Saving for a home deposit? How to get your foot in the door sooner

Saving for a home deposit? How to get your foot in the door sooner

Buying a property in Australia’s biggest cities could seem like a distant dream for many young people, but it might not actually be as unachievable as expected.

A new survey commissioned by ING found that 32 per cent of millennial first home buyers believe saving for a deposit will take them at least 10 years.

But 69 per cent of homeowners aged 39 or younger indicated it took them no more than five years.

According to RateCity data, the time it would take to save for a deposit would depend on how much and how fast you’re saving.

Consider someone saving a 10 per cent deposit ($79,551) for a median-priced Sydney home ($790,072), plus stamp duty of $30,987. If they put aside $200 a week, it could take more than 9.5 years to come up with the deposit. Not too far off from the 10 years projected by millennials in the ING survey.

But if they were to increase the amount they’re allocating to $400 a week, they could shave off nearly half the time, needing only five years to build up the deposit.

As Melbourne property prices are lower, it’s no surprise that it is faster to come up with a deposit here.

If someone is stashing away $200 a week, it could take about 8.5 years, but if they bump up their weekly allocation to $400, it could potentially take less than 4.5 years.

This is assuming lender’s mortgage insurance (LMI), which is required for deposits of 20 per cent or smaller, is not paid upfront and incorporated into the mortgage and paid with interest over time.

Time taken to save for a deposit

Capital City

Median dwelling price

Deposit (10%)

Stamp duty

Total upfront cost

Time taken to save for total deposit – saving $200 pw

Time taken to save for total deposit – saving $400 pw

Sydney

$790,072

$79,007

$30,987

$109,994

9 years, 7 months

5 years, 0 months

Melbourne

$626,703

$62,670

$32,672

$95,342

8 years, 5 months

4 years, 4 months

Source: RateCity.com.au, CoreLogic Hedonic Home Value Index August 2019 Results, State Revenue NSW, State Revenue VIC

Note: Table does not factor in Lenders Mortgage Insurance (LMI). If you are a first home buyer, you may be exempt from or qualify for stamp/transfer duty.

The ING research also showed 26 per cent of surveyed millennials have made the leap into the housing market, thanks to Australia’s low interest rate environment, while 58 per cent are already seeking their next property. Half are saving to make their first purchase.

Just more than half (55 per cent) of those who have bought a property said they compromised on what they wanted in a home to enter the housing market sooner.

But many of those yet to buy are reluctant to do the same, with only 38 per cent of them indicating they would not mind rethinking the type of home and location to buy a home sooner.

In fact, the location is the feature of the home most people (36 per cent) are willing to compromise and 21 per cent wouldn’t mind forgoing storage space.

While more than half (54 per cent) of millennials believe it is important to own a property, most young people (40 per cent) today rent their home and 37 per cent own their own home. One fifth (20 per cent) live in their parents’ home.

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Learn more about home loans

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).

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.

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 does a redraw facility work?

A redraw facility attached to your loan allows you to borrow back any additional repayments that you have already paid on your loan. This can be a beneficial feature because, by paying down the principal with additional repayments, you will be charged less interest. However you will still be able to access the extra money when needed.

Do other comparison sites offer the same service?

Real Time RatingsTM is the only online system that ranks the home loan market based on your personal borrowing preferences. Until now, home loans have been rated based on outdated data. Our system is unique because it reacts to changes as soon as we update our database.

Mortgage Calculator, Loan Term

How long you wish to take to pay off your loan. 

Mortgage Calculator, Property Value

An estimate of how much your desired property is worth. 

What factors does Real Time Ratings consider?

Real Time RatingsTM uses a range of information to provide personalised results:

  • Your loan amount
  • Your borrowing status (whether you are an owner-occupier or an investor)
  • Your loan-to-value ratio (LVR)
  • Your personal preferences (such as whether you want an offset account or to be able to make extra repayments)
  • Product information (such as a loan’s interest rate, fees and LVR requirements)
  • Market changes (such as when new loans come on to the market)

What is a construction loan?

A construction loan is loan taken out for the purpose of building or substantially renovating a residential property. Under this type of loan, the funds are released in stages when certain milestones in the construction process are reached. Once the building is complete, the loan will revert to a standard principal and interest mortgage.

Why is it important to get the most up-to-date information?

The mortgage market changes constantly. Every week, new products get launched and existing products get tweaked. Yet many ratings and awards systems rank products annually or biannually.

We update our product data as soon as possible when lenders make changes, so if a bank hikes its interest rates or changes its product, the system will quickly re-evaluate it.

Nobody wants to read a weather forecast that is six months old, and the same is true for home loan comparisons.

Mortgage Balance

The amount you currently owe your mortgage lender. If you are not sure, enter your best estimate.

Why should you trust Real Time Ratings?

Real Time Ratings™ was conceived by a team of data experts who have been analysing trends and behaviour in the home loan market for more than a decade. It was designed purely to meet the evolving needs of home loan customers who wish to merge low cost with flexible features quickly. We believe it fills a glaring gap in the market by frequently re-rating loan products based on the changes lenders make daily.

Real Time Ratings™ is a new idea and will change over time to match the frequently-evolving demands of the market. Some things won’t change though – it will always rate all relevent products in our database and will not be influenced by advertising.

If you have any feedback about Real Time Ratings™, please get in touch.

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