As lenders loosen the purse strings and house prices take a dive, first-time buyers are more likely to be able to buy than at any time since the credit crunch. But the average down payment needed remains above $45,000, locking potential new homeowners out of the market (based on a 10 percent deposit and using RP Data’s median capital city house price as at January of $450,000).
Given the right circumstances; a stable income, little-to-no outstanding debt, and a sensible budget; saving for a large sum can be achieved within a few years. But first you’ll need to determine the best saving method for your situation, whether it is using the first home saver scheme, a high-interest savings account or term deposit account.
Online saver versus first home saver accounts
The government’s First Home Saver scheme is very attractive if you are planning to enter the housing market for the first time in the next few years.
For example, assuming you start with a $20,000 sum and deposit $1000 per month for the next four years at a base rate of 4.8 percent, (taking into account interest earned and tax saved) a first home saver could potentially have a final balance of just over $81,000. By contrast, the best online savings account available at the moment would leave you with a balance of $77,000 after that time; so you’d be over $4000 better off with the First Home Savers Scheme because of the rate boost and the lower tax rate.
As the name suggests, these accounts are only open to people saving for their first home. They have two main benefits. First, any interest you earn on the account is taxed at 15 percent, so if you earn more than $37,000 you’ll save at least half the tax you would have paid on a normal savings account. Second, to encourage savers to make regular deposits, the government will add a bonus that’s equal to 17 percent up to a maximum contribution of $5500 each year.
There are a number of conditions that must be met to earn the bonus contribution. First, you have to deposit at least $1000 each year for four financial years before you can withdraw your savings. Second, the house must be your principal place of residence, not an investment property. Finally, once your account balance hits $85,000 you can’t make any more contributions, though interest will still be credited to the account.
Fixed term accounts
Fixed term deposits can be a smart option for future home buyers with rates above 6 percent available on three-year terms. But because these types of accounts don’t allow regular deposits, even with a lump sum of $20,000 fixed for three years at 6 percent p.a., interest earnings are capped at $3933 (compounded).
The best savings option will depend on your circumstances, however, so take the time to do plenty of research to maximise your home deposit; because the long term savings could be significant.