Changes to Australia's first home buyer scheme came into effect today.

First home buyers of all income levels can now purchase a property with only a 5 per cent deposit, avoiding costly lenders mortgage insurance (LMI).

Price caps on eligible properties have also lifted, and there's now no limit on the number of people who can benefit.

Here's how the scheme works, who's eligible and the pros and cons for buyers.

What is the first home buyer scheme?

The Home Guarantee Scheme is a federal government scheme allowing first home buyers to purchase a property with a 5 per cent deposit.

Those eligible can avoid paying LMI with the government acting as a guarantor for 15 per cent of the loan.

Buyers warned as national home values climb Photo shows Aerial shot of dozens of houses in neat

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