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How Long Does It Take To Save For That First Home?

By Laura Anderson

Everything from avocado on toast to coffee to zoning laws has been blamed for a lack of affordable housing, particularly for first-time buyers, but is it really that simple?

With house prices rising and interest rates falling, just how long does it take the average single person or couple to save for a deposit for their first home?

A new analysis shows single first-time buyers living in NSW take 4.3 years to save for a 10% deposit and 8.3 years for a 20% deposit.

For couples saving for a deposit for that first home, it takes 2.7 years to gather the funds for a 10% deposit in the Australian Capital Territory whereas a 20% deposit would take the same couple 4.8 years to save. A single person living in the ACT would take 4.4 years to save for a 10% or 8.3 years to save for a 20% deposit.

Those figures all assume prices won’t rise. So are younger buyers just bad savers who spend far too much or is the Great Aussie Dream now out of reach for more buyers?

Deposits grow with house prices

The analysis of the single biggest cost facing first-time buyers shows how long it takes those on the average salary, as defined by the Australian Bureau of Statistics, to save for a 10% or 20% deposit, assuming the couple or individual put away 20% of their income.

The median property prices by state or territory are taken from CoreLogic RP Data from 1st of March this year until the end of May, 2016.

The income levels and median property prices do vary, so while those in places like NSW may earn more, property prices in that state are also a lot higher.

The study of savings for a deposit does include other common costs to first-time buyers such as stamp duty.

The findings do not take into account rising house prices, which is one of the biggest challenges for first-time buyers, REA Group Chief Economist Nerida Conisbee says.

“I guess the problem is though, that because we’ve seen pretty rapid house price growth over a four-year time period that median can go up pretty quickly. So although in NSW it’s only 4.3 years (for a single) based on the median now if you’re looking to start saving now it’s probably going to take you longer because prices are continuing to grow.”

Singles earning the average salary take a lot longer to save for a deposit compared to couples or those buying in a group, and with the lower borrowing capacity of one income, it can be tough to buy on your own.

“The reality is, being in a couple or going in with family or friends does make it easier to buy a home. There are a lot of people who would really like to buy, to be able to afford a property on their own,” she says.

But first-home buyers need to be more realistic about what they can afford, says certified financial planner Catherine Sharples-Rushbrooke, General Manager at Advice Services Australia.

“For first-home buyers, they do need to be realistic about what it is they are going to get for what they’re paying. It might not be the ultimate dream home straight away, especially at some of those prices,” Sharples-Rushbrooke says.

“Using those median house prices there, I know for Victoria you (first home buyer) are not going to be able to buy a house in the inner-city but you might be able to buy an apartment or you might need to move an hour out of the city to buy something.”

While much has been made of younger Australians and their ability to save, Conisbee says the figures prove it’s not the pricey breakfasts that are to blame.

“That’s the whole thing with saying ‘just skip (the pricey) breakfast’, $20 a week isn’t going to make-up for the way prices are increasing particularly in Sydney and Melbourne.

“So if you consider NSW at the median house price of $570,000 if that increases by another 10%, then suddenly prices have gone up another $57,000 and suddenly you’ve got to save for that extra 10% you know an extra $5,700 over the year.

“The problem is that house prices keep going up, the ratio of average incomes to house prices keeps going up.”

With rising prices it is becoming harder for some first-time buyers to save for that deposit.

“I do think the goal posts do keep changing and they have changed over a decade from making it pretty affordable for people to buy homes to now where it’s just increasingly out of reach for many buyers,” Conisbee says.

Options for first-home buyers

But for this generation of first-time buyers, rentvesting or buying in an outer or regional area and renting the property out while living in the city is an option.

“You do start to see people looking more broadly in places like the Central Coast or if you have a look in Melbourne the outer east is really coming up, it’s a really popular area.  So people really are looking to rentvest or looking at alternatives, they may becoming more accustomed to apartment living.  So there are all these changes and adaptations that people are making to these high prices,” Conisbee says.

Savings tips

Sharples-Rushbrooke advises those first-time buyers looking to save should look at what needs to be prioritised and what can be sacrificed – here are her top savings tips.

Get serious about your budget: Know exactly what funds come in and when so that you can work out which financial sacrifices to make.

Can you earn more money? Could you get a raise or take on extra shifts? For some, there may be ways to earn more with their current job.

Look closely at your expenses: Could you move to another rental property or move in with family to lower your living costs? Do you really need that car or could you catch public transport to work?

Get support: Find others in your situation and find creative ways to keep saving and keep each other motivated. So instead of a night out at a bar, try a group picnic somewhere scenic which probably won’t cost as much, but could still involve the odd tipple.

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