5% deposit scheme surge: what APRA's warning means for your refinance later

If you're a first home buyer (or you bought recently with a small deposit), you've probably felt two things at once:

1. Relief that you could finally get into the market.
2. A quiet worry that you're “maxed out” and one change in rates or costs could sting.

APRA's latest comments land right in the middle of that reality.

Australia's banking regulator has flagged that high-LVR lending is lifting under the government's 5% Deposit Scheme, which is exactly what the scheme was designed to do, but it also changes how borrowers should think about cash flow, buffers, and refinancing down the track.

This blog breaks it down in simple terms, and then looks at the practical question most people care about:

How does this affect your ability to refinance, and how can a mortgage broker help you stay flexible?

What APRA is actually flagging (without the jargon)

A “high-LVR loan” just means you've borrowed a high percentage of the property value.

• If you buy with a 5% deposit, you're typically sitting around a 95% loan-to-value ratio (LVR).
• That's not “bad”. It's just higher leverage, which means less equity buffer early on.

Why is APRA talking about it now? Because the volume has jumped.

Canstar, using APRA data, reported banks approved a record $5.4 billion in owner-occupier loans with deposits of 5% or less in the December quarter up $2.1 billion (63%) from the prior quarter.

At the system level, APRA's December 2025 data still shows low stress overall: non-performing loans were 0.99% and 30–89 day arrears were 0.47%.

So this isn't a “panic” headline. It's a “watch the settings and make sure lending stays prudent” signal.

Why the 5% Deposit Scheme is driving this shift

The scheme is designed to lower the deposit hurdle.

Housing Australia explains the expanded 5% Deposit Scheme lets eligible first home buyers purchase with as little as a 5% deposit (and eligible single parents/guardians with as little as 2%) without paying Lenders Mortgage Insurance (LMI).

The First Home Buyers site also notes that since 1 October 2025 the scheme has had expanded eligibility, no income caps, no waitlists, and no LMI.

It's also important to understand what the scheme is (and isn't):

• It's a government guarantee to the lender.. you still repay the loan like normal.
• To keep the guarantee, you must keep meeting the scheme obligations (for example, owner-occupier rules). If obligations aren't met, the guarantee may stop applying and your lender may require LMI or other costs.

The refinancing angle most people miss

Here's the part that matters for real life: high-LVR loans can be harder to refinance early even if there are better rates out there.

Not because you did anything wrong, but because lenders assess two big things:

• equity (your LVR), and
• serviceability (can you comfortably repay if rates rise?)

How the 3% serviceability buffer affects refinancing

APRA has kept the mortgage serviceability buffer at 3 percentage points.

That means lenders assess a new loan (including a refinance) at your actual rate plus an extra 3% “shock absorber”.

This protects the system but for borrowers, it can mean:

• you might be paying a high rate today, yet not qualify to refinance to a lower rate if your serviceability is tight; and/or
• your borrowing power can feel like it “shrunk” between pre-approval and formal approval if rates and assessment settings moved.

This is exactly why refinancing needs to be planned, not rushed.

Why high-LVR loans and refinancing don't always mix (at first)

With very low equity early on:

• fewer lenders will compete aggressively for your refinance,
• pricing can be less sharp than lower-LVR borrowers,
• and if property values flatten or fall, your LVR may not improve quickly.

That's why the goal for many 5% deposit buyers isn't “refinance immediately”.

It's “set yourself up so you can refinance when the timing is right”.

What this data means for you (practical, not preachy)

Here's the simple playbook we use with clients so they don't get trapped later.

Build equity intentionally (even small moves count)

Equity grows from paying down principal and/or property growth. You don't need to smash the loan but you do want momentum.

Protect your cash buffer (because high-LVR loans have less wiggle room)

If you're at 95% LVR, the buffer isn't a “nice to have”. It's your safety margin.

Use an offset account properly (if you have one)

Canstar's write-up (again referencing APRA data) highlights how Australians have been piling into offsets to reduce interest and build a rainy-day buffer.

It's one of the cleanest “do both” strategies: reduce interest while building resilience.

Don't wait for pain to trigger a refinance review

The best refinance outcomes happen when you still have options.

This is why Cutter & Co pushes annual reviews your mortgage should never be “set and forget”.

Where a mortgage broker helps most with refinancing in this environment

When APRA flags rising high-LVR lending, it usually means lenders will be more careful with:

• serviceability calculations,
• loan structure,
• and how they price risk.

That's where a mortgage broker earns their keep not by “finding a rate”, but by building a refinance strategy that actually gets approved and improves your position.

At Cutter & Co, refinancing is positioned as a broader outcome: reducing rates where appropriate, freeing up cash flow, reviewing structure, and negotiating with lenders so clients don't have to run the back-and-forth themselves.

If you want a practical starting point, Cutter & Co's own refinancing content is built exactly for this moment:

• their refinancing service overview
• their mortgage news hub for ongoing rate/refinance education
• and the “rate starts with a 6 or 7” refinancing guide (which is built for quick action without pressure)
• plus their “rate rise maths” breakdown that helps borrowers understand cash-flow impact and why reviews matter

A simple analogy: the scheme gets you in — refinancing gets you free

Think of the 5% Deposit Scheme like scaffolding.

It helps you get into the home sooner, when saving a 20% deposit would take years.

But scaffolding isn't the finished building.

Your long-term goal is to:

• build equity,
• reduce risk,
• and eventually have more lender choice and sharper pricing which is where refinancing tends to become more powerful.

Housing Australia even frames the scheme as transitional support, noting that more than 34,000 households have successfully exited the scheme, primarily by paying down their loans or refinancing.

That's the roadmap: enter → stabilise → strengthen → refinance when it's smart.

Summing up

APRA flagging a rise in high-LVR lending under the 5% Deposit Scheme isn't a reason to panic. It's a reminder to be intentional.

• The scheme is helping more Australians buy with smaller deposits.
• The share of very low-deposit lending has surged, based on APRA data.
• The 3% serviceability buffer is still a key gatekeeper for approvals and refinancing.

If you bought with a small deposit (or you're about to), the smartest move isn't “hope rates fall” it's to set up a plan that protects cash flow now and keeps refinancing options open later.

That's exactly what we do at Cutter & Co: proactive loan reviews, clean structure, and refinance strategy built around what lenders will actually approve not just what looks good on paper.

General information only. Consider your circumstances and seek tailored advice.