Yahoo Finance Aussies fight losing battle as cost of house deposit outpaces savers: 'Risen to $332,000'
Rising property prices have added thousands of dollars to deposits needed by buyers.
Skyrocketing property prices have pushed up the amount that first-home buyer hopefuls need to have saved up for a deposit. The moving target means some homebuyers need tens of thousands of dollars more than they did just a few years ago.
Borrowers in Sydney are expected to save an extra $125,424 to get a mortgage on the median house compared to five years ago, new data from Domain found. The target of $207,066 needed back in June 2019, has now risen to $332,000.
In Melbourne, the average deposit needed for a 20 per cent deposit has jumped $48,549. It has gone from $165,212 up to $213,761 for a median house in the city.
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Compare the Market economic director David Koch said many young buyers were finding themselves priced out of the market due to rapid property price growth.
“With property prices climbing tens of thousands of dollars in some parts of the country, a lot of buyers feel that they are falling behind while trying to save that 20 per cent deposit,” Koch said.
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How much is a property deposit in Australia?
Here’s how much more expensive a 20 per cent house deposit is today compared to just five years ago, according to Domain.
Sydney up $125,424 to $332,000
Melbourne up $48,549 to $213,761
Brisbane up $81,498 to $195,293
Adelaide up $78,563 to $186,994
Canberra up $58,143 to $208,286
Perth up $64,313 to $170,000
Hobart up $41,039 to $137,211
Darwin up $12,012 to $117,009
In Sydney, the median house price has now risen to $1,662,448. In Melbourne, it is $1,068,805, while in Brisbane is $976,464.
Do you always need a 20 per cent deposit?
Although 20 per cent is the ideal amount to save up for a home deposit, you don’t necessarily always need to save up this amount.
Some lenders will let you take out a home loan with a 5 or 10 per cent deposit but you will have to pay lenders mortgage insurance (LMI). This is a one-off, non-refundable fee designed to protect the bank against the risk of you being unable to repay your loan.
The government’s First Home Guarantee scheme also allows eligible home buyers to purchase a property with as little as a 5 per cent deposit. The government guarantees up to 15 per cent, meaning the buyer can avoid LMI.
Some lenders may also waive LMI for customers in high-earning professions like doctors or lawyers because they are considered less risky, while others offer $1 LMI for eligible buyers.
Is it worth it to pay LMI?
There are various pros and cons to paying LMI.
LMI could be tens of thousands of dollars depending on the size of your loan and deposit, with Koch noting the added financial burden shouldn't be taken lightly.
“But is LMI still a dirty word? If owning a home is part of your long-term plan, and you are confident you can meet the repayments, you could still reap the rewards in equity if the value of the property increases enough before you decide to sell it,” he said.
Western Sydney woman Sharona Ghaem said she opted to buy her first property with a 12 per cent deposit and pay LMI as property prices kept rising.
The 25-year-old is 'rentvesting' - renting out the property and continuing to live with her parents - and said she's happy she bought with a smaller deposit.
"It allowed us to get into the property market and start building equity, sooner than we would otherwise have been able to without using lenders mortgage insurance," she told Yahoo Finance.
LMI pros
Get into the market sooner
Beat possible property price hikes
Benefit earlier from increases to property values
LMI cons
Usually comes with a higher interest rate
You will have a bigger loan
Your loan repayments may be higher
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