Bought with the 5% Deposit Scheme? When your home can back a business second mortgage

Since 1 October 2025, the Australian Government 5% Deposit Scheme has had no income caps, no limit on places and much higher price caps. Plenty of the people who used it run their own business. Sooner or later, many of them will ask the same question: can the house back a business loan?

The answer depends on two things. The first is how far the loan has to fall before a lender has room. The second is which way of borrowing leaves the government guarantee alone. Below, in order: how the guarantee works, what ends it, the arithmetic, and the sequence that keeps your options open.

What does the 5% Deposit Scheme guarantee actually do?

It protects the lender, not you. Housing Australia’s Information Guide explains that if you default and the sale proceeds don’t cover the debt, Housing Australia pays your lender the shortfall, up to a limit of “up to 15% of the Property Value”. That’s why the lender accepted a 5% deposit without lenders mortgage insurance (LMI).

Three conditions from the guide matter for business owners:

• Owner-occupier, throughout. The home must stay owner-occupied while the guarantee is in place. Renting it out isn’t allowed.
• Principal and interest repayments, on a term of up to 30 years.
• Price caps at purchase. Both the price and the Property Value had to sit under the cap for the location.

Location (from 1 October 2025)	Capital city and regional centres	Rest of state
New South Wales	$1,500,000	$800,000
Victoria	$950,000	$650,000
Queensland	$1,000,000	$700,000
Western Australia	$850,000	$600,000
South Australia	$900,000	$500,000
Tasmania	$700,000	$550,000
ACT (all areas)	$1,000,000	—
Northern Territory (all areas)	$600,000	—

Regional centres are Illawarra, Newcastle and Lake Macquarie in NSW, Geelong in Victoria, and the Gold Coast and Sunshine Coast in Queensland. Those caps matter later. A $1.5m Sydney purchase with a 5% deposit means a first loan of about $1.425m, and that’s the figure every later calculation starts from.

Which moves end the guarantee?

The guide lists the events that end the guarantee. Paraphrased:

1. It turns out the loan wasn’t eligible.
2. You stop living in the property without an exemption.
3. You rent the property out.
4. The loan is fully repaid, including by refinancing with a lender outside the scheme.
5. Your principal falls to 80% or less of the Property Value, based on scheduled repayments. Redrawable prepayments don’t count.
6. You borrow additional funds against the property from your Participating Lender.
7. You sell.

If the guarantee ends while your LVR is still above 80%, the guide says your lender may charge LMI or other costs under its own policies. Its worked scenario is blunt: increasing the loan after settlement “isn’t permitted under the Scheme”. Refinancing to another scheme lender keeps the benefit only if you don’t increase the loan or extend the term.

So the obvious business-owner move, asking your bank for a top-up, is the one most likely to cost you.

What does each funding route do to the guarantee?

Route	What the scheme rules say	Practical effect
Top-up with your scheme lender	Borrowing more from your Participating Lender ends the guarantee	LMI possible if LVR is above 80%
Refinance to another scheme lender for more money	Can’t increase the amount and keep the benefit	Same exposure as a top-up
Refinance to a lender outside the scheme	The guarantee ends	LMI likely if above 80%; a whole new loan
Separate second mortgage from another lender	Not one of the listed events; the scheme loan isn’t changed	Needs first-lender consent and enough equity
Rent the home out and borrow against it	Renting ends the guarantee	LMI risk before the business loan even starts

The second mortgage row comes with two conditions, and they matter.

First, your scheme mortgage almost certainly restricts further mortgages without your lender’s approval. Our first mortgagee consent page explains how that request is made and the conditions banks attach.

Second, the guarantee is an arrangement between Housing Australia and your lender. When you ask for consent, ask the lender to confirm in writing that consenting doesn’t affect the guarantee or trigger any LMI or fee. Don’t sign the second mortgage until that answer is on paper.

How much equity do you need before a second mortgage works?

Second mortgages are sized on combined LVR: the first loan plus the new loan, divided by the property’s current value. Our planning bands for residential property (planning bands, not lender policy) are:

• up to 65%: comfortable
• 65% to 75%: workable
• 75% to 80%: stretch

A scheme home starts at about 95%, so the first job is getting under 80% with room to spare. The formula is simple:

Borrowing capacity = (current value × band) − first loan balance

If the answer is negative, or below the $20,000 minimum, there’s nothing to borrow yet. Our guide to usable equity vs paper equity explains why the lender’s figure is always smaller than the one you might expect.

Note that two 80% figures are in play, and they measure different things:

Test	Measured against	Counts growth?	Counts extra repayments?
Guarantee ends (scheme rule)	Property Value at purchase	No	No, scheduled repayments only
Second mortgage room (lender)	Current valuation	Yes	Yes, if not redrawable

That gap is useful. Price growth can create room for a second mortgage years before the guarantee drops off by itself, which is exactly when a top-up would be expensive and a separate second mortgage makes sense.

Illustrative example: a Brisbane tradie, two points in time

An electrician bought a house in Brisbane for $700,000, under the $1,000,000 Queensland capital-city cap. With a 5% deposit, the first loan was $665,000, or 95%. The guarantee ends by schedule once the principal reaches $560,000 (80% of $700,000), which is years away.

Two years in. The home is valued at about $820,000 and the balance is $645,000. Current LVR is about 79%.

• At 80% stretch: ($820,000 × 0.80) − $645,000 = $11,000. Below the minimum.
• At 75% workable: $615,000 − $645,000 = negative.

There’s nothing to borrow yet, even though paper equity is $175,000.

Four years in. Valued at about $900,000, balance $625,000. Current LVR is about 69%.

• At 75% workable: $675,000 − $625,000 = $50,000.
• At 80% stretch: $720,000 − $625,000 = $95,000.

Now a $50,000 second mortgage for a work van and tools fits in the workable band. The guarantee is still in place, because $625,000 is above the $560,000 schedule point, so a bank top-up risks LMI on the whole loan. A separate second mortgage, with written first-lender consent, leaves the scheme loan exactly as it was.

All figures are illustrative. Put your own into the equity and LVR calculator and compare routes in its pathways section.

If your numbers already clear the workable band and there’s a business need on the table, check your options with a specialist before you ask the bank for a top-up.

What should you do now, before you need the money?

This is planning work. It’s cheap to do early and hard to rush later.

1. Find your guarantee date. Ask your lender when your scheduled balance reaches 80% of the original Property Value. That’s the day a top-up stops putting the guarantee at risk.
2. Pull your loan contract and find the encumbrance clause. Know whether further mortgages need consent, and how the lender wants the request made.
3. Keep extra repayments where you can see them. Prepayments in redraw don’t bring the guarantee forward. A lender may count your redraw limit, not the balance, when it works out a second mortgage. Our guide to reading your home loan statement shows where both numbers sit.
4. Track value against the band, once a year. A quick estimate of value × 75% − balance tells you whether there’s room.
5. Keep business and home borrowing separate. A second mortgage for business purposes is its own loan with its own exit. That makes it easier to pay out than a top-up mixed into the home loan.
6. Have a non-property fallback. If the home isn’t ready, unsecured options typically run from $5,000 to $500,000, sized on turnover and bank statements. See second mortgage vs unsecured for how the two compare.

When is the scheme home the wrong security?

Sometimes the honest answer is to leave it alone:

• Combined LVR would land above 80%. It won’t work, and pushing for it adds risk to the roof over your head.
• The need is small and short. A few weeks of cash-flow pressure usually suits an unsecured facility better than a mortgage on your home.
• You’re planning to move out and rent it. That ends the guarantee anyway, so sort out the first loan before you add a second.
• There’s other property. Business premises or an investment property may carry the loan without touching the family home. See residential property as security for how lenders treat each type.

If a bank top-up is on the table, compare it in full first: second mortgage vs bank top-up sets out the assessment, timing and consent differences.

Your first home, your business, one clear answer

You worked hard to get into the property with 5% down, and it makes sense to protect what that bought you. The guarantee, the bands and the formula are now in front of you. What’s left is to run them on your actual home, your actual balance and the amount the business needs.

The enquiry takes about 60 seconds, and simply asking won’t affect your credit score. No credit check happens unless you decide to go ahead. Your details aren’t sprayed around a pile of lenders. They go to one specialist, and a real person reads your file, works out where the combined LVR lands, checks whether the guarantee is still running, and calls you to talk it through. Please fill the form in accurately: current value, scheme loan balance, the amount you need, who’s on title, and that the loan is under the 5% Deposit Scheme. Accurate figures mean the first structure we discuss is the one that can actually settle.

Find out where my home stands →