Hi
I have now spoken to the Immigration Department and you were correct. We cannot apply for permanent residency until the 5 years sponsorship has finished because this is a condition of the visa we were granted.
At the end of 5 years we do not have to apply for permanent residency we can apply for Citizenship. We can apply for citizenship if we meet the requirements set out by the Internal Affairs department. I have looked at the Internal Affairs site and it says at the end of any conditions imposed (in my case 5 years sponsorship) and we have met the requirements set out (have residency, lived here so many days, own property etc) then we can apply for Citizenship.
Hope this might be of help to anyone else.
Thanks again JandM for your help