With so many Australians looking to buy their first home nowadays, saving for a deposit is often the first hurdle to jump. According to CoreLogic however, there has been quite a bit of misinformation regarding how much money you may need for a deposit.
The real estate situation in Tasmania has been changing recently, with many first-time buyers looking to move to the island’s capital city of Hobart.
Cameron Kusher of CoreLogic suggested that the misconception was that in order to buy a house, people needed to have around 20% deposit in the bank. According to Kusher, this 20% deposit was beneficial but not actually necessary.
One benefit of having over twenty percent for a deposit, is that anything under this will likely force you to have to pay lender’s mortgage insurance (LMI). Lender’s mortgage insurance can be paid upfront or incorporated into the loan repayments. Be wary though, as this can attract higher mortgage repayments and a large upfront deposit.
According to Mr Kusher, Hobart’s 25th percentile property price sat at around $225,000 per unit, and $275,875 per house. This figure is the centre point between the median price and the cheapest house on the market.
You will find that this is the sector of the market within which first time buyer will be house hunting. According to Mr Kusher, Tasmanians with a 5 percent deposit will need units of the value $20,552 and houses $23,096. Those with 10 percent deposit require units of $31,802 and houses at $36,890. Those with a 20 percent deposit require units of $54,301 and houses of $64,477.
When you compare these results with other capital cities, Hobart fared particularly well. Twenty percent deposits in this area sat at $14,566 less than in Brisbane, $16,545 less than in Perth, and a humongous $94,456 lower than the likes of Sydney.
Establishing A Foothold
In the March quarterly report, the Real Estate Institute of Tasmania (REIT) took note that first time home buyers found it much harder to gain a foothold in the market.
According to the REIT, most of these people were looking to buy into established dwellings that didn’t qualify for government financial assistance – i.e. the home builder’s grant. This means that they are competing against investors who are attempting to secure houses in a higher price range.
In May, the government announced that grants of $20,000 will continue for a further 12 months through to the end of the 2017-18 financial year.
Mr Kusher of CoreLogic explained that entry into the housing market would remain a challenge for first time buyers – especially in the larger, more expensive capital cities. This would also be true of the more affordable areas where household income growth seemed to be quite slow – making saving for a deposit difficult.
Kusher concedes that without a big fall in prices of real estate, the affordability of housing for first time buyers was unlikely to improve in the foreseeable future.