Home buyers’ deposit hurdles getting higher

It takes more than 8 years to save up a deposit for a typically-priced Melbourne home, the longest time on record for the city.

And in Sydney things are even worse, with it taking a near-record 9.2 years to save a deposit for the average home.

Low interest rates may have slashed the monthly cost of paying a mortgage, but research from ANZ Bank economist David Cannington shows how much harder it is for first home buyers to save up a deposit today compared with previous generations.

One way to illustrate this is to look at how long it takes to save a 20 per cent deposit for a typical home, assuming the buyer has an average disposable income and saves 15 per cent of it.

Mr Cannington said that in the past three years, Sydney house prices had jumped 40 per cent, while household income growth in NSW was 6.5 per cent.

“This sharp increase in house prices combined with low income growth has resulted in households needing to save for an additional two-and-a-half years for a 20 per cent house deposit in Sydney,” Mr Cannington wrote.

The length of time needed to save up the deposit in Sydney is just shy of the record 9.6 years reached in the last huge housing boom of 2003.

First home buyer deposit hurdle

A Reserve Bank submission this week also highlighted a long-term increase in the proportion of household income needed to save up a deposit.

However, it added that buyers were able to purchase properties with deposits of much less than 20 per cent, something that was rarely

possible before financial deregulation.

While saving a deposit had become much harder, Mr Cannington said affordability for people who already had a home loan had improved

as interest rates fell, and this trend was likely to continue unless there were significant policy changes.

“Home owners and investors are likely to benefit from low mortgage rates for years to come, while first home buyers will continue to find home deposit affordability more difficult than previous generations, unless they compromise on current housing preferences,” he wrote.

SMH / July 17, 2015