Purchasing property in Australia doesn’t have to feel like an uphill battle. Whether you’re looking for your first home or your first investment property, there are some tricks and tips worth considering to get your foot on that property ladder faster.
Research from CoreLogic reported that it may now take the average homebuyer over a decade to save for a 20% home deposit, when saving 15% of their income for a national median priced home. This is an unreasonable time to expect home buyers to wait to own their first property.
So, if you’re finding it challenging to save up a house deposit due to property prices, don’t fret as you are not alone. Let’s explore ways you may be able to save for a property faster, whatever your financial situation.
Ways to save for a first property faster
From cutting down on your subscriptions to considering government assistance schemes, there are a number of options that homeowners may want to consider trying to help them fast-track their way to buying a home, even with current house prices.
1. Fine tune your budget
It’s normal for some months to be more expensive than others or for little expenses to pop up that can impact your budget. If you’re finding that your regular savings and automatic transfers aren’t going as far as you’d like, it may be worth taking a fresh audit of your budget and pinpointing ways you can bolster your savings.
Reduce Home Loans Budget Calculator is a helpful resource that allows you to enter granular details about your budget so you can really gain a deeper understanding of your spending habits. This is one option first time buyers have to help improve their savings and funnel more of their cash towards their deposit nest egg.
You may think you know how much you’re spending on groceries or entertainment, but a fresh budget audit can be a great option to ensure you’re actually reducing your spending as much as possible to boost your savings.
In fact, Reduce Home Loans Savings Goal Calculator may also help you get back on the right track for saving for your first home. It can realistically show you how far your regular savings deposits could take you over a fixed period, and how much faster this may be if you could save more, improving your savings plan.
2. First Home Super Saver Scheme
This is a government assistance scheme that may help some eligible home buys to save up a deposit faster. The First Home Super Saver Scheme (FHSSS) involves would-be buyers making voluntary concessional and voluntary non-concessional contributions into their superannuation funds with the aim of these funds and any earnings to be used to purchase a home.
The idea is that given the current low rate of return offered by savings accounts and term deposits, some buyers may find that they gain greater returns on their deposit nest egg by putting this into their super fund. With the rate of return for super funds in 2021 at 13.4%, and many savings accounts closer to 0%, the FHSSS may be a competitive option for some buyers.
The Australian Taxation Office advises that this scheme is available to first home buyers that intend to occupy the existing dwelling for at least six months within the first 12 months of ownership (after is it practical to move in). For investors, this means you may have to consider using the property as your principal place of residence for at least six months before you can rent it out.
From 1 July 2022, the amount of eligible contributions that may be counted towards your maximum releasable amount across all years is set to increase from $30,000 to $50,000. There are strict eligibility criteria around this scheme, so be sure to do your research around the benefits and risks of this scheme before proceeding.
3. Consider saving a smaller deposit
If your first home deposit savings goal is set on that 20% amount, it may be worth considering if it is worth aiming for a more affordable 10-15% deposit. Saving up a 20% deposit has significant benefits in terms of avoiding paying costly Lender’s Mortgage Insurance (LMI), plus it’s likely to boost your chances of pre-approval or full approval, or even gain a more competitive interest rate.
But home loan lenders are still considering buyers that have deposits as little as 10%. In fact, Reduce Home Loans offers two competitive 90% LVR home loan options for owner-occupiers and investors (note rates accurate as of time of writing):
- Owner-occupiers – Rate Slasher Home Loan at 59% (2.61% comparison rate)
- Investors – Investor Rate Slasher at 18% (2.23% comparison rate)
If you can afford to save a 20% deposit, this may be considered more ideal, but it is not a hard rule as you can see. It just may be considered a more risky option to take on a greater level of debt instead of paying off more of the property upfront.
4. New Home Guarantee (First Home Loan Deposit Scheme)
Speaking of smaller deposits, the New Home Guarantee, previously called the First Home Loan Deposit Scheme, is another government scheme designed to get first home buyers purchasing a property faster.
This scheme allows eligible home buyers to purchase property with a deposit of only 5% and allows them to avoid paying costly LMI, as the government essentially guarantees the loan up to a 20% deposit.
It is available for newly-constructed dwellings, off-the-plan dwellings, house and land packages, land and a separate contract to build a new home. Eligible applicants can apply as an individual or couple (married / de facto), with an income cap of up to $125,000 for individuals or $200,000 for couples. As of July 2022, the number of placements for this scheme has been extended from 10,000 to 35,000 each year.
This scheme is geared towards owner-occupiers, so investors may need to consider alternative options, such as a lender that approves lower-deposit applicants.
5. Climb the ladder
It may sound simple but it bears repeating; you don’t have to purchase your dream home as your very first home. In fact, it may be easier to consider a more affordable purchase price to begin with, such as a one or two bedroom unit, then eventually upgrading to your dream home. This is why it is called the property ladder – you’re supposed to climb it!
Instead of buying in your favourite suburb, you may want to consider ‘bridesmaids suburbs’, i.e. a suburb near to your ideal location. This way you can potentially get the best of both worlds by being near the amenities and green spaces you enjoy from your ideal suburb, while owning something more affordable close by.
Or, you could consider looking further from your capital city’s CBD, or even in the regions, for a first home that is more affordable. This option may better suit investors who are comfortable not living in the property if it is located far from work or family.
However, with the rise of work-from-home conditions, first home buyers are less confined to purchasing close to the office, so a sea or tree change for housing affordability is not uncommon.
6. Go guarantor
Another popular option to consider when saving for a home is to speak to a trusted family member (typically parents) about going guarantor on the home loan. This involves the family member offering up security – generally the equity in a home – to guarantee the loan in the event you were to default.
And the guarantor may only need to back up the portion of the deposit you are missing up to 20%, not the entire value of the property. Say you can only afford a 5% deposit, you may be able to have a guarantor come on to secure the remaining 15% deposit.
This is a considerable financial arrangement so it’s important you assess the benefits and risks before proceeding. Missing repayments or defaulting on a guarantor home loan may not just impact both of your finances, but your relationship as well.
Home ownership has always been considered the Great Australian Dream. So, whichever home saving tip or trick you consider using, it’s great to keep in mind that the home buying journey may be more achievable than you believe. There are affordable alternatives to all aspects of purchasing a property, whether that means looking for a cheaper home or a cheaper deposit.
Government assistance schemes aren’t just limited to the ones listed above. You may want to consider looking into options like the first home owner grant (FHOG) for some additional funds towards owning your own home, or if you’re eligible for any stamp duty concessions or exemptions in your state or territory.
If you want more information on 10% deposit home loans, or to speak to an expert for advice around your first property, please don’t hesitate to call Reduce Home Loans on 1300 733 823.
Any statements are general in nature and do not take into account your financial personal situation, objectives or needs. You should consider whether any statement/s is suitable for you and your personal circumstances. Before making any financial decision, consider your circumstances and the product disclosure statement.