These 3 figures show exactly how hard it is to save a house deposit now

Posted: 12 August 2021 10:21 am
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Rents and house prices are rising so much faster than wages that it's leaving hopeful buyers stranded.

For the average person, buying a home today is much harder than it was 12 months ago because of soaring prices, rising rents and sluggish wage growth.

Here are the 3 figures you need to know:

  1. Property prices have risen 16.1% over the last 12 months (CoreLogic).
  2. Rents have jumped 6.6% over the same period (CoreLogic).
  3. Wages have risen just 1.5% in a similar period (ABS Wage Price Index).

Taken in real terms, these numbers show just how hard it is to save for a house deposit.

The plan

Let's imagine it's August 2020 and you're planning to save a deposit over the next 12 months. You're earning $75,000 a year and paying $450 a week rent. The type of property you're looking to buy, in the area you want, goes for around $400,000.

To save a 20% deposit you'd need $80,000 in the bank.

The reality

Fast forward 12 months and your rent has jumped 6.6%. You're now paying $480 a week. That's an extra $30 a week or $1,560 a year.

But your salary has only jumped 1.5%, or $1,125 a year. Meanwhile the property you're hoping to buy now costs around $464,400.

To save a 20% deposit now you'd need $92,880. That's almost $13,000 more than it was a year ago.

And housing affordability doesn't look like it's going to improve soon. 68% of the experts in Finder's RBA Cash Rate survey have a negative outlook on housing affordability (and 29% are neutral on the topic).

In August 2020 58% of Australians in Finder's Consumer Sentiment Tracker said that it was a good time to buy property. Now that number sits at 38%, the lowest it has ever been.

Industry observers say that renters are struggling too. "Brisbane tenants for example are competing for rental properties, and with many owners selling due to a significant increase in prices, good rentals have reduced (in particular family homes in central locations)," said :Different Head of Customer Experience Shannyn Laird.

"Interstate and overseas investors are likely either moving back into Brisbane homes, or capitalising on strong sales prices."

What can buyers and renters do?

But it isn't entirely bad news for buyers hoping to crack the market. Saving a 20% deposit while prices boom is a gigantic task. But many lenders will accept deposits as low as 10% or even 5%.

A 10% deposit on a $464,400 house is $46,440, a much more achievable sum than $92,880. The downside to a smaller deposit is that you have to borrow more money and lenders charge lenders mortgage insurance (LMI) on top. Lenders charge this when your deposit falls below 20% and it can cost thousands.

For some borrowers the added cost is worth it. But if you qualify for a place in the First Home Loan Deposit Scheme you can get a home with a 5% deposit and avoid LMI.

Laird suggests that struggling renters research what support is available in their state. "NSW legislation requires affected tenants to fill in documentation confirming their current financial situation, any government assistance they're receiving, and their financial position prior to lockdown. Once this is approved, landlords can access a grant of $1,500 which is passed on to the tenants and should assist in easing the burden."

Struggling to save a deposit? Read our house deposit saving guide. Need a home loan? Check out some of the market's lowest rates.

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