Liberty has joined the 5% Deposit Scheme — but does that mean bad credit is accepted?

The headline is exciting, but the credit-policy detail matters

Liberty is well known for assessing borrowers whose circumstances may not fit a traditional bank’s standard credit model. Naturally, that reputation raises an important question: does Liberty’s arrival open the 5% Deposit Scheme to buyers with bad credit?

Based on clarification provided directly by Liberty, the answer is no. Instead, applicants need to meet Prime AAA requirements, including acceptable recent repayment conduct and no defaults or bankruptcy.

1. What the Australian Government 5% Deposit Scheme does

The scheme helps eligible buyers purchase a home with a smaller deposit and without paying Lenders Mortgage Insurance.

Eligible first home buyers may purchase with a minimum 5% deposit. Meanwhile, eligible single parents and legal guardians may be able to purchase with a minimum 2% deposit.

The Australian Government provides a guarantee to the participating lender for part of the loan. However, the borrower still owes the full amount and remains responsible for every repayment, fee and property cost.

• No income caps.
• Unlimited places for eligible applicants.
• No waiting list.
• No Lenders Mortgage Insurance.
• Owner-occupied purchases only.
• Property price caps apply by location.
• The lender’s normal credit and serviceability rules still apply.

2. What Liberty has confirmed about its policy

We asked Liberty directly whether its inclusion meant buyers with poor credit could qualify under the scheme.

In practical terms, Liberty confirmed that applicants must fit Prime AAA. Its current position includes:

• No defaults: applicants with defaults do not fit the confirmed scheme policy.
• No bankruptcy: bankruptcy is not accepted under the confirmed Prime AAA position.
• Good recent conduct: existing debts need satisfactory repayment conduct over the latest six months.
• Credit score is not the sole test: a lower bureau score may not automatically decide the application.
• No separate DTI restriction: Liberty has not imposed a separate debt-to-income cap for these applications.
• No automatic mature-age restriction: age alone does not automatically rule out an applicant.
• No separate product matrix yet: Liberty has not released a dedicated scheme matrix at this stage.

3. Does “credit score doesn’t matter” mean Liberty ignores your credit report?

No. The wording means the numerical score may not be the only deciding factor.

Several factors can lower a credit score. These may include multiple recent enquiries, a limited credit history, recently opened accounts or earlier repayment problems that have since been corrected.

Even so, Liberty may assess the broader application where the borrower has no unacceptable adverse credit, can verify their income and has demonstrated good recent conduct.

The credit report still matters. For example, defaults, bankruptcy, active arrears, undisclosed debts and poor repayment conduct can prevent an application from fitting Prime AAA.

4. Who could benefit from Liberty joining?

Borrowers who fail an automated bank score

Some buyers have stable employment, sufficient income and clean recent conduct but still fall outside a bank’s automated scorecard. In those cases, Liberty may provide another assessment path where the full application fits Prime AAA.

Borrowers with a higher debt-to-income ratio

Since 1 February 2026, APRA has limited authorised deposit-taking institutions so that no more than 20% of new owner-occupied lending and 20% of new investor lending can be at a DTI of six times income or more.

As a non-bank lender, Liberty is not affected by that ADI portfolio limit in the same way. Nevertheless, the borrower must still demonstrate affordability and pass Liberty’s serviceability assessment.

Mature-age borrowers

Mature-age applicants are not automatically restricted under Liberty’s confirmed position. However, a credible repayment or exit strategy may still be required where the proposed term extends beyond retirement age.

Applicants with less conventional income

Self-employed borrowers and applicants with non-standard income are areas in which Liberty has assessment experience. Even so, buyers should not assume that every low-doc or alternative-verification option is available through the government scheme.

5. Who is unlikely to qualify through Liberty?

Based on the current Prime AAA clarification, the scheme is unlikely to be suitable through Liberty where the applicant has:

• Current or unacceptable defaults.
• Bankruptcy outside Prime AAA policy.
• Poor repayment conduct during the most recent six months.
• Active arrears or repeated missed payments.
• Insufficient verified income or borrowing capacity.
• An ineligible deposit source.
• An investment-property proposal.
• A property above the applicable price cap.
• A proposal that does not meet the remaining scheme rules.

A different lending solution may still exist. However, it could involve a larger deposit, LMI, different pricing or a product outside the government scheme.

6. Current scheme eligibility at a glance

A first home buyer generally needs to:

• Be at least 18 years old.
• Be an Australian citizen or permanent resident.
• Have saved a minimum 5% deposit.
• Be a first home buyer or not have owned property or land in Australia during the previous 10 years.
• Buy an eligible Australian property below the applicable price cap.
• Live in the property as an owner-occupier.
• Use principal-and-interest repayments.
• Take a loan term of no more than 30 years, with additional time available for eligible construction loans.
• Apply alone or jointly with one other eligible person.
• Meet the participating lender’s lending requirements.

Buyers can review broader first home buyer information and deposit options before deciding whether the scheme is the right path.

7. Current property price caps

Importantly, both the purchase price and the lender’s assessed property value must remain at or below the applicable cap.

Geelong receives Victoria’s higher cap. Eligible higher-cap regional centres also apply in parts of New South Wales and Queensland. Buyers should confirm the exact cap by suburb and postcode before signing a contract.

8. A 5% deposit does not cover every buying cost

A minimum deposit is only one part of the cash required to purchase a home.

Buyers may still need funds for:

• Stamp duty where no exemption or concession applies.
• Conveyancing or legal fees.
• Building and pest inspections.
• Loan and settlement costs.
• Rates and owners corporation adjustments.
• Moving expenses.
• A sensible emergency buffer after settlement.

In addition, the deposit is based on the lender’s assessed value, which may differ from the contract price. Therefore, a valuation shortfall can increase the amount the buyer needs to contribute.

9. The risks of buying with a small deposit

Although the scheme can help a buyer enter the market sooner, borrowing at a high LVR also creates additional risk.

• There is less starting equity.
• A small fall in value can create negative equity.
• The borrower starts with a larger loan balance.
• Refinancing choices may remain limited until the LVR improves.
• Repayments may be more sensitive to rate and household-cost changes.
• Selling soon after purchase may leave little equity after transaction costs.

10. What to check before relying on Liberty as your scheme lender

• Credit conduct: review the latest six months of repayments across every existing debt.
• Credit report: identify defaults, arrears, undisclosed accounts or frequent recent enquiries.
• Income evidence: confirm the documents Liberty will require for the applicant’s income type.
• Borrowing capacity: test affordability using Liberty’s actual assessment rather than assuming no DTI cap means a larger approval.
• Deposit and costs: confirm the minimum contribution, retained savings and purchase costs.
• Property cap: check both the suburb cap and the likely lender valuation.
• Exit strategy: prepare a sensible plan where age or loan term requires one.
• Product details: confirm rates, fees, features and any scheme-specific policy once Liberty releases further guidance.

The bottom line

Overall, Liberty joining the Australian Government 5% Deposit Scheme is a meaningful expansion of lender choice.

For some borrowers, this may create another option. That group could include people with a lower credit score, a higher DTI, mature-age considerations or less conventional income who still demonstrate good recent conduct and satisfy Prime AAA.

On the other hand, applicants with defaults, bankruptcy or serious adverse credit cannot assume they will obtain a government-backed 5% deposit loan.

Could Liberty or another scheme lender suit your first home purchase?

Ultimately, the right option depends on your income, deposit, credit history, existing debts, property choice and borrowing capacity.

Before you commit to a property, Loan Location can compare participating lenders, assess the likely policy fit and help you understand the costs and conditions.

Note: This is general information only and does not take into account your personal objectives, financial situation or needs.

Scheme rules, lending criteria, product availability, rates, fees and property caps may change. Approval remains subject to lender assessment and the applicable government scheme requirements.