before you make an offer.

Applying for Pre-Approval Without Understanding How Lenders Assess First Home Buyer Income

Lenders assess your income, liabilities and living expenses before they approve any home loan application. For first home buyers, the calculation is tighter because you don't have a track record of managing mortgage repayments, and lenders apply a buffer of around 3% above the actual interest rate to test whether you could still afford repayments if rates rose.

If you're earning a base salary of $90,000 with no other debts, your borrowing capacity sits somewhere in the range that allows you to service a loan on a property in the inner south-east, depending on your deposit size and ongoing costs. But if you're carrying a $15,000 car loan and a $6,000 credit card limit, your serviceability drops even if you never use the card. Lenders assess the limit, not the balance.

In our experience, buyers who clear small debts and reduce credit limits before applying for pre-approval often unlock an additional $30,000 to $50,000 in borrowing capacity without changing their income at all. That margin can mean the difference between being outbid at auction and making a competitive offer within your pre-approved range.

First Home Buyer Grants Are Not Universal

Victoria's $10,000 First Home Owner Grant applies only to new homes valued up to $750,000. It does not apply if you're buying an established apartment, which is the most common property type in South Yarra. If you're buying off-the-plan in a new development near Commercial Road or Chapel Street, you're eligible. If you're buying a resale apartment in an older building, you're not.

The grant also cannot be used to increase your deposit under most lender policies. It's paid after settlement, which means it doesn't help with upfront costs unless your lender allows you to factor it into your application structure. Some do, most don't. Clarify this before you assume the grant will cover your conveyancing fees or moving costs on settlement day.

Help to Buy and the 5% Deposit Scheme Cannot Be Combined

Help to Buy allows the government to take an equity share of up to 30% in an existing home or 40% in a new home in exchange for contributing that amount to the purchase price. It reduces the size of your deposit and your loan, but it also means you don't own the home outright until you buy the government out later.

You cannot combine Help to Buy with the Australian Government 5% Deposit Scheme. You need to choose one or the other. For a South Yarra buyer earning under the $100,000 individual income cap or $160,000 combined cap, Help to Buy could make a $950,000 property accessible with a much smaller loan. But you're also sharing future capital growth with the government, and the terms of buyout are set by regulation, not by you.

If your income exceeds the threshold or you want full ownership from day one, the 5% Deposit Scheme with no income cap is the better structure. Both schemes allow you to layer state stamp duty concessions on top, so you're not losing that benefit by choosing one path over the other.

Borrowing Capacity Is Not the Same as Budget

A lender might approve you for a loan of $750,000, but that doesn't mean you should borrow the full amount. Your borrowing capacity reflects what a lender thinks you can service under stress conditions. Your actual budget should account for the lifestyle you want to maintain, upcoming expenses like holidays or further study, and the reality that interest rates can move.

For first home buyers in South Yarra, where the lifestyle cost of living in the area is higher than outer suburbs, leaving a buffer between your maximum borrowing capacity and your actual loan size gives you room to absorb rate rises, strata fee increases, or periods of reduced income without immediately falling into mortgage stress. The postcodes around South Yarra, Prahran and Windsor are expensive to live in even after you've bought the property.

Call one of our team or book an appointment at a time that works for you. We'll walk through your deposit options, eligibility for government schemes, and how to structure your first home loan application so it's actually approved when you're ready to buy.

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