What are the Requirements for Buying a Terrace House

Deposit Requirements and Lenders Mortgage Insurance Considerations

First home buyers purchasing terrace property in Canberra may proceed with a deposit as low as 5% of the property value under the Australian Government 5% Deposit Scheme, operative from 1 October 2025. Under this scheme, Housing Australia guarantees the difference between the buyer's deposit and 20% of the property value, eliminating the requirement for Lenders Mortgage Insurance. No income caps apply, and no annual place limits restrict access. Applications are submitted through a participating lender panel comprising 31 lenders, including three major banks and 28 non-major lenders. Applications cannot be lodged directly with Housing Australia.

Purchasers who do not qualify for the scheme or who choose to proceed outside it may still purchase with a 5% or 10% deposit through conventional lending channels. Lenders Mortgage Insurance will typically apply where the loan-to-value ratio exceeds 80%. The cost of this insurance is calculated by reference to the deposit size and loan amount. For a terrace property acquired with a 10% deposit, Lenders Mortgage Insurance may represent a capitalised cost of several thousand dollars, added to the loan balance or paid upfront at settlement.

Consider a buyer who identifies a terrace property in Braddon and intends to use the 5% Deposit Scheme. The buyer provides a 5% deposit from genuine savings, and the lender assesses the application against standard servicing criteria. The absence of Lenders Mortgage Insurance reduces the upfront cost burden and permits the buyer to retain additional funds for conveyancing, building and pest inspection, and settlement adjustments. The loan is written at 95% loan-to-value ratio, and the buyer proceeds to settlement without capitalising insurance premiums into the loan balance.

Conveyance Duty Exemption Under the Home Buyer Concession Scheme

From 1 July 2026, eligible buyers in the Australian Capital Territory are fully exempt from conveyance duty regardless of the value of the property purchased and regardless of household income. The property value limit and income threshold that applied to transactions before 1 July 2026 have both been removed. All other eligibility requirements continue to apply. Buyers must be individuals aged 18 or over, must not have a relevant prior property interest, and must own and occupy the property as their principal place of residence continuously for a minimum of one year commencing within 12 months of settlement. The ACT Revenue Office website is in the process of being updated to reflect these changes.

This exemption applies to terrace property acquired by eligible first home buyers and represents a material financial benefit. Conveyance duty on a terrace property purchased in suburbs such as Turner, Lyneham, or Reid would otherwise constitute a significant upfront cost. The removal of the property value cap from 1 July 2026 permits buyers to acquire higher-value terrace property without forfeiting the concession, provided all other eligibility criteria are satisfied.

Pre-Approval and the Loan Application Process

Obtaining pre-approval is a procedural step that establishes the buyer's borrowing capacity and confirms the lender's willingness to advance funds subject to satisfactory property valuation and final credit assessment. Pre-approval is typically valid for a period of three to six months and permits the buyer to make an offer with greater certainty as to the availability of finance. The pre-approval process requires submission of identity documentation, income verification including payslips and tax returns or financial statements where applicable, and evidence of genuine savings or the source of the deposit including gift declarations where funds are contributed by a family member.

First home buyers who intend to combine the 5% Deposit Scheme with the conveyance duty exemption should confirm with the lender that the proposed loan structure satisfies the requirements of both programs. The lender will assess servicing capacity by reference to the buyer's gross income, existing liabilities, and living expenses. The absence of Lenders Mortgage Insurance under the 5% Deposit Scheme does not alter the serviceability assessment. Buyers should be prepared to provide evidence that the property will be occupied as their principal place of residence, as this is a condition of both the scheme and the duty exemption.

Interest Rate Structure and Offset Account Features

Buyers may elect to structure the home loan as a variable interest rate product with an offset account, a fixed interest rate product for a specified term, or a split facility combining both structures. Variable rate products typically provide access to an offset account, which permits the buyer to deposit funds into a linked transaction account. The balance of that account is offset against the outstanding loan balance for the purpose of calculating interest charges, reducing the amount of interest payable over the life of the loan without reducing the buyer's access to those funds.

Fixed rate products provide certainty as to repayment amounts for the duration of the fixed term, which may range from one to five years. Fixed rate loans do not typically provide access to a full offset account, though some lenders offer a partial offset or redraw facility. Redraw permits the borrower to withdraw additional repayments made above the required minimum, subject to lender approval and any applicable conditions. A split facility permits the buyer to fix a portion of the loan balance while retaining a variable portion with offset access, balancing interest rate certainty with liquidity and flexibility.

In our experience, buyers of terrace property in Canberra who anticipate retaining surplus income or who receive irregular bonus payments or tax refunds derive material benefit from an offset account. The offset operates in real time, reducing interest charges from the date funds are deposited. No interest is earned on the offset account balance, and therefore no income tax liability arises from the offset arrangement, distinguishing it from a conventional savings account where interest income is assessable.

Settlement Costs and Genuine Savings Requirements

Settlement costs comprise conveyancing fees, building and pest inspection fees, loan establishment fees where charged, mortgage registration fees, and adjustments for rates and water charges where the property is acquired mid-cycle. Conveyancing fees for terrace property in the Australian Capital Territory typically range from $1,200 to $2,000 depending on the complexity of the transaction and whether the property is strata-titled. Building and pest inspections are not mandatory but are recommended and may cost between $400 and $800 depending on the scope of the inspection and the size of the property.

Lenders require evidence of genuine savings where the deposit is derived from the buyer's own funds. Genuine savings are defined as funds held in the buyer's account for a continuous period of at least three months. Lenders will review bank statements to confirm that the deposit has not been accumulated through short-term borrowing or other non-sustainable means. Where a portion of the deposit is provided by a family member as a gift, the lender will require a signed gift declaration confirming that the funds are not repayable and do not constitute a loan. The gift amount is typically excluded from the genuine savings calculation, but the lender will still require the buyer to demonstrate genuine savings equivalent to at least 5% of the property value under the 5% Deposit Scheme, unless the lender's credit policy permits otherwise.

Help to Buy and Shared Equity Considerations

Help to Buy is a shared equity scheme administered by Housing Australia, operative from 5 December 2025. The Australian Government contributes up to 40% of the purchase price for a new home and up to 30% for an existing home in exchange for a proportional equity stake. A minimum 2% deposit is required. Income limits apply: $100,000 for individuals, $160,000 for joint applicants or single parents. Property price caps vary by location. Help to Buy is available in New South Wales, Victoria, Queensland, South Australia, the Australian Capital Territory and the Northern Territory. Western Australia joined in early 2026. Tasmania has opted out. Help to Buy cannot be combined with the Australian Government 5% Deposit Scheme but can be used alongside applicable conveyance duty concessions where eligibility criteria are satisfied.

For first home buyers purchasing terrace property in Canberra who meet the income limits and who require a lower deposit contribution, Help to Buy may represent a viable alternative to conventional lending structures. The government's equity contribution reduces the amount of the loan required, thereby reducing the quantum of debt servicing obligations and potentially improving serviceability outcomes. The buyer retains full occupancy rights and is responsible for all outgoings including rates, insurance, and maintenance. The government's equity stake is realised upon sale or at an earlier point where the buyer elects to buy out the government's interest. The valuation used to determine the buyout amount or the sale proceeds allocation is conducted by an independent valuer in accordance with the scheme rules.

Buyers should obtain specific advice regarding the implications of shared equity arrangements, including the impact on future refinancing options and the calculation of the government's share of any capital appreciation or depreciation in the property value. The scheme is designed to assist buyers who would otherwise face affordability barriers, but the shared equity structure may not suit all buyers depending on their financial objectives and anticipated holding period.

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