Owning a home remains a cornerstone of financial security and personal aspiration for many Australians. Yet, saving for a home deposit, particularly in cities like Melbourne and Sydney, is increasingly challenging. High property prices, coupled with rising living costs, make the process daunting, especially for first-time buyers. This report examines the time and effort required to save for a deposit in these metropolitan areas, highlights influencing factors, and explores strategies and programs to facilitate homeownership.
Property Market Overview
Melbourne and Sydney are two of Australia’s largest property markets, and their median house prices are among the highest nationwide. As of mid-2024:
• Sydney: Median house price is approximately $1.42 million, requiring a 20% deposit of $284,000.
• Melbourne: Median house price stands at $941,000, necessitating a 20% deposit of $188,200.
These figures represent a significant financial hurdle, particularly for individuals or young couples with average incomes.
Average Time to Save for a Deposit
The time required to save for a deposit varies based on factors such as income, savings rate, and living costs. According to the Domain First Home Buyers Report (2024), the average couple aged 25-34 takes:
• Sydney: Approximately 6 years and 8 months to save for a 20% deposit on an entry-level house.
• Melbourne: Approximately 5 years and 5 months.
These estimates assume a savings rate of 20% of gross income, which can be optimistic for households juggling other financial responsibilities.
Key Factors Affecting Savings Time
1. Income Levels
Higher income earners can save more quickly, but even dual-income households may struggle in cities with such high property prices. Lower-income earners face an extended savings timeline, often exceeding a decade.
2. Property Prices
Rising property prices increase the required deposit. Over the last decade, median house prices in both cities have grown significantly, compounding the challenge for aspiring homeowners.
3. Living Expenses
High costs of living in metropolitan areas reduce disposable income available for savings. Rent, transportation, and lifestyle costs often limit individuals’ ability to save at an accelerated pace.
4. Interest Rates
Recent interest rate hikes have led to increased borrowing costs. While this might temper housing demand slightly, it hasn’t drastically reduced property prices, leaving deposits relatively high.
Strategies to Expedite Savings
1. Government Assistance Programs
• First Home Guarantee Scheme: Allows eligible buyers to purchase with deposits as low as 5%, eliminating the need for Lenders Mortgage Insurance (LMI). This significantly reduces upfront costs, shortening the savings period.
• First Home Owner Grant (FHOG): Offers one-off payments for eligible first-home buyers, varying by state. In Victoria, the grant is available for new homes valued up to $750,000.
2. Financial Planning
• Budgeting: Creating a detailed monthly budget helps identify areas where expenses can be trimmed to allocate more funds toward savings.
• Automated Savings: Setting up automatic transfers to a dedicated savings account ensures consistency and reduces the temptation to spend.
3. Boosting Income
• Additional Work: Taking on part-time jobs, freelancing, or weekend gigs can supplement income, providing a faster route to reaching deposit goals.
• Career Growth: Pursuing higher-paying roles or investing in education to upskill can lead to increased earnings over time.
4. Reducing Expenses
• Shared Living Arrangements: Renting with roommates or living with family can significantly reduce housing costs, freeing up funds for savings.
• Lifestyle Adjustments: Cutting back on non-essential spending, such as dining out or expensive subscriptions, can help maximize savings.
5. Smaller Initial Purchases
Starting with a smaller or less expensive property (e.g., apartments or units) can lower the deposit requirement, allowing buyers to enter the market sooner and upgrade later.
Impact of Government Policy on Savings
The Victorian Government’s temporary off-the-plan duty concession (effective October 21, 2024, to October 20, 2025) is a recent initiative aimed at improving affordability. This concession reduces the stamp duty payable on eligible off-the-plan purchases, allowing buyers to deduct construction costs incurred post-contract signing from the dutiable value.
For example:
• A $1 million off-the-plan property with $400,000 allocated to construction costs results in a dutiable value of $600,000, lowering the stamp duty significantly.
Such measures can reduce upfront costs and make savings goals more attainable for buyers.
While strategies and government policies provide some relief, saving for a deposit remains a significant challenge:
1. Price Escalation:
As property prices continue to rise, deposit requirements grow, potentially outpacing savings efforts.
2. Limited Reach of Programs:
Government schemes often have strict eligibility criteria, excluding many potential buyers. For instance, income thresholds and property value caps may disqualify middle-income earners or buyers in high-demand suburbs.
3. Disproportionate Benefits:
Critics argue that some policies, such as the temporary duty concession, may disproportionately benefit wealthier buyers or investors, failing to address affordability for first-home buyers.
Consider a couple earning a combined gross income of $150,000 annually, saving 20% of their income ($30,000 per year):
• In Sydney:
With a $284,000 deposit required for a median house, it would take approximately 9.5 years (excluding interest or investment growth).
• In Melbourne:
With a $188,200 deposit required, the same couple could achieve their goal in 6.3 years, assuming no major changes in expenses or income.
This illustrates how Melbourne’s lower property prices provide a relatively more accessible market, though both timelines are substantial.
Future Considerations
• Interest Rate Trends:
Falling interest rates could increase borrowing capacity, potentially leading to further property price rises and extended savings timelines.
• Rental Market Pressures:
Rising rents may make saving even harder for prospective buyers, especially in competitive urban markets.
• Policy Adjustments:
Expanding the scope of government programs to include higher-value properties or offering larger grants could provide meaningful support.
Saving for a home deposit in Melbourne and Sydney is a daunting task, often requiring years of disciplined financial planning. While government programs and strategic financial management can help expedite the process, the combination of high property prices and living costs ensures that affordability challenges persist. For prospective buyers, a proactive approach that includes budgeting, income growth, and leveraging assistance schemes is essential to turning the dream of homeownership into reality.
By staying informed, setting realistic goals, and adopting effective strategies, Australians can navigate the complexities of these markets and take meaningful steps toward their property aspirations.
Disclaimer
This report provides general information and should not be considered professional financial, legal, or investment advice. Figures and policies mentioned are subject to change and may vary based on individual circumstances. Please consult with qualified professionals for personalized advice. Core Elite Real Estate is not responsible for decisions made based on this content.
References
• Domain First Home Buyers Report 2024
• State Revenue Office Victoria
• Property Update: Housing Market Trends
• Proptrack: Savings Insights and Schemes
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