Australians looking to buy a property will now need to save over $55k more than three years ago as booming house prices hiked up how much buyers need to front up in order to buy their dream home.
Property prices ballooned during the pandemic, and are still above pre-Covid levels.
House prices in Australia’s combined capital cities jumped 25.5% from the trough to the pandemic peak in April 2022, and while prices have cooled, they have only dropped 9.6%.
While easing prices are good news for many, Domain calculates that in order to reach the recommended 20% house deposit, buyers will still need to save around $55,700 more than they did during the December quarter of 2019.
Not only that but these buyers also face rising costs thanks to the Reserve Bank’s interest rate hikes over the past 10 months.
Here’s a breakdown of how much more buyers need to save to buy a median property in each Aussie state.
House prices in Sydney skyrocketed to 1.4 million in the December quarter, up from $1.14 million in the December quarter of 2019.
That translates to an extra $55,709 to take the new 20% house deposit total to $282,732.
In Melbourne, the median house price has risen to $1,032,903, up from $902,938 three years ago.
Those wanting to live in Melbourne will need to fork out an extra $26,000 so that they can afford the $206,581 deposit.
In Brisbane, median house prices reached $801,449 in the December quarter last year, up from $583,652 just 3 years ago - this surge has added an extra $43,560 onto the deposit needed.
Perth is the same story also.
Domain data shows that buyers need to get together an additional $25,697 in order to buy a house in Perth thanks to the city’s new $658,270 median house price, up from $529,783 just 3 years ago.
Potential unit buyers may have better luck, only needing an extra $2,344 in Sydney, an extra $142 in Melbourne, an additional $6,507 in Brisbane, and just $7,057 more in Perth.
The average deposit for a house
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The average deposit for a unit
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According to Finder’s First Home Buyer Report 2022, which surveyed 1,001 first-home buyers in Australia, it takes the average buyer 2 to 5 years to save enough to buy a property.
Note: The average home deposit has reached new highs, with many first-home buyers struggling to come up with the cash.
Based on the report, the average deposit size has reached a whopping $119,560 – 30% more than Australia’s average full-time salary of $90,916.
The high costs of buying a house have seen a growing number of would-be buyers turn to the ‘bank of mum and dad’ to ask for help.
In fact, Finder’s latest data shows that around 75% of buyers have paid or are planning to pay a deposit of less than 20%.
- Less than 5% - 4% deposit
- 5% - 14% deposit
- 6%-10% - 31% deposit
- 11%-15% - 18% deposit
- 16%-19% - 8% deposit
- 20% - 16% deposit
- More than 20% - 9% deposit
But if the bank of mum and dad isn’t an option, there are 6 government incentives to help first-home buyers into the market without having to save the huge recommended 20% deposit.
1. Lenders' mortgage insurance
Others are also willing to pay lenders’ mortgage insurance (LMI), which is required for purchases where the deposit is less than 20% of the purchase price.
The LMI premium is arranged by the lender, not the borrower, but is payable by the borrower and is calculated on a percentage of the purchase price.
Given it’s calculated on the size of the deposit you’ve managed to save, the smaller your deposit, the more costly your LMI.
2. Annual property tax instead of stamp duty
As of January this year, first-home buyers in New South Wales are able to avoid paying stamp duty when they buy a property under a new government plan.
Instead of paying the lump sum, eligible first-home buyers purchasing properties for up to $1.5 million are able to choose to pay an annual property tax instead of stamp duty.
The property tax, calculated based on the land value of the property, will only be payable by first-home buyers who choose it, and will not apply to subsequent purchasers of a property.
3. Home loan guarantee scheme
There is also the home guarantee scheme, which is a federal government program to help first-home buyers enter the market sooner.
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In its current form, the scheme allows eligible borrowers to take out a mortgage with a deposit as small as 5%, without paying lenders' mortgage insurance.
This is done by the government by guaranteeing up to 15% of the loan.
Applications are limited to singles with an income of up to $125,000 or couples with $200,000.
Purchases under the scheme are limited to between $350,000 in some regions, to up to $950,000 in Sydney for new homes.
4. First home super saver scheme
First home super saver scheme (FHSS), introduced by the Australian Government in the 2017–18 Federal Budget, supports first-home buyers who meet the eligibility criteria to save money for a house deposit using their superannuation fund.
You can benefit from this by both the tax concessions on superannuation and on being able to take out up to $15,000 of your voluntary super contributions from any one year – and up to a recently increased all-time total of $50,000.
The catch is you need to apply to the federal government for permission before you buy your home.
It’s also worth remembering that using this scheme will diminish your future super savings.
5. First homeowner grant
The first homeowner grant scheme, introduced nationally on 1 July 2000, is funded by the state and territory governments and administered under their legislation.
A one-off grant is payable to low–income first homeowners who apply and satisfy eligibility criteria.
Examples are that at least one applicant must be a permanent resident or Australian citizen, each applicant must be at least 18 years of age, and temporary residents do not qualify to receive the grant.
In NSW, applicants can receive $10,000 for a new home priced up to $600,000, or up to $750,000 if you’re building it yourself, and are exempt from paying stamp duty on homes up to various values.
In Victoria, applicants can also get a $10,000 grant for a new home valued up to $750,000, and $20,000 for those in regional Victoria, also with stamp duty exemptions.
In Queensland, the grant is $15,000 for a new home similarly valued up to $750,000. Again, there are stamp duty exemptions.
6. Low deposit schemes
Some developers are now looking at ways to make off-the-plan homes more affordable to first-home buyers.
For example, Domain reported that Third.i have launched a “co-posits” scheme with investment firm CoPosit for its Dairy Farmers Towers project in Newcastle, NSW.
The scheme means buyers can purchase a property with $10,000 in savings, with the remainder of the deposit paid over weekly installments until the apartment is ready.
If it proves popular, it’s likely more developers might introduce similar schemes to help first-home buyers purchase their properties.
READ MORE: Government Schemes for Home Buyers
Note: Despite softening property prices across most of the country, median house prices are still significantly higher than pre-pandemic, even though interest rates are rapidly rising.
It can be an anxious time for first-time buyers trying to get their foot onto the property ladder as increasing costs and dwindling borrowing capacity mean the home ownership dream may be slipping further away.
Of course, another option to get into the market would be through a rent-and-invest strategy, where you essentially buy an investment property first (where you can afford to buy) and rent where you want to live (but probably can't afford to).
It’s a tactic that overcomes financial obstacles and exorbitant property prices because you can buy in a location that fits your budget and then rent in a location that suits your lifestyle.
It works because even though you’re renting, the property you buy is an asset that’s growing in value (assuming you choose a smart location) and being (in part) paid off by your tenant.
Not only that, but you’re gaining equity that can launch you into other property purchases down the track, including (when the time is right) a home to call your own.
And while there are also many government incentives out there for first-time buyers to buy without the added pressure of saving a huge 20% deposit, there are plenty of risks involved.
Before going down the route of one of the many available government schemes on offer, make sure you speak to an expert such as the team members at Metropole to ensure your potential property purchase makes good investment sense.