Are you saving for a deposit for a new home?
Well, according to the latest research from PEXA, Australians wanting to buy a home now have to work at least two years longer to save for the deposit than they did in 2020, with soaring house prices, rising interest rates and tighter lending criteria imposed by banks putting housing even further out of reach.
The research reveals the time taken to save for a deposit in NSW has nearly doubled to almost 8 years today compared to just over 4 years in 2020 (up 83.2%).
Meanwhile, in Victoria, it now takes 5 and a half years to build up a deposit compared to just over 3 years in 2020 (up 64.2%).
In Queensland, it now takes more than 5 years compared to less than 4 years in early 2021 (up 36.9%).
The data shows the impact of higher house prices and tighter lending criteria on home deposit amounts in recent years.
The FY23 median home deposit amount is now:
- $119,969 in NSW ($145,000 in Sydney),
- $84,723 in Victoria ($94,000 in Melbourne) and
- $78,143 in Queensland ($85,163 in Brisbane).
Deposit-to-value ratios (DVR) have increased to around 20% across all eastern states.
Differences in DVRs are more marked between different price bands with DVRs of 16-18% in the more affordable property band (sub $500,000) compared to DVRs of 27-30% in the premium end of the market ($2 million plus price band) across the three states.
PEXA’s Head of Research, Mike Gill, said the data revealed the increasing pressure on Australians trying to break into the housing market, particularly first-home buyers.
He further said:
“With higher interest rates and rising property prices, the time to save for a deposit has increased significantly over the past few years.
This has made the generational wealth gap more apparent, with younger demographics facing growing challenges to enter the property market.
Our research found average loan-to-value ratios (LVR) peaked at around 83% at the end of 2020 during the onset of the COVID pandemic, meaning homebuyers needed to put down a deposit of only 17%.
However, as lenders have tightened credit standards in response to increased interest rates, LVRs have trended downwards, increasing the deposits required.
Coupled with high property prices, home buyers now need to work for at least two years longer to save for their home deposits.
LVRs were higher in the lower end of the market reflecting first-home buyers purchasing more affordable properties with limited means, with a higher proportion relying on lenders' mortgage insurance.
While buyers of premium properties are likely using proceeds from previous property sales, or unlocked equity in existing properties, to contribute towards deposits.
We found LVRs were higher among the major banks compared to non-major lenders, which suggests that the major banks are more open to lower deposit borrowers due to their visibility of borrower's income and expenditure via existing banking relationships."
Other key findings for FY 2023:
- Total value of deposits amounted to $62.2 billion across the eastern states comprised of $27.2 billion in NSW, $20 billion in Victoria and $15 billion in Queensland.
- Lenders mortgage insurance was used in more than half of purchases across all three states, down 3% to 53.4% in NSW, down 2.6% to 56.5% in Victoria and down 4.1% to 54.1% in Queensland.
- Deposit-to-value ratios (DVRs) increased 1% to 20.4% in NSW, increased 0.8% to 19.5% in Victoria and increased 1.5% to 19.8% in Queensland from FY22 to FY23.
- Deposit-to-value ratios by property value were lowest in the sub-$500,000 price range band and increased as the value of the property increased across all three states.
- Loan-to-value ratios were higher among major lenders compared to the non-major lenders at 81.2% vs 76.2% in NSW, 81.9% vs 77.5% in Victoria and 81.9% vs 77.6% in Queensland.
