As property prices around Australia increase, first home buyers need to save $115,098 before they can think about buying a home.
The Australian Bureau of Statistics research has revealed that the average first home loan has increased to $460,393 with buyers borrowing more than $53,676 than they did last year. That represents an increase of 13.2%.
The stats also found that more home buyers have to turn to the ‘bank of mum and dad (BOMAD)’ for help.
The average first home loan only rose 1.5% the previous year.
First home buyers in New South Wales need to borrow even more, with the average first home loan being $558,226, an increase of 14.1% on the year before. A first home buyer in NSW would therefore need a deposit of $139,567.
The statistics are similar in Victoria with the average first home loan rising 14.5% to $482,245. First home buyers in Victoria need to save a deposit of $120,561.
Finder’s Home loan expert, Richard Whitten expects the first home loan to continue to climb.
“First home buyers are forking out a record amount to secure their own property with no signs of slowing,” he said.
“The pandemic has fuelled a spike in housing market activity. And this coupled with the First Home Loan Deposit scheme and New Home Guarantee has led to record borrowing among first-home buyers.”
Mortgage repayments across the country have increased $254 monthly, to $2,179. compared with $1,925 the previous year.
Although the RBA left interest rates on hold during their last meeting, Mr Whitten suggested that first home buyers should look for a fixed interest rate so they have repayment certainty.
He said that first home buyers need to be aware that interest rates may rise in the future and they should factor that in when taking out a home loan.
Finder has a calculator on their website, which allows you to anticipate your anticipated repayments and plan for the future.
If you borrowed $460,393, from Homestar, who has an interest rate of 1.79%, your monthly repayments would be $1,658.
That would increase to $1,773 per month if the rate increased to 2.29%, or $25.55 per week, so you need to make sure you factor in any possible interest rate increase.
The research also showed that 8% of Millennials have had a home loan application rejected.
“First home buyers are particularly vulnerable to future rate rises, so lenders are careful with who they approve,” Whitten noted.
Finder research shows that monthly mortgage repayments for Sydney buyers equates to 48% of the average income. Melbourne buyers spend 41% of their income servicing a mortgage, leaving very little room for interest rate rises. Any interest rate rise could break the budget, with a rate rise of only 1.5% increasing the mortgage repayments to 50% of a person’s income.
The Finder research indicates that incomes are not keeping up with property increases, with home prices increasing 150% since 2000, whereas wages have grown by less than a third of that figure.
Despite high deposits, first home buyers are not being deterred from buying properties in Inner Sydney.
Really Simple Money spoke to Sydney real estate agent, Matthew Bognar, of Bognar Estate Agents, who services Darlinghurst, Potts Point and Surry Hills in Inner Sydney about the types of properties he was selling and his clientele.
“First home buyers tend to be a little bit older. A lot of the first home buyers are in their 30s, some are a little bit older.”
It doesn’t appear as if interest is slowing down: “I see people spend $650,000 up to $2 million. They’re people who’ve returned from overseas.”
He recently sold a property for $1.7 million.
Mr Bognar added: “We do see a lot of parents come through to buy for their kids.”
He summarised that: “I think it’s a case that people are using their holiday fund to buy their first home.”
If you’re a first home buyer looking to jump in the market, here are some tips to save for that deposit:
- Start with a goal. Generally the deposit required for a house is 20% of the property price but some lenders accept a deposit as low as 10% or even 5%. A smaller deposit means you’ll borrow more money and therefore pay more interest over time. Getting into the property market sooner rather than later could mean you own your own home outright faster so that could be a price worth paying. When your deposit is less than 20%, you usually have to pay lenders mortgage insurance (LMI) which can add thousands to your costs. Mini goals can also help you along the way. Celebrate with a treat or reward when you reach a mini goal so you have extra motivation to stick to your savings plan.
- Get serious about saving. You can track your spending using an app like the Finder app so you get a detailed breakdown of what you spend each month. This will help you to set a realistic budget and work out where you can make cuts to your current spending. Pay off urgent debts first. You should prioritise high interest debt first. A HECS debt is much less urgent than credit card debt. Maximise your savings and put your money to work while building your deposit with a high interest savings account or consider putting some of your savings in a term deposit.
- Get help with your deposit. When you’re scraping together a home loan deposit literally every dollar counts. It can feel like a massive uphill slog but if you set a clear plan and take advantage of all the different schemes and incentives it can bring the dream of owning your own home that little bit closure. You don’t always have to be a first home buyer. Some states and territories offer stamp duty discounts to owner occupiers meaning you’ll pay less than an investor or a buyer from overseas.
- Make little changes that have a big impact such as moving back in with your parents, house sharing with friends or move to a cheaper place. Pick up a second job on top of your existing work and reduce your discretionary spending on things like eating out or entertainment. Make the most of what you’ve got and buy second hand if you really need something. Instead of flying interstate or overseas for a holiday go on a road trip and put any work bonuses or pay rises into your savings account.