Time to save for a home loan deposit now shorter, but challenges persist

Sydney terrace houses

As property prices fall further from their peaks, young Australians looking to take out a home loan have been given a second wind, with data from Domain showing the time required to save a deposit has fallen in almost all capital cities.

Domain’s Chief of Research and Economics, Nicola Powell, said the current downturn — coupled with higher savings rates and strong wage growth — were like a time machine for first home buyers, shaving months off the time it takes to save a 20% deposit.

“Nationally, for a couple, it’s now become six months quicker for a first home buyer to purchase an entry-priced house and two months quicker for an entry-priced unit since this time last year,” she said.

While it’s possible to get a home loan without a 20% deposit, borrowers are typically required to purchase lender’s mortgage insurance to offset the risk involved. This protects the lender in the case a borrower is unable to service their loan, and can cost thousands of dollars.

In Sydney and Canberra, the time to save a deposit for an entry-priced house has been reduced by as many as 13 months over the last year.

Darwin is currently the friendliest city for first home buyers, with the average time to save a deposit for an entry-priced house sitting at three years and six months.

Only Adelaide hasn’t seen a material change in time to save for a house, with prospective homebuyers having to save for four years and nine months to build up the 20% deposit lenders like to see.

Time for a couple aged 25-34 to save a 20% deposit for an entry-priced house

  

While borrowers were able to take advantage of some of the lowest fixed and variable rates on record over the early pandemic period, that picture has changed since the Reserve Bank of Australia kicked off “one of the most aggressive rate hiking cycles in history.” 

“Now in 2023, first-home buyers are facing less competition and softer prices, reshaping the affordability conversation,” Powell said. 

Of course, the dip in home values is just one side of the equation. Borrowers face fresh challenges in the form of surging rates, which ultimately lower the amount a bank will be willing to lend.

“The decline in prices has assisted buyers in shortening the time to save, but higher interest rates have seen the affordability of mortgage repayments deteriorate, adding a new level of complexity,” said Domain Home Loans CEO, Kareene Koh.

“It’s a difficult time for market entrants, but there’s still some good news. We’re seeing interest rates starting to stabilise providing a light at the end of the tunnel for the months to come.”

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