How much first-home buyers need to save to own by 2020

If you saved 40 per cent of your income from today, it would take until 2021 to purchase your first home, new data shows. And that’s provided property prices don’t rise, rents don’t increase, and you maintain an $80,000 salary.

Considering the cost of a 20 per cent deposit and stamp duty on an average first-home buyer purchase, it would take more than 4½ years to have enough to buy, an analysis by Domain Group chief economist Andrew Wilson found.

They’d need to save 39 per cent of their after-tax income – $477 a week – leaving about $725 a week for all expenses, including rent.

Even those putting close to $500 aside a week likely won’t be able to buy before 2020.Photo: Glenn Hunt

After saving this amount for close to five years, provided prices had not increased in half a decade, you’d be able to afford a modest home under $500,000 – likely an older one – or two-bedroom apartment in a middle-ring suburb, such as Parramatta or Westmead. House buyers would be looking 55 kilometres west of Sydney or on the Central Coast.

But given this doesn’t factor in any increases in the property price post-June 2016, or increases in rent and living cost that outstrip any pay rises, it’s likely even this figure is optimistic, Dr Wilson said.

“In reality, if you started saving today it would more likely take you seven years,” he said, anticipating rental costs would increase by more than 10 per cent over this time.

“It would take a lot of sacrifice, you wouldn’t be able to go on holiday or buy a new car,” he said.

“Instead it’s likely more will see [saving a deposit] as insurmountable and it’s creating an environment of full-time renters.”

Already, there is a growing perception from young Australians that they’ll never get on the property ladder. Of those renting, 47 per cent had considered that they might never buy due to rising house prices, a new survey of 1000 people by comparison website Finder found.

This was largely due to affordability issues, despite the low interest rate environment being one of the better times to consider buying, Finder money expert Bessie Hassan said.

“The margin between home ownership and renting is narrowing, and there may come a time when there are more renters than owner occupiers in this country,” Ms Hassan said.

The 2016 census is likely to show home ownership among the 20-to-35-year-old cohort will have dropped to 23 per cent, down from 43 per cent in 2011, BIS Shrapnel managing director Robert Mellor predicted.

“Sydney is more affected [by an affordability crisis] than anywhere else in Australia,” Mr Mellor said.

“Unless something fundamentally changes in the next five years, this will be a permanent change,” he warned.

If the trend continued, he said it would be logical to expect home ownership rates to decline for those in their 40s and above, leaving concerns as to how many would fund retirement in the face of rising rents or mortgages yet to be paid off.

In the meantime, some first-home buyers are entering the market with less than 20 per cent saved and paying lender’s mortgage insurance as a result, First Home Buyers Australia co-founder Taj Singh said.

“First-home buyers can buy with the bare minimum [5 per cent] … however you may not get the best loan in terms of interest rates and features,” Mr Singh said. If the property market dropped in value, there would be a higher risk of owing more than the home is worth without a buffer in the form of a substantial upfront deposit.

Living at home for longer, co-purchasing with another hopeful home buyer, buying an investment property instead of a home or getting a cash gift or guarantee from a parent were other ways those struggling to save could get on the ladder, he said.

Buying a new property to obtain stamp duty concessions and a grant could take the pressure off saving, Pass Go Home Loans managing director Jamie Moore said.

“Keep in mind though that new properties don’t always make for a good purchase,” he said, warning of inflated upfront prices and a potential oversupply in some cities that could affect future price growth.