Do you really need to save a 20% deposit?

“[Saving a 20 per cent deposit has] really unrealistic for a lot of people, the expansion of the scheme is…an admission that it’s very hard and getting harder,” said Richard Whitten, senior home loans editor at Finder.

First-time home buyers have often been encouraged to cut back on their daily indulgences and cut expenses to save a down payment, Mr. Whitten said. But such sacrifices have barely reduced the time it takes to save a deposit, given that home prices have soared 18.2% nationally in the past year to $738,975, according to the latest figures from CoreLogic.

First-time home buyers have turned to government warranty programs and home support to get into the market sooner. Credit:Stephen McKenzie

Prospective shoppers in Sydney would have to forego 52,191 takeaway coffees to save enough for a median home drop-off, or skip more than 11,000 meals. Their Melbourne counterparts would need to skip around 35,700 coffees or some 8,050 meals before the savings match a 20% down payment.

“People get fixated on coffee or breakfast, but that doesn’t help that much, it’s overall budgeting,” he said, noting that larger-scale changes like finding a more affordable renting or going home with family, whenever possible, had a much greater impact on savings.


Although buying with a smaller deposit resulted in higher repayments and more money spent on interest, first-time home buyers would still be better off buying sooner rather than later in a rapidly growing market, said Mr. Whitten.

However, with price growth flattening, the pressure on first-time home buyers had eased slightly, and those close to a 20% down payment may decide to spend a few more months saving. rather than rushing to buy now.

Mr Algar is already seeing first-time home buyers, mainly those able to live in the family home, now delaying purchase plans, deciding they would rather keep saving because prices were no longer running away from them.

“[They’re more likely to] say I’m going to sit still because I don’t think I’ll be paying more for a property a year from now,” he said.

For those close to a 20% deposit, a few extra months of savings could give them greater loan options, Mr. Algar said. For a smaller deposit, reaching at least 10%, this could lead to a large reduction in IMT costs.

He hadn’t yet heard first-time home buyers’ concerns about the risk of falling into negative equity, if they bought with a small deposit in a down market, but he felt that was something. of which they should be aware.

Mortgage broker Anthony Landahl, managing director of Equilibria Finance, said some first-time homebuyers were sitting on their hands, but more because of affordability constraints, and he expected to see a recovery in activity with the expanded government program.

With interest rate hikes on the horizon, some first-time home buyers might be reluctant to borrow as much as they could have done before, but he thinks there will still be plenty who will borrow from their full capacity.

More than half of its first-time homebuyer clients weren’t saving for a 20% down payment, and those who needed help were more likely to turn to family assistance than government programs, which had a limited availability and price caps that are too low in some markets.

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