The real cost of buying a new home

According to Australian Bureau of Statistics Housing Finance figures the proportion of first home buyer loans out of all loans financed fell to a new record low of 12.35 percent in November 2013  and currently there’s lots of questions as to why the proportion of first home buyer loans is at their lowest ever.

Maybe it’s because first home buyers need to save up to double the cost of their deposit in upfront fees. has uncovered the real cost of the Australian dream, with first home buyers needing to save up to double the cost of their deposit in upfront fees.

The real cost of buying a new home
Michelle Hutchison, Money Expert at, said she was not surprised by the low levels of first home buyers in the market.

“Despite the fact that interest rates are among the lowest levels ever, we’re still seeing fewer numbers of first home buyers entering the market. For instance, there were 86 fewer first home buyer loans financed in November 2013 compared with the previous month, and 1,045 less or 13 percent fewer than November 2012.

“It’s because many first home buyers need so much capital before they can even begin their property hunt. In fact, for a 5 percent deposit and purchasing an established home at the median dwelling price, the upfront cost is up to double the size of the deposit, according to research,” said Mrs Hutchison.

With the national median dwelling price of $484,563, for an established home where stamp duty concessions are exempt, it would cost first home buyers $24,228 for a 5 percent deposit plus another $22,000-50,000 for stamp duty and lenders mortgage insurance, depending on the state. And this doesn’t include about $1,000 in upfront home loan fees.

First home buyers in the Sydney property market will struggle the most when saving up for a home, followed by Melbourne.

Whereas Hobart and Adelaide will be able to afford their first home much cheaper than the other cities.

median dwelling price

Using the median dwelling prices of each capital city, first home buyers in Sydney are up for the biggest costs to enter the property market for an established home.

The median dwelling price for Sydney is $640,000, so a 5 percent deposit would cost $32,000 and stamp duty fees and LMI would be another $51,659.50, which is a total cost of $83,659.50.

“Interestingly, saving a 20 percent deposit for the median Sydney home will cost $68,944 more upfront than a 5 percent deposit for an established home. But borrowers need to remember that the loan size will be much less, will be cheaper and less financial risk.”

“The difference in loan size for these two deposits is $96,000, monthly repayments for a 6 percent interest rate over 30 years is $576 lower with the 20 percent deposit, and the difference over 30 years is over $207,000. So by saving more up front can make a huge difference to the cost of the mortgage over the life of the loan.”

total property purchase price

“The good news is first home buyers can avoid some of these fees and potentially save thousands of dollars by simply doing their research and making a savings plan.”

Fees you can avoid before you take out a loan
1. Lenders Mortgage Insurance:
LMI protects the lender if a borrower defaults on their repayments. You can potentially save over $20,000 if you save a 20 percent deposit.

Borrowers can usually capitalise the cost of LMI into the loan which makes it more affordable to enter upfront however it will cost more in the long-run.

2. Stamp Duty:
Stamp duty is a government fee that you pay when purchasing an existing home. There are first home buyers grants such as The First Home – New Home scheme in NSW, which provides eligible purchasers with an exemption from stamp duty on newly constructed homes valued up to $550,000.

It’s important to check your state’s policies to see if you qualify for any of these grants, you may be able to keep an extra $19,331 in your wallet.

3. Home loan interest and fees:
There’s a significant difference between home loan upfront and ongoing fees, as well as interest rates. For instance, variable rates start from 4.49% while the average standard variable rate is 5.59% according to database.

That is potentially a difference of over $121,000 in interest on a $500,000 loan over 30 years.



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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media. Visit

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