First-home buyers in Australia face a tough challenge as property price growth could outpace their savings, a new study by Canstar reveals. The survey found that respondents are saving an average of $1,605 per month towards their deposit—but that isn’t enough to get a hold of the property market.
Saving $1,605 per month with a 3.68% interest rate might not keep up with annual property price growth of 5.8% in capital cities. Recent data might show that capital city property prices have grown at a lower rate of 5.3% in the past decade, but it isn’t the case for Sydney and Melbourne.
“The problem for first-home buyers can often be that they are chasing their tails. The rate at which they are building their savings may lag behind the speed at which property prices are rising,” Canstar’s editor-at-large and money expert Effie Zahos (pictured above) said. “Of course, past performance is no guarantee of what will happen in the future but the analysis does highlight that the average savings first-home buyers are putting towards their deposit may not be enough in some capital cities to keep pace with Australian property price growth.”
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Careful financial planning and strategic decision-making can help first-timers get a foot on the property ladder. Zahos suggests several strategies for potential homeowners to achieve this. These include considering “bridesmaid” suburbs, opting for a unit over a house and looking into home guarantee schemes.
She advises first-home buyers to maximize borrowing capacity by paying off existing debts and reducing credit card limits. For instance, reducing a $10,000 credit card limit by $7,500 could increase borrowing power by $33,000. The same goes for repaying a $60,000 car loan over five years before applying for a home loan, which could increase borrowing power by $145,000.
In addition, Canstar’s study highlights the impact of strata fees on borrowing power. A single buyer could borrow up to $340,000 if they opted for a unit with strata fees of $2,500, an increase of $48,000 compared to a unit with strata fees of $7,500.