With house prices, interest rates and rents soaring to record levels, the number of new first-home buyers fell to a five-year low in January 2023.
One of the biggest obstacles to entering the property market for the first time is saving enough for an initial house deposit. In our comprehensive guide, we delve into the crucial question: How long will it take first-home buyers to save for a deposit?
This article will cover all manner of important house deposit statistics. Jump to each one using the links below.
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Despite another five cash rate increases raising the hopes of wannabe homebuyers, property prices did not crash in 2023. In fact, over the ten months to November 2023, housing values rose 8.3% across the country, with Hobart (-3%) the only capital city to see a decrease (CoreLogic).
Perth (+13.5%), Brisbane (+10.70%) and Sydney (+10.20%) all saw double-digit growth over the 12 months to November, with the median national dwelling value reaching $753,654, a new record high.
There is a significant discrepancy between median values for houses and units. Nationally, for example, the median unit price is $627,347, more than $100,000 below the value of the typical dwelling. Houses, however, have a median price of over $811,000.
Asking rents have also soared at a similar pace to house prices. CoreLogic's national Rent Value Index saw rental values rise 1.6% over the September quarter and 8.4% over 12 months. However, national rents have increased for 38 consecutive months, taking rental values 30.4% higher since the onset of the COVID-19 pandemic.
The median national weekly rent, according to CoreLogic’s latest data, is $588 per week, or more than $30,000 a year.
“This surge has seen the median weekly rental value rise to $588, adding the equivalent of $137 per week to the median rent cost,” CoreLogic noted.
“With the rising cost of living adding additional pressure on renter's balance sheets, it's likely the average household size has continued to rise as tenants seek to share the additional rental burden across larger households.”
Sydney is the most expensive capital city to rent in at $726 a week ($775 for houses). On the other hand, Hobart is the cheapest capital to rent, with units available for just $463 a week on average.
A house deposit is an upfront payment made by a buyer towards the total price of a property. In Australia, this deposit represents a percentage of the property's total cost and is a crucial part of securing a home loan.
The deposit demonstrates to lenders that the buyer is financially responsible and capable of saving, thereby reducing the lender's risk.
When purchasing a home, the buyer pays a deposit to the seller, which is typically held in a trust until the sale is finalised. This amount is then deducted from the total sale price of the property.
The larger the deposit, the less the buyer needs to borrow, potentially leading to more favourable loan terms, lower monthly repayments, and reduced interest costs over the life of the loan.
In Australia, the ideal deposit size is typically 20% of the property's value. This is because a deposit of less than 20% often requires the buyer to pay Lenders Mortgage Insurance (LMI), an additional cost that protects the lender in case the borrower defaults on the loan. Paying Lenders Mortgage Insurance may help someone buy a home.
However, deposits can be higher or as low as 5%, with certain schemes and incentives allowing for even lower deposits, sometimes down to 2%! These options can be particularly beneficial for first-time buyers who might struggle to save a larger deposit.
Because of their size relative to the cost of modern properties, the deposit can be one of the biggest, if not the biggest, barriers for first-home buyers. Below, we’ve calculated how big these standard deposit sizes are based on current property prices in Australia.
By taking those different deposit goals into account - 20%, 10%, and 5% - and comparing them to the median property prices according to CoreLogic’s data, we can see just how daunting the average property deposit really is.
The average deposit amount for a home buyer in Australia depends on the state you live in. See the table below for what a deposit could cost you in each of our capital cities.
For all dwellings (that’s units and houses) across Australia, a 20% deposit would cost you over $150,000! Even a 5% deposit would still cost nearly $40,000, while a 10% deposit would set you back over $75,000.
The cheapest capital city to buy in is Darwin, where a 20% deposit on the median property is currently ‘only’ $99,000. But if you were looking to buy a in Sydney with a 20% deposit, you’d be looking at shelling out more than $225,000 ($56,000 for a 5% deposit!).
Houses are even more expensive than units, as our table below highlights. For the median house in Australian capital cities, a 20% deposit would require a contribution of $186,000!
However, if you bought in a regional area with a 5% deposit, you’d only need to stump up around $31,000, which is much more achievable.
Units are much more affordable than houses if the lifestyle suits you. For a 20% deposit, the typical unit would cost $125,500 upfront or $32,000 for a 5% deposit.
See below for a full breakdown of the median deposit size for a unit across Australia.
The average time it takes to save for a house deposit in Australia depends on the state you live in. Various research has been conducted to answer the question, and this is what we’ve found.
In August 2023, Finder analysis found that it would take an average of 12 years to save for the average unit deposit and 16 years for the average house deposit.
That’s based on a few assumptions, mainly that households save 25% of their income and that income and house prices both grow at about 3.5% per year.
The situation is the worst in NSW, where households need, on average, two decades of savings for a house deposit and 14 years for a unit.
Victorians need an average of 16 years to save for a house, while Queensland and the ACT are close behind, requiring 14 and 12 years to save, respectively.
"Wage growth over the past few decades simply hasn't kept up with skyrocketing property prices, Finder’s Home Loans Expert Richard Whitten said.
"Saving up enough for a deposit, especially when the cost of everything from food, energy, and insurance – not to mention rent – is rising, is a big barrier to overcome.
"Buying a home is becoming increasingly out of reach for many Aussies."
| State | Years to Save (House) | Years to Save (Unit) |
|---|---|---|
| NSW | 20 | 14 |
| VIC | 16 | 11 |
| QLD | 14 | 10 |
| ACT | 12 | 7 |
| SA | 15 | 10 |
| WA | 10 | 7 |
| TAS | 17 | 14 |
| NT | 8 | 6 |
| Australia | 16 | 12 |
These figures are all for the median house deposit, which, as you probably know by now, is out of reach for the majority of first-home buyers. But what if you took the frequently offered advice of buying a more modest house or one outside major cities?
Domain’s First Home Buyer Report for March 2023 calculated the time it would take to save for a 20% deposit on an ‘entry-level home’, which is defined as a home in the cheapest 25% of the market.
According to that report, it would take an average of just under five years to save for a cheaper home: Sydney is again the longest at six years and eight months, with Canberra not far behind at six years.
“Nationally, the time to save a deposit became six months quicker for an entry-priced house and two months quicker for an entry-priced unit compared to this time last year,” Domain’s report said.
“This means wage growth and the higher compounding interest accrued on savings have been able to keep ahead of entry house and unit price growth nationally.
“All capital cities recorded a decrease in the time needed to save an entry-priced deposit, apart from Adelaide.”
In 2023, the escalation of house prices in many Australian markets has significantly impacted the ability of first-home buyers to save for a deposit. Higher property prices mean that potential buyers must save larger sums to meet the standard 20% deposit, extending the time needed to enter the property market.
Units and townhouses tend to be much more affordable than houses, with the median unit being nearly $200,000 cheaper than the median house. In capital cities, that difference is almost $300,000!
According to Domain’s research, purchasing an entry-priced unit could result in buying your first property one year and six months earlier than saving for an entry-priced house. In Sydney, Melbourne and Canberra, the difference is more than two years!
Rising interest rates in 2023 have a twofold impact on deposit savings. Firstly, as interest rates increase, the cost of borrowing goes up, which can lead to reduced borrowing power for prospective homeowners. Lenders often tighten their loan assessment criteria in response to higher rates, meaning buyers may need a larger deposit to secure a mortgage.
According to RateCity research, the average earner’s borrowing power has declined so much across all 13 rate hikes since May 2022 that they can now access over $200,000 less in lending from Australian financial institutions.
Inflation and the rising cost of living in 2023, coupled with stagnating wages, are major hurdles for those trying to save for a house deposit. Inflation leads to increased prices for goods and services, reducing the amount of disposable income available for savings. At the same time, wages in many sectors have not kept pace with inflation, diminishing the purchasing power of potential homebuyers.
Wages have also been entirely outstripped by housing prices. Research by CoreLogic in 2022 revealed that Australian home values have grown 193.1% over the past 20 years, compared to 81.7% (less than half) for wage growth over the same period.
These economic conditions make it increasingly challenging for people to set aside a portion of their income for future home purchases.
Stamp duty represents a significant additional upfront cost for home buyers in Australia. A report by realestate.com.au highlights that stamp duty can add years to the first-home buyer journey. For example, stamp duty alone adds an extra two years’ worth of savings in Sydney and Melbourne for more expensive, median-priced homes.
While some states offer concessions or exemptions for first-time buyers, the overall impact of stamp duty and other related fees (such as legal and inspection costs) remains a considerable barrier to homeownership.
This shouldn’t come as a surprise if you’re renting, but rental payments are often the biggest hindrance to deposit savings. According to Finder’s report:
“States where it is quickest to save for a deposit have rental costs that are less than 30% of median household income: ACT (26%), NT (27%), VIC (27%), WA (29%).”
We decided to run some numbers on how long it would take for the median rental payments to equal the median property deposit.
For the typical property across all of Australia ($150,731 for a 20% deposit), it would take almost exactly five years' worth of rent payments to reach this amount. If you were aiming for a 5% deposit, it’d take only 14 months.
For the typical house in Sydney, that $279,473, 20% deposit could be within your reach in just under seven years (83 months). But according to Finder’s research (see above), it would take 20 years' worth of savings - 25% of take-home pay - to get there.
This might be a bitter pill to swallow for renters, knowing they’re already paying enough rent to afford a deposit and then some. With rents far outstripping savings, it’s easy to see why the main motivation for first home buyers is to ‘get out of the rental market’.
We’ve compiled several tables worth of data below on how long rental payments would take to equal a house deposit for all properties, houses, and units.
By now, you’re probably aware of how difficult it can be to save up for a house deposit, especially if you don’t have access to the Bank of Mum and Dad. If you need a bit of a leg up, here are some valuable tips you can try if you haven’t already.
Research and utilise government incentives and grants available for first-home buyers. These can provide a substantial boost to your savings, and there are plenty of them available. Here are some of the main ones:
As we’ve demonstrated above, rent is often the biggest obstacle to buying a property if you don’t live at home. Consider moving back with family to save on rent or add a housemate to your current living situation.
According to data from Flatmates.com.au, the number of people seeking to fill rooms in their homes has already significantly increased — with May 2023 breaking the record for the largest number of new users at 70,000. The number of new sign-ups each month had also increased by up to 70% compared to the same time last year.
Sharing living expenses can significantly reduce your monthly outgoings, allowing you to allocate more funds towards your house deposit.
Review your major expenses, such as rent, utilities, and subscriptions. Consider downsizing, negotiating bills, or eliminating unnecessary services to free up more money for savings.
High-interest debts, like credit card balances, can hinder your ability to save. Look into options for debt consolidation or focus on paying off these debts quickly. Reducing these obligations frees up more of your income for saving towards your home deposit.
Plus, having fewer debts will usually help increase your chances of home loan approval!
Keep abreast of market trends and saving strategies. Be open to adapting your approach as circumstances change, ensuring you're always on the most effective path to saving for your deposit.
Be creative with your home-buying strategy. Consider moving to a more affordable area, or explore 'rentvesting' – renting where you want to live while buying a property to rent out elsewhere. Alternatively, purchasing a property with siblings or friends can also be a viable option to enter the property market sooner.
Utilise the expertise of property professionals like buyer’s agents and mortgage brokers. Buyer's agents can help you find properties that match your budget and preferences, while mortgage brokers can assist in finding the most suitable loan products, potentially saving you money and time.
Saving for a house deposit is a marathon, not a sprint. Stay committed and keep your goal in sight. Regularly review your savings plan and adjust as necessary, but most importantly, maintain your motivation and determination to achieve your home-owning dream.
The information on this website is for general information only. It should not be considered professional advice from the website owner - Jacaranda Finance. Jacaranda Finance is not a financial adviser, and the content on this page does not consider your objectives, financial situation or needs. You should consider seeking independent legal, financial, taxation or other advice to check how the website information relates to your unique circumstances. Jacaranda Finance is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly by the use of this website.
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