However, it didn’t take – as it does today – an average of 11 years for a worker on the median full-time salary (about $80,000) to save a 20 per cent deposit on the median home value ($666,000), assuming a savings rate of 15 per cent of gross income. It just didn’t.
Don’t give up
Yes, it’s a bitter pill to swallow that the home you want could have, on average, cost about 20 per cent less this time a year ago. But it is what it is. And barring a property crash, which almost nobody is predicting, it’s only going to get worse.
Adjust your expectations
While you’ve been faithfully sticking to your idea of what property should be worth, everyone else has been out there hocking themselves to their eyeballs in debt and pushing up prices.
I’m not saying it’s right. I’m just saying your one-person protest at the inequity of it all is not doing much to change things.
Lower rates work in your favour
While they make it harder to save a deposit, lower interest rates increase the amount financial institutions are willing to lend you. Why? Because when interest costs fall, you have more space in your budget to meet the repayments on a bigger loan. You might be surprised how much the banks are willing to lend you.
Talk with lenders early
When I got serious about getting a home loan, I literally walked into three bank branches on my high street and spent a couple of hours chatting to their loan staff. They’ll ask for an estimate of your income and living expenses and usually give you a rough idea of what size loan you could service.
Many home-loan specialists are also doing zoom sessions during lockdown. Just make sure it’s only a preliminary conversation, and you’re not formally applying for credit because this can show up on your credit history.
Track your spending
If you do speak to a lender or broker, the first thing they’ll do is pepper you with questions to which you don’t know the answers. How much do you spend on electricity? Haircuts? Entertainment? Food? Eating out? Get ahead of the game by figuring this out in advance. And cut where you can.You can download and use the spending tracker I designed here.
Investigate the FHSSS
Stashing your savings in the bank doesn’t get you much these days. It is tempting to look at shares, but volatility can make things tricky.
One alternative is the First Home Super Saver Scheme, whereby you can put money into your superannuation at the low tax rate of 15 per cent, then later withdraw up to $50,000 for your first home. Eligibility and withdrawal conditions apply but, if I was starting again, I’d check it out.
Re-think your deposit
It would be nice to put down a full 20 per cent deposit on your first home, but it is not necessary. I put down about 15 per cent. It is not uncommon for major banks to accept deposits of 10 per cent – often less with smaller players.
Just be aware you’ll be up for paying Lenders Mortgage Insurance (LMI) if you don’t have the full 20 per cent, which can cost upwards of $10,000. You can have the cost added to your loan amount.
If your income is below a certain threshold, you can investigate accessing the government’s First Home Loan Deposit Scheme. Places are limited and not all lenders can offer it, but it covers the cost of your LMI on loans with deposits as small as 5 per cent.
There is a separate scheme for single parents with deposits of just 2 per cent.
Access ‘bank of mum and dad’
Swallow your pride and ask for help – if you’re lucky enough to have it. Parents can go guarantor on a loan to help you avoid paying LMI. They can also just give you cash for your deposit. It’s so unfair but it’s true.
Think about whether you could live at least a suburb or two further out. The rise of working from home has opened up new opportunities for living further afield, where prices are generally lower.
Local property markets vary
Property prices rarely rise across the board. Talk to real estate agents about which suburbs may be undervalued. Take it all with a pinch of salt, but it can’t hurt to ask, right?
Re-imagine your dream home
It’s hard, but chances are you can live in something smaller. Unit prices have not risen as fast as free-standing homes. Many people are now raising young families in units or apartments. Nab a ground floor one if you can – they can feel quite house-like and give you direct access to communal space.
Good luck out there, I’ll be thinking of you.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.