Deposit shock for Sydney, Melbourne, Brisbane first home buyers
In just three years, the time it takes the average first home buyer to save a house deposit has leapt by almost 3.5 years in New South Wales, more than two years in Victoria and nearly a year-and-a-half in Queensland.
If you’re an aspiring first home buyer in Sydney, expect to spend the next eight years of your life saving for a deposit.
That’s the time it takes to cobble together enough coin to put down the median deposit of $145,000.
The situation is a little better, but also worsening rapidly, in Melbourne and Brisbane, where a 25-year-old will be in their 30s by the time they’ve saved enough money to pay a house deposit.
Buyers in Melbourne are estimated to take 65 months, or nearly 5.5 years, to save for the current median deposit, with buyers in Brisbane estimated to take 60 months or five years.
The latest figures from PEXA have revealed a huge leap in the deposit-saving timeframe from just a few years ago.
Regional buyers were expected to take less time to save for a deposit due to the lower median deposit amounts in regional areas. Buyers in regional NSW were estimated to take 63 months (over 5 years), with regional Queensland 59 months (just under five years) and Victoria at 49 months (just over four years).
For young people who might want to enjoy a drink on the weekend with friends, the findings of the PEXA Buyers Deposits Report, released Wednesday (29 November) make for sobering reading.
No young buyers will be popping champagne corks over the added finding that more than half of new borrowers required lenders mortgage insurance (LMI) in financial year 2023 (FY23), even if those proportions have dropped slightly in each state.
This was highest in Victoria, with 56.5 per cent of new borrowers obligated to take out LMI.
Due to the higher average loan-to-value ratios (LVRs) of major banks, a greater proportion of their customers required LMI. This was most evident in Victoria with 63.9 per cent of major bank customers having an LVR higher than 80 per cent.
Average LVRs for new loans across the eastern states hovered around 80 per cent. NSW was just below at 79.6 per cent in FY23, with Victoria and Queensland just above at 80.5 and 80.2 per cent respectively. All states had seen average LVRs decline since FY22, with Queensland down the most, dropping 1.5 per cent.
The news for first home buyers – whether on a beer or champagne property budget – has only been made worse by a sharp rise in mortgage rates and rising property values over the past few years that have driven housing affordability to its worst level in three decades.
The PropTrack Housing Affordability Index 2023 found that first home buyers are the most impacted, however, even high-income households are feeling the pinch. This is particularly evident in New South Wales, Tasmania, and Victoria.
The report showed an average 25–34 year-olds’ household could afford fewer than 30 per cent of the houses sold in 2022-23 and concluded that saving a deposit remains the biggest barrier for first home buyers.
Julie Kelley, Global Sales and Marketing Manager for aussieproperty.com, said they had experienced a huge surge of first home buyers entering the market during the pandemic but that it was now in reverse.
“Low interest rates, government grants and incentives, and in the case of Western Australia an off-the-plan rebate, had attracted first home buyers to make the leap into home ownership,” Ms Kelley said.
“But post-pandemic we have experienced a marked decline of first home buyers in Sydney and Melbourne, which we put down to affordability, rising interest rates and the difficulties of saving for a deposit.
“The opposite can be said about Brisbane, even if it is taking longer to save for a deposit, and Perth, where there is still strong demand in each from the first home buyer market.”
Ms Kelley said Perth is experiencing a massive boom among younger home buyers, where housing affordability is better than it was in the late 2000s and early 2010s during the height of the mining investment boom.
“Perth property in the lower price range, particularly the outlying suburbs, is being snapped up by east coast investors.
“With limited housing availability under $600,000 and increased competition by investors and new migrants, we are noticing the competition is frustrating first home buyers and they are being forced towards the outskirt suburbs or into smaller apartments and cottage homes.”
The PEXA report showed that the median deposit amount in New South Wales increased from just over $73,000 in the September 2020 quarter to nearly $135,000 in corresponding 2023 quarter, with other eastern states recording similar rises.
As a result, it noted many first home buyers resorted to parental financial support to overcome the deposit hurdle.
“Nationwide, we are seeing an increase of first home buyers attending home opens with their parents, indicating the bank of mum and dad may be their key to entering the market,” Ms Kelley said.
New scheme to help with deposit challenge
A new government scheme, with legislation to be introduced this week, will provide 40,000 eligible low and middle income home buyers the opportunity to acquire a home with a deposit of just 2 per cent.
The Help to Buy scheme intends to support eligible home buyers with an equity contribution from the Government of up to 40 per cent for new homes and 30 per cent for existing homes. Buyers will have lower ongoing repayments while they take part in it.
The government hopes to have the scheme operational from 2024, although each state will need to pass their own legislation in order for the program to operate in their jurisdiction.
As they are subject to Commonwealth, not state, legislation, it will start in the Northern Territory and ACT first, following passage of the bill.
Jocelyn Martin, Managing Director, Housing Industry Association, said the legislation encouraging more young Australians to access housing would help address the declining rates of home ownership in Australia.
“These and other forms of housing incentive programs are critical to boost housing supply and home ownership rates to support first home buyers raising the deposit more quickly and easily.
“We know from previous schemes, such as the first Home Buyer Grant, that grants such as Help to Buy, are effective at getting people into their own home, and new housing supply is stimulated by these schemes,” Ms Martin said.
First home buyers in Queensland are eligible for an additional $15,000 after the state government doubled its First Home Owner Grant last week.