Market downturn slashes time needed to save a deposit

The recently released 2023 First Home Buyer Report found home owners in Sydney spend more time saving for a 20 per cent deposit (six years and eight months) than any other Australian city, while on the other end of the spectrum, prospective buyers in Darwin spend three and a half years saving before their entry into home ownership begins.

Brisbane and Sydney both reported an 11-month decline in the time needed to save for a home deposit between February 2022 and last month.

Buyers looking to purchase an entry-priced unit in the NSW capital also need to save longer (four years and seven months) for a 20 per cent deposit than residents of any other Australian city, with Perth once requiring the least amount of saving time (two years and three months).

Domain’s chief of research and economics, Nicola Powell, explained that the mixture of economic conditions breeding these savings time declines offers prospective Australian first home buyers “a time machine.”

“Nationally, for a couple, it’s now become six months quicker for a first home buyer to purchase an entry-priced house and two months quicker for an entry-priced unit since this time last year.”

Despite previously rock-bottom interest rates benefiting mortgage holders by making borrowing cheaper and repayments easier, on the flip side of this, “it was a key driver of property price growth, making time to save a deposit longer.”

However, this has shifted since the Reserve Bank of Australia began the swiftest and largest cash rate increasing cycle last May, leading to the cash rate increasing from 0.1 per cent to 3.60 per cent in 11 months.

“Now in 2023, first home buyers are facing less competition and softer prices, reshaping the affordability conversation,” Dr Powell added.

Property prices are not the only way to consider housing affordability, with mortgage serviceability another key factor as most first home buyers require a home loan to purchase a home. 

Kareene Koh, general manager and chief executive officer of Domain Home Loans, explained that increasing mortgages have “negatively impacted the costs associated with a home loan.”

”[Despite] the decline in prices [assisting] buyers in shortening the time to save, higher interest rates have seen the affordability of mortgage repayment[s] deteriorate, adding a new level of complexity.”

Since May 2022, research suggests borrowers with a $600,000 mortgage have experienced monthly repayment increases of $1,100.

Ms Koh conceded, “It’s a difficult time for market entrants,” though she believes “there’s still some good news” as interest rates begin showing signs of stabilisation, “providing a light at the end of the tunnel for months to come.”

She stressed the importance of first home buyers being “across the numbers.”

“Knowing your budget and familiarising yourself with the kinds of properties that sell below your maximum purchase price will ultimately be the key to determining where you can afford to buy,” she said. 

Dr Powell added that giving first home buyer flexibility “on the type of property and location they want” will provide them some assistance. 

She also noted that “the decentralisation of our workforce has supercharged affordability for some with remote working, bringing increased flexibility and greater housing choice.”

Even so, she conceded that “not everyone is able to do this, with lower-income workers often needing to be close to their workspace as they are unable to work from home.”