The current average house deposit in Australia is $119,560. This makes saving for a home difficult for first-home buyers. But how long does it take?
Saving for a house deposit is often one of the most significant barriers Australia's average house deposit home buyers encounter when trying to break onto the property ladder.
Recent reports state that Australia's average house deposit is $119,560. That's an 11% increase compared to a year ago in 2021. This continues to be a runaway goal for first-home buyers across Australia.
How much do I need to save?
While the current average house deposit in Australia sits at $119,560, this will greatly differ on a case-by-case basis and the cost of the home you are looking to buy.
Your Lender or Mortgage broker will be able to help you find out the deposit you would need for the house price you can afford.
The typical house deposit in Australia equates to roughly 20% of the cost of your home - a loan-to-value ratio (LVR) of 80%. This excludes other upfront costs like stamp duty, legal fees and building reports.
Some other options include:
- Getting a home loan with lenders mortgage insurance (LMI): This is insurance paid by the borrower to protect lenders against loss if a borrower defaults on their home loan. LMI is typically required when a borrower has a deposit of less than 20% of the property value - or an LVR higher than 80% - which is considered a high-risk loan. This can often mean you will only need a 10% deposit.
- Using all applicable first home owner grants (FHOG) to get benefits like a stamp duty waiver or smaller deposits.
- Using a guarantor
- Other low and no deposit options
What are the costs?
Unfortunately, there are more costs involved in the journey to homeownership that you will have to save for. Here are some of the costs involved in purchasing your dream home that you may not expect and how much to budget for them:
Stamp Duty:
Stamp duty is one of the highest costs of buying a home after the deposit. Stamp duty is also known as transfer of land duty, a tax payable in Australia on any property purchase. Each state and territory has rules for calculating stamp duty, some being more expensive and complex than others. Some states have stamp duty waivers for First Home Buyers.
At the time of writing, stamp duty on a $700,000 home is $27,000 in NSW, $25,000 in QLD and $37,000 in Victoria.
Financing Costs:
Most lenders or mortgage brokers charge a loan approval fee to cover the costs of preparing security documents, application, and loan establishment costs. You'll find these fees in the product disclosure statement of the loan you are taking out. Loan applications can cost around $500-$1000 but include your application fees and valuation costs.
Lenders Mortgage Insurance:
Lenders Mortgage Insurance is required if you have less than a 20% deposit. Lenders Mortgage Insurance protects the lender if you default on your loan. LMI is designed to help them recoup some of their losses if they sell their property to repay the loan.
If you're taking out a $40,000 loan on a $500,000 home (90% of the property value), you need to pay LMI.
Conveyancing fees and legal fees:
Buying a home is made easier if you have a great conveyancer. The role of conveyancing will depend on the purchase complexity and the chosen provider. You must find a good conveyancer and one that is well-trusted to ensure the process of purchasing your home goes smoothly.
A conveyancer typically costs $1000-$2000 when purchasing a home.
How long will it take me?
It is well known that the Australian housing market is a runway market that is tough to crack into. There is no denying that if having a home is your goal, you will need to become a savvy saver.
How much you need to save up for your house deposit and how long it takes you to save will depend on many factors, including:
- Your deposit size and amount, which you can find out by calculating 20% of the value of the home
- Current earnings and future earnings
- Daily expenses and how much you have left over to save
As a general guide, 50% of your earnings should go to necessities like rent, utilities, and transport.
25% can go towards entertainment, and 25% should be added to savings. Also, 15% of your savings amount should be for your deposit.
If you know your deposit and how much you can save per week, you can calculate how long saving a deposit will take for your circumstances.
Setting a homeowner a savings plan and having a goal of being a first-time homeowner will help you develop a purpose and be motivated to hit your weekly savings goal. Seeing your home deposit grow will help you feel motivated to save towards your new home.
Do interest rates affect my savings?
Interest rates will affect your savings plan and your journey to home ownership. This will mostly happen in two ways:
1- Your savings account rates will likely go up, meaning you are spending a little bit extra on your monthly savings. This is also a great time to check around and ensure you get the best savings rate from your bank.
2- If you currently have a loan or credit card, your interest rates may rise, meaning your monthly repayments will too. This will tell you will have less cash flow to add to your monthly deposit.
What is the quickest strategy?
There are many ways you can be motivated to save for a house deposit or work on building up money to add to your savings account. You can check out our blog on the top 10 ways to save for a house deposit for some of our best tips.
Some tips for saving include:
- You were creating a budget and sticking to it. Make sure to include all of your income and expenses to get a clear picture of where your money is going each month. You can complete an end-of-month scan to see what you bought that wasn’t essential that month and cut back.
- Refinancing any of your loans or credit cards to an interest-free provider and ensuring you pay those off in the interest-free period. Make sure you check the refinance's terms and conditions before doing so.
- Ensure you know the interest rates on the accounts where you save money. Ensuring your money is in an excellent term deposit, high-interest savings account or in an offset for another mortgage will ensure you get the best deals on your cash.
- Look for more ways to reduce your spending and free up cash for savings. Are you spending too much on entertainment and unnecessary items? How can you cut down utility usage or ask for a better deal?
What is rent-to-own?
Rent-to-own is a type of arrangement that is a middle ground between renting and owning. It typically doesn’t involve the hefty upfront deposit like a typical mortgage.
With a rent-to-own agreement, you typically rent the home for a set period, during which you can purchase the home.
Part of the rental payments may go towards the eventual purchase price of the home, and there is usually a fee for retaining the option to buy the house later on.
You can choose to buy the home or walk away from the deal at the end of the rental period.
That's how rent-to-own structures generally work. But the individual terms and conditions may vary between different agreements.
Here’s a closer look at how OwnHome's rent-to-own program works.
Rent-to-own with OwnHome: How does it work?
OwnHome offers customers a faster and more accessible pathway to homeownership through the rent-to-own model. OwnHome is a prop-tech startup backed by the Commonwealth Bank; our primary goal is to tackle housing affordability in Australia.
Here’s how we do it:
- OwnHome purchases your ideal home, and you move in! You only pay a 3% deposit, and the property will be in OwnHome's name.
- Make fortnightly payments while growing your deposit. Some of this payment goes to the rental, and about a third goes to your security deposit which can be used when buying your home from us.
- Buy your ideal home after 2-7 years. The purchase price is fixed, and you can use your security deposit to offset the cost.
In summary, saving for a house deposit is hard work; we get it! Now is the best time to look at your current savings and what you need to get access to home ownership. Set your goals and set realistic savings to plan to help you get there.
Use a savings calculator to help you understand what you can save per month, and start chipping away at it! Regular savings is one of the best ways to know you are on your way to saving up your home loan deposit.
Saving consistently is also a great way to practice paying for your home loan; your loan repayments will be something you need to pay weekly, so by creating consistent habits, you will be ready for home ownership in no time.
