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Is the grass greener for homebuyers outside of Sydney?

Is the grass greener for homebuyers outside of Sydney?

26/03/19 – Figures have been amended to reflect more up-to-date data. 

So, you’ve decided to move out of Sydney.

Whether it’s the lack of nightlife, the latest public transport chaos or the general high cost of living, many Sydneysiders have found themselves considering whether staying in the Harbour City is still worth it.

None so much as those trying to get a foot on the property ladder.

If you’re looking to buy your first or next home and considering moving away from Sydney to do so, there are two factors you should keep in mind – how much money and how much time you can save.

How much money will I save?

Housing prices have been coming off the boil since their peak in 2017, but the total deposit needed for a median priced house or unit in Sydney is still confronting when you compare it to Brisbane and even Melbourne.

Depending on the capital city of your choosing, when looking outside of Sydney for your first or next property, the savings can be anywhere from $16k – $75k.

TOTAL COST OF DEPOSIT IN EACH CAPITAL CITY

Houses:

Location

Median House Price

Deposit 10%

Stamp duty

Lenders mortgage insurance

Total deposit needed

Deposit amount difference compared to Sydney

Sydney

$888,117

$88,812

$35,459

$21,741

$146,012

 /

Melbourne

$729,392

$72,939

$38,834

$17,790

$129,563

$16,449

Brisbane

$538,849

$53,885

$10,112

$10,330

$74,326

$71,686

Adelaide

$467,684

$46,768

$19,715

$8,966

$75,449

$70,563

Perth

$461,890

$46,189

$15,955

$8,854

$70,999

$75,013

Hobart

$489,811

$48,981

$17,818

$9,390

$76,189

$69,823

Darwin

$479,103

$47,910

$22,271

$9,184

$79,365

$66,646

Canberra

$665,701

$66,570

$19,660

$16,236

$102,467

$43,545


Units
:

Location

Median Unit Price

Deposit 10%

Stamp duty

Lenders mortgage insurance

Total deposit needed

Deposit amount difference compared to Sydney

Sydney

$693,350

$69,335

$26,693

$16,911

$112,939

 /

Melbourne

$530,492

$53,049

$23,800

$10,170

$87,018

$25,921

Brisbane

$378,945

$37,895

$4,515

$7,264

$49,674

$63,265

Adelaide

$328,229

$32,823

$12,745

$4,963

$50,531

$62,408

Perth

$360,221

$36,022

$11,129

$6,905

$54,057

$58,882

Hobart

$373,356

$37,336

$12,871

$7,157

$57,364

$55,575

Darwin

$289,236

$28,924

$9,836

$4,373

$43,133

$69,806

Canberra

$432,389

$43,239

$9,666

$8,289

$61,194

$51,745

Notes: Total deposit includes 10 per cent deposit, plus lenders mortgage insurance and stamp duty for non-first home buyer. Savings have been calculated at 2 per cent, calculated daily, accrued monthly. Median prices based on CoreLogic Home Value Index, March 2019.

When you factor in a 10 per cent deposit plus stamp duty and lenders mortgage insurance for a median priced house in Sydney, homebuyers will need to pull together a total of $146,012 for a median priced home.

For most young Aussies, this would ordinarily mean skipping out on social events and Uber Eats for a very, very long time – or even moving back home with mum and dad.

In comparison, homebuyers looking in Brisbane can expect to save a total deposit of $53,885 a difference of $71,686 to Sydney homebuyers. Those looking in Perth can expect to be $75,013 ahead of their Sydney counterparts, with a total deposit of only $70,999 needed for a median priced house.

And it’s a similar result for units, with would-be-buyers in Melbourne needing a deposit of $87,018 for a median priced unit – a difference of $25,921 when compared to the whopping $112,939 needed in Sydney.

What about stamp duty exemptions?

First home buyers in Sydney betting on stamp duty exemptions to help with the cost of their first home should keep in mind that the median price for houses and units are still greater than the exemption threshold – $650,000.

However, stamp duty concessions are in place for properties priced up to $800,000 and first home buyers would be wise to consider looking for a first home under these thresholds.

How much time will I save? 

It’s not just avoiding the daily commute that will save you time once you’re out of Sydney (especially if you live near the light rail construction), but the time you’ll save while saving for a deposit.

RateCity crunched the numbers to find that across the majority of the country, saving a deposit in Sydney takes around double the time for both median priced houses and units.

TIME TAKEN TO SAVE FOR A DEPOSIT IN EACH CAPITAL CITY

Houses:

Location

Median House Price

Total deposit needed

Time taken to save ($200 per week)

Time taken to save ($400 per week)

Sydney

$888,117

$146,012

12 years 4 months

6 years 7 months

Melbourne

$729,392

$129,563

11 years 1 months

5 years 10 months

Brisbane

$538,849

$74,326

6 years 8 months

3 years 5 months

Adelaide

$467,684

$75,449

6 years 9 months

3 years 6 months

Perth

$461,890

$70,999

6 years 5 months

3 years 4 months

Hobart

$489,811

$76,189

6 years 10 months

3 years 6 months

Darwin

$479,103

$79,365

7 years 1 months

3 years 8 months

Canberra

$665,701

$102,467

9 years 0 months

4 years 8 months

Units:

Location

Median Unit Price

Total deposit needed

Time taken to save ($200 per week)

Time taken to save ($400 per week)

Sydney

$693,350

$112,939

9 years 10 months

5 years 2 months

Melbourne

$530,492

$87,018

7 years 9 months

4 years 0 months

Brisbane

$378,945

$49,674

4 years 7 months

2 years 4 months

Adelaide

$328,229

$50,531

4 years 7 months

2 years 4 months

Perth

$360,221

$54,057

4 years 11 months

2 years 6 months

Hobart

$373,356

$57,364

5 years 3 months

2 years 8 months

Darwin

$289,236

$43,133

4 years 0 months

2 years 0 months

Canberra

$432,389

$61,194

5 years 7 months

2 years 10 months

Notes: Total deposit includes 10 per cent deposit, plus lenders mortgage insurance and stamp duty for non-first home buyer. Savings have been calculated at 2 per cent, calculated daily, accrued monthly. Time rounded up to nearest month. Median prices based on CoreLogic Home Value Index, March 2019.

Singles or couples saving $200 a week for a median priced home in Sydney will find themselves waiting up to 12 years and 4 months just to save a 10 per cent deposit ($88,812), plus stamp duty ($35,459) and lenders mortgage insurance ($21,741).

The wait for a home deposit drops significantly if you’re able to boost your savings to $400 a week. However, when you compare waiting 3 years and 4 months in Perth to 6 years and 7 months in Sydney for a median priced house, it can be tempting to consider a sea change.

For singles or couples squirrelling away $200 a week for a median priced unit, they’ll still find themselves waiting 9 years and 10 months to scrimp and save for a 10% deposit, plus stamp duty and lenders mortgage insurance. This is double the time taken to save in Adelaide, Perth or Brisbane.

An intimidating task for even the most loyal Sydneysiders.

Tips for would-be homebuyers 

  1. Beware of the Afterpay hangover; lenders are starting to crack down on discretionary spending so homebuyers should look to cut out splurge items to boost their savings, as well as look good to the banks when they eventually apply for a home loan.
  2. Avoid pesky lenders mortgage insurance (LMI);if you can save a 20 per cent deposit, you’ll be able to cut down on one costly extra.
  3. Don’t shoot for the moon; if you’re a first home buyer, consider buying an entry level home instead of your dream house to get on the property ladder. A more affordable home will save you time and money and will also be a great starting point for your real estate journey.
  4. Stay under the stamp duty cap; if you can help it, try to stay under the stamp duty exemption cap in your chosen state. For Sydney this is $650,000 but this differs from state to state.
  5. Put your money to work; homebuyers may want to consider utilising high interest savings accounts while in savings mode, or even term deposits if you’re worried you’ll dip into your nest egg.

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Fact Checked -

This article was reviewed by Property & Personal Finance Writer Nick Bendel before it was published as part of RateCity's Fact Check process.

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Learn more about home loans

Cash or mortgage – which is more suitable to buy an investment property?

Deciding whether to buy an investment property with cash or a mortgage is a matter or personal choice and will often depend on your financial situation. Using cash may seem logical if you have the money in reserve and it can allow you to later use the equity in your home. However, there may be other factors to think about, such as whether there are other debts to pay down and whether it will tie up all of your spare cash. Again, it’s a personal choice and may be worth seeking personal advice.

A mortgage is a popular option for people who don’t have enough cash in the bank to pay for an investment property. Sometimes when you take out a mortgage you can offset your loan interest against the rental income you may earn. The rental income can also help to pay down the loan.

When does Commonwealth Bank charge an early exit fee?

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

  • If you switch your loan from fixed interest to variable rate
  • When you apply for a top-up home loan
  • If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
  • When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay. 

What are the features of home loans for expats from Westpac?

If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.

The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.

When do mortgage payments start after settlement?

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.

How much deposit do I need for a home loan from NAB?

The right deposit size to get a home loan with an Australian lender will depend on the lender’s eligibility criteria and the value of your property.

Generally, lenders look favourably on applicants who save up a 20 per cent deposit for their property This also means applicants do not have to pay Lenders Mortgage Insurance (LMI). However, you may still be able to obtain a mortgage with a 10 - 15 per cent deposit.  

Keep in mind that NAB is one of the participating lenders for the First Home Loan Deposit Scheme, which allows eligible borrowers to buy a property with as low as a 5 per cent deposit without paying the LMI. The Federal Government guarantees up to 15 per cent of the deposit to help first-timers to become homeowners.

How much deposit do I need for a home loan from ANZ?

Like other mortgage lenders, ANZ often prefers a home loan deposit of 20 per cent or more of the property value when you’re applying for a home loan. It may be possible to get a home loan with a smaller deposit of 10 per cent or even 5 per cent, but there are a few reasons to consider saving a larger deposit if possible:

  • A larger deposit tells a lender that you’re a great saver, which could help increase the chances of your home loan application getting approved.
  • The more money you pay as a deposit, the less you’ll have to borrow in your home loan. This could mean paying off your loan sooner, and being charged less total interest.
  • If your deposit is less than 20 per cent of the property value, you might incur additional costs, such as Lenders Mortgage Insurance (LMI).

How do I save for a mortgage when renting?

Saving for a deposit to secure a mortgage when renting is challenging but it can be done with time and patience. If you’re on a single income it can be even more difficult but this shouldn’t discourage you from buying your own home.

To save for a deposit, plan out a monthly budget and put it in a prominent position so it acts as a daily reminder of your ultimate goal. In your budget, set aside an amount of money each week to go into a savings account so you can start building up the ‘0’s’ in your account.  There are a range of online savings accounts that offer reasonable interest, although some will only off you high rates for the first few months so be wary of this.

If you aren’t able to save a large deposit, you can consider ways of entering the market that require small or no deposits. This can include getting a parent to act as guarantor for your home loan or entering the market with an interest only loan.

What is a low-deposit home loan?

A low-deposit home loan is a mortgage where you need to borrow more than 80 per cent of the purchase price – in other words, your deposit is less than 20 per cent of the purchase price.

For example, if you want to buy a $500,000 property, you’ll need a low-deposit home loan if your deposit is less than $100,000 and therefore you need to borrow more than $400,000.

As a general rule, you’ll need to pay LMI (lender’s mortgage insurance) if you take out a low-deposit home loan. You can use this LMI calculator to estimate your LMI payment.

How much of a deposit do I need for a home loan from the Commonwealth bank?

The minimum deposit the Commonwealth Bank usually accepts is 10 percent of the amount you wish to borrow. However, a deposit of at least 20 percent of the amount you’re borrowing is needed if you wish to avoid Lenders Mortgage Insurance (LMI). LMI is charged for smaller deposits to give the lender extra recourse if the borrower fails to repay their loan. 

As an alternative to LMI, some borrowers with smaller deposits may opt to pay the Commonwealth Bank’s low deposit premium fee. It is a one-time, non-refundable charge that is added to a low-deposit home loan.

The deposit and the loan amounts are used to determine the LDP -, the higher the deposit, the lower is this cost. 

When calculating how much you need to save, don’t forget to factor in other expenses like stamp duty, insurance, legal fees, and moving costs.

What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

Does Australia have no-deposit home loans?

Australia no longer has no-deposit home loans – or 100 per cent home loans as they’re also known – because they’re regarded as too risky.

However, some lenders allow some borrowers to take out mortgages with a 5 per cent deposit.

Another option is to source a deposit from elsewhere – either by using a parental guarantee or by drawing out equity from another property.

How can I avoid mortgage insurance?

Lenders mortgage insurance (LMI) can be avoided by having a substantial deposit saved up before you apply for a loan, usually around 20 per cent or more (or a LVR of 80 per cent or less). This amount needs to be considered genuine savings by your lender so it has to have been in your account for three months rather than a lump sum that has just been deposited.

Some lenders may even require a six months saving history so the best way to ensure you don’t end up paying LMI is to plan ahead for your home loan and save regularly.

Tip: You can use RateCity mortgage repayment calculator to calculate your LMI based on your borrowing profile

How much deposit will I need to buy a house?

A deposit of 20 per cent or more is ideal as it’s typically the amount a lender sees as ‘safe’. Being a safe borrower is a good position to be in as you’ll have a range of lenders to pick from, with some likely to offer up a lower interest rate as a reward. Additionally, a deposit of over 20 per cent usually eliminates the need for lender’s mortgage insurance (LMI) which can add thousands to the cost of buying your home.

While you can get a loan with as little as 5 per cent deposit, it’s definitely not the most advisable way to enter the home loan market. Banks view people with low deposits as ‘high risk’ and often charge higher interest rates as a precaution. The smaller your deposit, the more you’ll also have to pay in LMI as it works on a sliding scale dependent on your deposit size.

Is a second mortgage tax deductible?

If you take out a loan to invest in a property, you can claim a tax deduction on the interest you pay as long as the property is earning income. In other words, if you rent the property for the entire year, you can claim a tax deduction for 12 months of interest payments. But, if you use the home for six months and rent it for the other six months, you can claim deduction only for 50 per cent of the interest amount.

You also get tax benefits for items that lose value over the years. But, the entire amount is not allowed as a tax deduction in the same year; instead you’ll have to claim a portion each year over a number of years. 

Additional borrowing costs, such as maintenance fees, stamp duty, offset account setting up fees, Lenders Mortgage Insurance (LMI), and establishment fees, can also be claimed as tax deductions.

Before you claim second mortgage tax deductions, it’s often worth checking with an experienced tax expert.