APRA Flags Surge in High-LVR Loans Under 5% Deposit Scheme — What Low-Deposit Borrowers Need to Know

APRA Confirms High-LVR Lending Is Rising Under the 5% Deposit Scheme

Australia's banking regulator APRA has confirmed a significant rise in high loan-to-value ratio (LVR) lending among participants in the federal government's Home Guarantee Scheme (HGS), which allows eligible buyers to purchase property with just a 5% deposit without paying Lenders Mortgage Insurance (LMI).

The data, flagged in APRA's latest monitoring update, shows that ultra-low-deposit loans now account for a growing share of new lending at participating authorised deposit-taking institutions (ADIs).

Why APRA Is Paying Attention

APRA has historically treated high-LVR lending with caution. Borrowers with small equity buffers — those with less than 10–20% deposit — are more exposed to negative equity if property values soften. With Sydney and Melbourne now showing early signs of a price correction, this risk is particularly relevant in 2026.

The regulator's scrutiny does not mean the scheme is at risk of being wound back, but it does signal that both lenders and borrowers should approach ultra-low-deposit lending with clear-eyed risk awareness.

Who Qualifies — and Who Doesn't

The HGS has strict eligibility caps:

This means the scheme excludes the majority of MPFG's target clients, including:

• Self-employed borrowers with non-standard income documentation
• Permanent residents (PR) and visa holders
• High-income professionals above the income threshold
• Those purchasing above property price caps

Options for Borrowers Outside the HGS

If you don't qualify for the Home Guarantee Scheme, you still have practical pathways to purchase:

1. Standard LMI route: Borrowing with a 5–19% deposit and paying LMI through a mainstream lender. LMI premiums can be significant — sometimes $15,000–$30,000+ on a $800,000 purchase.

2. Non-bank lenders with flexible LVR: Some non-bank lenders assess applications on individual merit rather than rigid scheme rules. MPFG Capital's MPFG Bright (Alt Doc) and MPFG Priz products can accommodate borrowers with 10–20% deposits and complex income structures, without the strict eligibility caps of the HGS.

3. Guarantor arrangements: A family member with equity in their property may be able to act as guarantor, potentially eliminating the need for LMI.

The MPFG Perspective

The surge in HGS take-up underscores strong housing demand — but it also highlights a widening gap between borrowers who fit government eligibility criteria and those who don't. Self-employed Australians, new migrants, and PR holders are routinely excluded from schemes designed for PAYG employees with straightforward income histories.

Non-bank lenders exist precisely to serve this gap. At MPFG Capital, our Alt Doc loan range is specifically designed for borrowers who can demonstrate repayment capacity through means other than payslips — including BAS statements, accountant letters, and business bank statements.

What to Do If You've Been Told You Don't Qualify

If a bank or scheme has turned you away due to income type, residency status, or documentation, contact MPFG Capital:

• Phone: 03 9696 8888
• Email: finance@mpfg.com.au
• Offices: Melbourne (Camberwell), Sydney (Pymble), Brisbane (Eight Mile Plains)

This article is general information only and does not constitute financial advice. Loan eligibility is subject to individual lender assessment. Data sourced from APRA and The Adviser, April 2026.