According to a recent Bankwest report, it now takes 4.5 years for a first home buyer on an average wage to save what they need for a 20 per cent deposit: $85,800 to purchase the median house, and $76,900 to buy the median unit. That’s up from 3.7 years 12 months ago.
If you’re after a house in Sydney, make it 6.2 years; and if you’re in one of the 26 local government areas identified in the report, you’ll need more than a decade to save the required deposit.
The message is clear. If you have visions of purchasing your first home sometime in the next five years, it’s time to get cracking on that deposit, now. The biggest hurdle is discipline, but if you follow some basic guidelines you’ll be well on your way.
Set a goal
It helps to have a measurable target in place to stay motivated and disciplined, so calculate a figure and stick to it.
“To avoid mortgage insurance you’ve got to have a 20 per cent deposit,” says Sean Beavis, Aussie Franchisee in Newtown, Sydney. “The problem that everybody always faces is that it’s difficult for most people to save at a pace that keeps pace with the growth in the market,” says Beavis.
The good news is that 10 per cent deposits are generally acceptable if mortgage insurance is paid, and Beavis suggests the benefits of being able to enter the market sooner may outweigh the cost of the mortgage insurance payable.
Set a budget
Now that you have a figure in mind, it’s time to take a long hard look at your income and expenditure. A basic spreadsheet will get you started or you can try the Aussie Budget Planner.
If it looks as though there’s just no room for savings, the equation is simple: either earn a bit more or spend a bit less. Commit to stripping out some non-essential items and be more vigilant with your money monitoring. Keep a close eye on outgoings with a ‘Daily Dollar Diary’. You might be surprised at where your money’s going.
Christopher Zinn, Spokesperson for independent consumer group Choice, says there’s often money to be saved by conducting a ‘life audit’. “Look at your statements when they come in and do a bit of checking and ticking off… You can be billed for goods and services you haven’t had, you no longer want or have forgotten you were already paying for.”
Set up the savings
When it comes to savings, you need a dedicated account. “Try and keep your savings account as far out of reach as possible,” says Beavis. “Choose an institution with a savings account product that you can’t necessarily have direct access to.”
There are plenty of online high-interest savings accounts available. Many can only transact to another dedicated bank account, which means you can’t spend your savings on in-store impulse buys but you can access it if you need to.
Term deposits lock your money away for a set period, earning a fixed rate of interest, so you’ll know what your investment will be at the end. The funds are only accessible when the term expires, which may be one month to up to five years, and a $5,000 minimum deposit is usually required.
Another option is the Government First Home Saver Account. Interest earnings on these accounts are taxed at only 15 per cent and the Government will contribute 17 per cent on the first $5,000 of individual contributions made each year. Conditions apply, including the requirement that if the account holder decides not to purchase a property after all, the funds cannot be accessed but will be transferred to their superannuation. See www.homesaver.treasury.gov.au for more details.
If you intend to have a mortgage sometime in the future, why not pretend you already do? Accelerate your savings and get comfortable with your new budget by putting aside the equivalent of a mortgage payment each month. If you’re renting, put the difference between your rental payment and a mortgage payment into savings. Aim for 30 per cent of your current income if not more, and after paying off any existing debts first instruct your employer to pay your new ‘mortgage payment’ straight into your dedicated savings account. If you don’t see it go into your everyday account, you won’t miss it as much.
Remember, banks want to see good a history of saving behaviour. “People think that you have to have borrowed somewhere, that you have to have some kind of credit history – that’s not necessarily the case but you do need to make sure that the accounts that you’ve had have been operated properly,” says Beavis.
Beavis explains that if your deposit is less than 20 per cent, then at least five per cent of it must constitute ‘genuine savings’. “There are very set parameters as to exactly what genuine savings are… If it’s something other than your salary it doesn’t count until it’s sat there for three months.”
That’s another reason to start today. After all, the sooner you start saving, the sooner you reach your deposit goal.