First-Home Buyers in Sydney Need an Extra 10 Months to Save for a Deposit

February 3rd, 2015

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The Sydney property market was stronger in 2014 than in 2013, with house prices rising continuously. This means that it’ll take first-time buyers an extra 10 months to save for a home deposit, reported Jonathan Chancellor on Property Observer.

The Bankwest First Time Buyer Deposit Report 2014 used the following factors to calculate how long it will take for first-time buyers to save a 20% deposit:

  • Local incomes.
  • Local house prices.
  • Price of the First Home Owners Grant.

The deposit savings time was calculated based on a first-time buyer couple putting away 20% of their combined yearly income into an online savings account each month, and that it earns monthly interest.

Bankwest’s head of specialist banking Ian Rakhit said that according to the report, first-time buyers on an average income will find it difficult to enter the Sydney property market, as it’ll now take 6.7 years to save a deposit for a median-priced property. When compared to 2013 (5.9 years to save for a deposit), this is an increase of roughly 10 months.

The following will take a closer look at some of the reasons why first-time buyers will need extra time to save for a home deposit:

  • High house prices – The increased savings time is mostly due to the 15.4% year-on-year increase in median house prices. It has been projected that first-time buyers looking to buy a median-priced property in Sydney will now have to save $165,100 for a 20% deposit.
  • Low interest rates – The median house price across Australia is rapidly increasing, mostly because of low interest rates. This only makes it harder for first-time buyers to save for a deposit, said Rakhit. The current national average rate for home loans is 5.9%, while the average rate for a high-interest online savings account is 2.5%, which also doesn’t help much with saving for a home deposit.
  • Low incomes – The income of first-time buyers only grew by 2.6% in 2014, which is a measly growth compared to the high percentage increase of house prices (15.4%).
  • High population growth – The population is also continuing to grow at a rapid pace in the whole of NSW, which directly affects housing demand and affordability across the state. But it makes it harder for first-time buyers in the Sydney region to step onto the property ladder.

Furthermore, there are currently 12 local government areas (LGAs) in Sydney, where it’ll take more than 10 years for a first-time buyer couple to save for a home deposit – this is equivalent to 28% of Sydney LGAs. The other 44% will have a savings time of more than six years, 16% will take 4-6 years, and 12% will take 2-4 years.

As for specific suburbs in the Sydney area, first-time buyers will find it most difficult to break into Mosman in Sydney’s lower north shore, since they’ll need 14.2 years to save for a deposit. Woollahra in Sydney’s east is the second most difficult suburb to enter, as it’ll take 13.8 years to save a deposit. This still makes Sydney the most expensive capital city in Australia for first-time buyers, said Rakhit.