How To Save for Your First Home, Without the Help of Mum and Dad

Feel like you’re being bombarded with first home buyer stories that sound too good to be true? You’ll see a couple that “pulled themselves up from their bootstraps” to buy their first apartment, only to learn that it was bankrolled by their parents.

While these stories can be great sources of inspiration for would-be buyers, let’s be honest: not every Aussie can rely on mum and dad to help with their first property.

So, how can everyday Australians save up for their first home deposit without involving the bank of mum and dad?

Time taken to save a deposit

Let’s be frank, there are no quick fixes when it comes to saving for a deposit on your own. It will take a lot of hard work, sacrifice, and sometimes a bit of luck. But it is possible if you’re willing to stick it out.

The first thing you’ll want to know is what your benchmark savings goal is. You can work this out in two ways:

1. Calculating your borrowing power. Borrowing power calculators are tools available online that allow you to plug in your personal details (income, expenses etc.) and get a rough estimate of how much you may be eligible to borrow from a lender for a mortgage. This can be a great starting point to know how much you could afford to pay with your budget.
2. Check out real estate listings. Another option is to hop online and look at real estate listings in or near suburbs you’re interested in purchasing in. Not only can this start to paint a picture of the realistic price of properties you may be interested in, but it can deter you from areas or dwelling types that you could not afford.

If you know that your ideal first property will cost you, say, $500,000, then you know that at the very least a 10 per cent deposit will mean saving $50,000. But that $50,000 won’t just appear overnight.

RateCity research crunched the numbers on how long it may take to save for a deposit based on median dwelling prices in each capital city, if you put away a few hundred dollars into a savings account each week.

If you put away $400 a week to save for a median-priced unit in Sydney ($771,859), it would take you 4 years and 10 months to afford a 10 per cent deposit. The time taken almost halves in Melbourne though, with a 10 per cent deposit for a median-priced unit ($599,234) only taking 2 years and 10 months to save for.

Time taken to save for a median-priced unit in Australia

Source: RateCity.com.au, CoreLogic.com.au, Genworth.com.au, Stamp duty based on State Revenue websites.

Note: Median unit price based on April Core Logic Hedonic Home Value Index. Total deposit figures based on 10 per cent deposit, including stamp duty (concessions and exemptions vary depending on state or territory) and Lender’s Mortgage Insurance. Time taken to save based on savings account with average base interest rate of 0.39%, rounded up to nearest month. Figures accurate for 10.05.2021.

The time taken to save for a deposit for a median-priced house almost doubles compared to unit prices, based on RateCity research. Saving $400 a week for a deposit for a house in Sydney would take you 7 years and 8 months, highlighting the intimidating costs of housing in this capital city. Comparatively, a Brisbane and Adelaide home would take 3 years and 7 months to save for.

This is an understandable time difference given the varying property costs but it may indicate that first home buyers looking to get a foot on the property ladder quickly may want to consider a unit as opposed to a house.

Time taken to save for a median-priced house in Australia

Source: RateCity.com.au, CoreLogic.com.au, Genworth.com.au, Stamp duty based on State Revenue websites.

Note: Median house price based on April Core Logic Hedonic Home Value Index. Total deposit figures based on 10 per cent deposit, including stamp duty (concessions and exemptions vary depending on state or territory) and Lender’s Mortgage Insurance. Time taken to save based on savings account with average base interest rate of 0.39%, rounded up to nearest month. Figures accurate for 10.05.2021.

Tips to save for your first home deposit

Now you know how much of a deposit you’ll need, let’s explore some of the ways you can save up for it.

1. Set a budget and stick to it

No, it’s not glamorous and yes, it’s typically boring, but setting a strict budget and sticking to it is arguably one of the core ways a borrower will obtain a property deposit. Making a serious savings plan that you do not dip into can be key to saving up for a deposit.

There are a range of budgeting tools online, from detailed ‘bucket’ budgets from The Barefoot Investor, to tips and tricks available on Pinterest. You may want to design one specifically for your lifestyle and financial needs.

One of the easiest ways to figure out your budget is to take stock of your income and expenses. Look at your bank statements and categorise each expense, such as entertainment, food, and utilities, and work out how much of your income you’re putting towards these categories. Then, you’ll have to consider making some sacrifices, such as reducing how much you spend dining out or on subscriptions and memberships.

And if you know that money may be tighter one month than the next, consider employing an evolving budget you establish at the start of the month that suits that months’ expenses, as opposed to a fixed budget.

2. Increase your income

Truthfully, while budgeting can be a great option to help save for a deposit, if you’re only able to afford a few hundred dollars a month in savings then it will take some time before you reach your goal. Whether you consider taking up some casual hours or consider freelancing with some of your skills, taking on more hours of work can help you to get a deposit sooner.

You may also want to boost your income by selling some possessions. While you’re unlikely to find a full $50,000 in your old appliances and clothes, every dollar counts when it comes to saving up for a big goal.

This option may not realistically suit every Australian, but if you’re in a position where you can boost your income, it’s worth considering.

3. Government assistance

A 20 or even 10 per cent deposit can balloon into the hundreds of thousands of dollars range, especially if you’re shopping around in Sydney or Melbourne. This is where taking advantage of government assistance may come in handy.

• First Home Loan Deposit Scheme (FHLDS)– A government initiative designed to support first home buyers by allowing those with deposits of under 20 per cent (up to 5 per cent) to purchase property without having to pay Lender’s Mortgage Insurance. The Australian government effectively acts as a guarantor in this scenario. There are conditions buyers will need to meet, including income caps of $125,000 per annum, capped at $200,000 for couples), and the FHLDS is capped at 10,000 each financial year.
• First Home Owner Grant – Programs, which differ per Australian state or territory, that allow eligible first home buyers to claim potentially thousands of dollars towards their first home.
• First Home Super Saver Scheme – This scheme allows eligible first home buyers to make extra contributions into their super fund which may be used towards your home deposit. Given the higher rate of returns generally found in super compared to savings accounts, this may allow borrowers to fast track the savings process. First home buyers can withdraw up to $50,000 for couples.
• Stamp duty concessions and exemptions – A property deposit is arguably the biggest upfront costs associated with buying property, but there’s another upfront cost first-time buyers will also need to ensure they can afford: stamp duty. Depending on the value of the property and the buyer’s state or territory, this cost can climb into the tens of thousands of dollars range and must be paid upfront. However, each state and territory may have its own stamp duty concessions and exemptions available to first home buyers, depending on the value of the property. Check the State Revenue website where you live for more information.

4. Climb the ladder

Sometimes first home buyers may find that their expectations outweigh reality. It’s not necessarily realistic to expect you’ll be able to nab your dream home as your very first property purchase. There’s a reason they call it a property ladder, you’re meant to climb it.

If you’re searching for your first investment property, for example, but finding you’re being priced out of Sydney or Melbourne, it may be worth looking into suburbs with high rental yields in other areas, such as Brisbane or the Gold Coast. Suburbs outside of the CBD but with access to good public transport will still be competitive, but potentially more affordable than expecting you’ll nab a blue-chip property on your first purchase. Look at rental yield reports online, listen to the experts and do your research around areas of value that other budding investors may be overlooking.

For Aussie first home buyers hoping to find a property to live in, it’s not as simple as searching in alternative cities when you’re based in one. But you may find success looking to ‘bridesmaid’ suburbs. If you’ve got an ideal area in mind, a ‘bridesmaid’ suburb means an area that’s adjacent or close to it. The prices may be more affordable, and you’re hopefully only a short drive or public transport trip away from the ‘bride’ suburb.

Ensure you do your research around a suburb, and if the property increases in value over several years, you may find you can sell and turn the profit into a bigger deposit for your dream home.

5. Wait it out

It’s worth keeping in mind that the current state of the housing market is being fuelled by a few key factors that are subject to change over the next few years: rock-bottom home loan interest rates, post-COVID economic recovery and optimism, a fear of missing out, and government schemes.

As illustrated earlier, it will take the average would-be buyer a few years at least to save up for a property. This means that for most, the best move will be to wait it out and save diligently. But there are potential benefits to waiting to purchase property. The Reserve Bank of Australia’s Governor, Philip Lowe, has indicated that they do not expect to lift the cash rate again until 2024.

This means two things for would-be buyers: you can ignore the FOMO (fear-of-missing-out) because low rates may be here to stay for at least three more years, and an increased cash rate typically will ease soaring house prices. Whichever side of the cash rate you land on when you finally save up for a deposit, the housing market may be in a totally different position. And either way, you may be able to lock in a low-rate home loan before rates rise or enjoy potentially reduced house prices.