It’s easy to get caught up in hype and drama – especially where the Australian property market is concerned. However, a recent report from Domain Group has shed new light on the realities of property market entry for first home buyers – in Melbourne specifically - and the news is not as bad as you’d expect. The average time most first homebuyers can expect to spend saving for a house deposit in the greater Melbourne is 5 years.
The report included the city’s most affordable areas across the greater metropolitan region and analysed entry-level house and unit prices. Using a 20% deposit as a reference point, estimates were made using ABS data on average wages and though some results were as expected, there were a few surprises in there too.
It’s true the market has been going through some turmoil and as a result, the time required to save an entry-level deposit increased by almost a year in the 2018 financial year. Many prospective first time buyers were borrowing up to 95% of the property price, with migrants and young families struggling the most to secure their coveted spot on the property ladder. Many first time buyers had little choice but to rely on assistance – either in the form of a loan from family or by depending on family for accommodation and child care to reduce costs and allow them to save their deposit faster. These examples tell a deeper story however and this is that, despite the challenges, first homebuyers were not discouraged. Many were taking advantage of government grants and stamp duty concessions.
The ABS reported that almost 30,000 loans were issued to Victorian first homebuyers after the introduction of stamp duty concessions in July 2017. Previous average loans for first homebuyers hovered around the $332,000 mark, yet in the 2018 financial year, that figure rose to $358,000. In addition, further increases are expected with homebuyers now being able to utilise their super fund to save their deposit. This incentive is capped at $30,000 unfortunately, but it still offers FHBs a boost to get them closer to their goal, as long as the time frames work, within the requirements of the scheme.
The report estimated that a young dual couple in their late 20’s to early 30’s, on an average wage, would need 6 years to save a deposit for a half a million dollar property. Now not all of us are in that demographic, not all of us are paired up and not all of us are looking for a property of that value. The good news therefore is that if you look for something cheaper, have the capacity to earn more and spend less, you can be on your way to saving YOUR deposit before you might have thought.
So let’s explore where all these properties are so you can decide what to buy and where. Melbourne’s western expansion is still the most affordable option for first homebuyers. Maribyrnong offers the best affordability and location with buyers needing 3.5 years to save for a $360,000 unit or 7.5 years to save for a $752,000 house. Slightly further out, but offering great lifestyle options for a specific demographic are estate type developments in Caroline Springs, Tarneit, Rockbank and Fraser Rise. These all fall within the regions of Melton and Wyndham, where the average entry-level houses are between $425,000 and $490,000. These prices mean couples could save a minimum deposit of $80,000 or more in about 4 to 5 years.
Reaching savings goals for a house deposit are a little further from reach for those looking north, but there are reasonable property opportunities to be found for first home buyers in Whittlesea and Brimbank, with 6 years the expected time to reach their goals. This is also the case heading south in areas such as Casey, Frankston, and Greater Dandenong. For those wanting to secure a ‘city adjacent’ address, they can find themselves in regions such as Brimbank, Hobsons Bay, Moreland and Darebin – all within 20 kilometres of the CBD – but it will take them 7.5 years to get there based on local property prices and savings from average wage earnings. Those wanting larger properties in older more established shires will need to save for much longer. The likes of Maroondah, Knox, Greater Dandenong and the Yarra Ranges all require a minimum of 6 and up to 7 and a half years to save a deposit for homes valued between $585,000 and $727,000.
Those whose priority is to get in fast, then fine tune to their own personal needs and tastes later, will find that some focused saving for just over 3 years will secure a $305,000 unit in Greater Dandenong; that’s 39 kilometres from the city. It may not be the ideal for all, but with a 12 month stay under FHB grant conditions, the buyer gets the chance to live in the property and plan for their next stage. Paying down the mortgage and renovating a simple but practical property to be ready for tenants, could result in a tidy little investment, beautifully transitioning them into their next property investment goal.
Units are a much quicker entry-level option for FHBs, with the longest estimate of 4.25 years required to save a deposit for a $410,000 unit in the city of Yarra. This has to be the most surprising result from the report, given that suburbs within that region are some of Melbourne’s most sought after. The likes of Carlton, Fitzroy, North Fitzroy, Fairfield, Collingwood, Abbotsford and Richmond are all within 5 or so kilometres from the CBD and have a great variety of quirky and interesting properties to suit a range of requirements. Along with City of Yarra units, FHBs can also get into units in the CBD, or within 15 kilometres, in Moonee Valley, Maribyrnong, Moreland, Darebin, with a 3.5 to 4.25 years deposit saving estimate.