First home buyers saving more but still spending 8+ years to build a deposit – new data reveals

First-time home buyers are saving more each month than last year.

However, they still feel anxious about building a sufficient deposit to break free from renting and finally own their dream home, according to Canstar's latest research.

According to Canstar's new First Home Buyer Survey, potential first-time buyers are now saving an average of $1,605 per month towards their home deposit. This is an increase of $188 per month or 13% compared to last year when they saved $1,417 monthly.

With this increase in savings, the time required to gather a 20% deposit on the median house price could be reduced by almost 2 years for a single-income buyer, taking around 8 years and 8 months.

For a couple with dual incomes, each saving $1,605 per month, they could cut the time to save a 20% deposit by nearly 1 year and save for 4 years and 2 months.

If aiming for a smaller 10% deposit on the median house price, the increased savings could shorten the time by 11 months for single-income buyers, enabling them to save for around 4 years and 2 months.

For couples, each saving $1,605 per month, they could buy their home 5 months sooner after saving for just over 2 years.

Canstar noted that the time to save a 10% deposit does not account for saving to pay Lenders Mortgage Insurance (LMI), which, in some cases, may be added to the loan with borrowers generally charged interest on it.

Canstar’s Editor-at-Large and money commentator, Effie Zahos, says:

“First home buyers being able to save more in a cost of living crisis shows how determined Aussies are to get off the renting treadmill.

Property prices are continuing to rise but rents are also rising to historic highs.

Renters are no doubt feeling the pressure to get a foot on the property ladder.

“Nine in every ten potential first home buyers are prepared to make comprises to buy sooner.

Radically reducing their spending was top of the list for what they would comprise on followed by purchasing an older property and buying an apartment over a house rounded out the top three.”

Out of all potential first-time buyers, 62% are regularly saving money.

However, there's a concerning fact: one-quarter of them don't know how much they are saving, and 13% are currently unable to save at all.

The majority feel stressed about their ability to save

According to Canstar's data, saving just over $1,600 per month may not be enough for some with close to one in two (48%) current first-home buyers-to-be feeling extremely or very stressed about building a big enough deposit to purchase a home and a further 40% feeling somewhat stressed.

This equates to 89% of first-time buyers anguishing over their ability to save, which was similar to last year when 90% felt stressed about their ability to save.

The research also revealed that the majority (61%) of current potential first-home buyers say that bills and household expenses are the biggest expenses that are stopping them from being able to save more.

This is followed by paying rent (49%) and going and/or eating out (42%) rounding out the top three reasons.

Zahos says stress can be brought on by not allowing yourself to wriggle room in the budget.

She further commented:

“In an economic crisis, not everyone is going to be in a position to save more, let alone build up enough for a deposit on a home.

Focusing on what you can realistically save and being flexible with your timeline can alleviate the pressure until your financial situation improves and you can boost your savings balance.”

More are getting help from the Bank of Mum and Dad

Canstar's research also pointed out that this year 29% of potential first-home buyers say they are receiving some form of contribution from their parents or family, which is up from 21% last year.

This help is coming in a variety of ways:

• with parents most willing to provide rent-free accommodation to their children to help them save (8%),
• followed by contributing to living costs (7%),
• a financial contribution to their deposit (7%),
• going guarantor on the loan (5%) or
• buying with them (3%)

Zahos explained:

"The Bank of Mum and Dad may not be closed to first home buyers but parents are certainly preferring to offer assistance in ways that don’t require them to put their hands in their own pockets.

It’s far less risky to have your kids live at home rent-free to help them save for a deposit than to just give them a deposit or put your house on the line.

The Bank of Mum and Dad comes with warnings.

After 12 rate hikes those parents that jumped in and helped their children financially one or two years ago may find that they are now being called on to bail the kids out as they struggle with much higher repayments and are trapped in mortgage prison with little equity in their loan to refinance to a lower rate offer.

Parents deciding to go guarantor on a loan to help their child buy sooner should consider limiting the amount of their guarantee, check that their child has some form of income protection insurance, work out an exit strategy to release the guarantee and get independent advice so both parties know their roles and responsibilities.”

Deciding on realistic property expectations

Increasing interest rates are reducing the amount of money first-time buyers can borrow and making loan repayments more challenging.

However, there's a positive aspect: most of them (51%) are planning to be cautious spenders and aim for a purchase price of $600,000 or less.

Another 28% have set a budget between $600,001 and $800,000, while only 21% have a budget exceeding $800,000.

Zahos further said:

“Buying your first home is a big decision.

One that you need to go in with eyes wide open.

First-time buyers need to be realistic about what they can afford and stay committed to their budget

Buyers could also take up the Government’s First Home Guarantee Scheme which allows them to buy with a 5 per cent deposit to get into the market sooner and beat potential price rises.

A very small deposit means taking out a bigger loan, and this means paying more in monthly repayments than if you had a larger deposit.

The good news is buyers have a lot of options to consider.”

About Brett Warren Brett Warren is National Director of Metropole Properties and uses his two decades of property investment experience to advise clients how to grow, protect and pass on their wealth through strategic property advice.