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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Select a number of years to see how much money you can save with different home loans over time.

e.g. To see how much you could save in two years by switching mortgages,  set the slider to 2.

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.

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.

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.

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.

Will I have to pay lenders' mortgage insurance twice if I refinance?

If your deposit was less than 20 per cent of your property’s value when you took out your original loan, you may have paid lenders’ mortgage insurance (LMI) to cover the lender against the risk that you may default on your repayments. 

If you refinance to a new home loan, but still don’t have enough deposit and/or equity to provide 20 per cent security, you’ll need to pay for the lender’s LMI a second time. This could potentially add thousands or tens of thousands of dollars in upfront costs to your mortgage, so it’s important to consider whether the financial benefits of refinancing may be worth these costs.

How long should I have my mortgage for?

The standard length of a mortgage is between 25-30 years however they can be as long as 40 years and as few as one. There is a benefit to having a shorter mortgage as the faster you pay off the amount you owe, the less you’ll pay your bank in interest.

Of course, shorter mortgages will require higher monthly payments so plug the numbers into a mortgage calculator to find out how many years you can potentially shave off your budget.

For example monthly repayments on a $500,000 over 25 years with an interest rate of 5% are $2923. On the same loan with the same interest rate over 30 years repayments would be $2684 a month. At first blush, the 30 year mortgage sounds great with significantly lower monthly repayments but remember, stretching your loan out by an extra five years will see you hand over $89,396 in interest repayments to your bank.

How does Real Time Ratings work?

Real Time RatingsTM looks at your individual home loan requirements and uses this information to rank every applicable home loan in our database out of five.

This score is based on two main factors – cost and flexibility.

Cost is calculated by looking at the interest rates and fees over the first five years of the loan.

Flexibility is based on whether a loan offers features such as an offset account, redraw facility and extra repayments.

Real Time RatingsTM also includes the following assumptions:

  • Costs are calculated on the current variable rate however they could change in the future.
  • Loans are assumed to be principal and interest
  • Fixed-rate loans with terms greater than five years are still assessed on a five-year basis, so 10-year fixed loans are assessed as being only five years’ long.
  • Break costs are not included.

How common are low-deposit home loans?

Low-deposit home loans aren’t as common as they once were, because they’re regarded as relatively risky and the banking regulator (APRA) is trying to reduce risk from the mortgage market.

However, if you do your research, you’ll find there is still a fairly wide selection of banks, credit unions and non-bank lenders that offers low-deposit home loans.

Does Australia have no cost refinancing?

No Cost Refinancing is an option available in the US where the lender or broker covers your switching costs, such as appraisal fees and settlement costs. Unfortunately, no cost refinancing isn’t available in Australia.

Can I change jobs while I am applying for a home loan?

Whether you’re a new borrower or you’re refinancing your home loan, many lenders require you to be in a permanent job with the same employer for at least 6 months before applying for a home loan. Different lenders have different requirements. 

If your work situation changes for any reason while you’re applying for a mortgage, this could reduce your chances of successfully completing the process. Contacting the lender as soon as you know your employment situation is changing may allow you to work something out. 

Can I get a home loan if I am on an employment contract?

Some lenders will allow you to apply for a mortgage if you are a contractor or freelancer. However, many lenders prefer you to be in a permanent, ongoing role, because a more stable income means you’re more likely to keep up with your repayments.

If you’re a contractor, freelancer, or are otherwise self-employed, it may still be possible to apply for a low-doc home loan, as these mortgages require less specific proof of income.