Zara (not her real name) works in communications for a finance company and bought her first property, a one-bedroom apartment in Sydney’s inner-west, in late 2023.
Housing affordability was at its worst in three decades due to high home prices and mortgage rates pushed up by interest rate hikes.
She bought the property with a 12 per cent deposit and the help of the federal government’s First Home Guarantee scheme, where the government acts as a guarantor on the loan for people with a deposit of under 20 per cent, allowing first home buyers to buy without paying lenders mortgage insurance.
She said there have been some drawbacks to using the scheme.
“I think because you do have a lower deposit, it means obviously your mortgage is higher, so your repayments therefore probably end up being a bit higher,” Zara said, although she believes it was worth it.
“For me, the priority was to get into the market and start building equity.”
New research has shown Australians who are building up a home deposit are saving less, but a significant number are still saving without help from the ‘Bank of Mum and Dad’.
The pace of savings has slowed in 2024
A snapshot of first-home buyers released by financial comparison site Canstar has shown Australians are saving less than half of what they were a year ago for first-home deposits.
The survey of nearly 1,000 Australians found the cost of living crunch has meant they’re saving only $724 per month on average, down from $1,605 in 2023.
Canstar calculates that for a single person saving $724 per month, it would take around 10 years to put together a 10 per cent deposit on a unit at the national average price — assuming that unit prices increase at the same five-year average rate of 3.49 per cent per annum.
That’s almost four years longer than if they were putting away $1,605 a month.
Canstar’s data insights director Sally Tindall told SBS News it’s “alarming but not surprising” that people saving for deposits are putting away far less than they were last year.
“Inflation might be coming down but that doesn’t mean things are getting cheaper across the board, essentials keep going up and up — they’re just going up at a less rapid pace,” she said.
Saving without the ‘Bank of Mum and Dad’
The Canstar survey also found that, like Zara, 58 per cent of first-home buyers aren’t receiving any financial support towards their deposit, from sources like their parents.
Single people are also saving for deposits, with 48 per cent of people saving on their own.
Chief economist at PRD Real Estate Dr Diaswati Mardiasmo told SBS News that, because the Canstar survey was nationwide, the number of people saving for deposits without support may be larger than if it only looked at capital cities.
“If we were to do that survey specifically just in capital cities — for example, Sydney, Melbourne and Brisbane — I would not be surprised if that statistic goes down to 20 or 25 per cent,” she said.
Tindall said Australia is fast dividing into those who have families who can give them support to enter the property market and those who don’t.
While many families aren’t in a position to provide cash gifts or act as guarantors on home loans, some can help first-home buyers save by providing them with rent-free accommodation in the family home, Tindall said.
For those without such support, saving for a deposit may still be possible with some adjustments, Tindall said.
Research from the Australian Housing and Urban Research Institute released earlier this month found nearly 60 per cent of renters were not confident they would ever be able to afford a home.
Another report released in September found only 14 per cent of homes were affordable for median-income households in Australia.
Changing spending habits to build a deposit sooner
Tindall said that, while “despairing” about the housing market and parking plans to buy property may be enticing, people should “try and stick to the task”.
Tindall recommends assessing household budgets by making a list of recurring costs and ordering them by importance to see which ones would be easiest to cut. She also stressed the value of shopping around for better deals on items that can’t be avoided.
Zara said her deposit took around five years to save, with the help of COVID-19 lockdowns (which meant she was spending less) and lump sum payments from work bonuses. However, if she was saving for a deposit in 2024, it would be far more difficult, she said.
“If I were to do it now, I would absolutely need to cut out things like weekends away and dinners and fun clothes — stuff like that,” she said.
Canstar calculated how much a single person in NSW could save $310 per month by only buying home brand products, switching to cheaper car insurance and phone and internet plans, and cancelling one streaming subscription.
Tindall also suggested putting savings in a high-interest-rate bank account to help reduce the time needed to put together a deposit.
Mardiasmo said that, while it may feel ineffective to save by cutting back on small things — like the infamous advice to cut back on avocado toast — these savings can add up.
“The point of these sorts of messages is that you don’t do it in isolation, you do it in combination,” she said.
Mardiasmo said making these choices to cut back can also improve the serviceability of the loan for lenders looking at the credit of first-home buyers.
“They’re becoming really, really tight on looking at the lifestyle element and looking at whether people have a lot of Uber trips, a lot of Uber Eats, a lot of Zip Pay and AfterPay and all those types of things,” she said.
Government support for first-home buyers
There are also multiple state and federal government supports for first-home buyers.
Tindall said the First Home Guarantee Scheme that Zara used can be a “white knight” for many first-home buyers due to the “eye-watering” costs of lenders mortgage insurance for people who have less than a 20 per cent deposit.
However, the scheme has a lot of restrictions, including 35,000 places annually and an income cap of $125,000 for individuals and $200,000 for couples.
Different states and territories also have varying financial support for first-home buyers, such as stamp duty exemptions, first-home owner grants, or shared equity schemes.
Mardiasmo said first-home buyers looking to buy without family help would likely need to rely on “literally everything else that is available”, in terms of government support.
Mortgage Choice broker Matthew Hayes told SBS News that many prospective homeowners who don’t know about the support available may be missing out.
He said he often sees clients who use four schemes and concessions to purchase their first home.
“Obviously, saving money is not simple, the schemes and concessions aren’t simple,” he said.
“I would say that once people are educated, once they sit in front of a broker, they would change their opinion on it.”
