October 2015 | Brisbane Mortgage Broker

Saving takes real steel and tenacity. How much of a deposit do you need to gain finance for your first home – does it need to be an alp or just a hill?

The first hurdle to buying your first home is possibly one of the hardest. Putting your money aside to accumulate for a deposit takes real steel and tenacity, and can seem a bit like climbing Mt Everest. However, every mountain has its peak, and once you’ve reached it then it’s all downhill!

There are plenty who have gone before you, as according to the Australian Bureau of Statistics (ABS), first home buyers make up for about 15 per cent of the lending to owner- occupiers every month – this amounts to almost $3 billion.

In light of this, how much of a deposit do you need to gain finance for your first home, does it need to be an alp or just a hill?

20 is the magic number

Just about every authoritative source will tell you the same thing when it comes to saving for home loans – “The bigger the deposit the better”.

The ABS asserts that the average loan size among those fresh to the market is around $340,000, which gradually rises year after year in tune with prices and inflation. Despite this, the proportion of deposit that it is recommended you have remains the same. In order to take advantage of lower rates, you should have at least 20 per cent of the purchase price.

According to the Australian Securities and Investments Commission (ASIC), if your deposit is less than 20 per cent of the purchase price, you will likely be charged a one- off payment to cover lender’s mortgage insurance.

This is simply because they will see you as a bigger risk to default on your payments, and therefore want some cover.

What’s the smallest deposit you can have?

Generally, the major lenders are willing to provide finance to home buyers with deposits as little as 5 per cent. However, the ASIC affirms that in this case there are a number of other factors that will influence your appeal as a borrower, including:

• A strong employment history and income

• A history of saving

• Minimal debts

• Clear credit history

Typically, the size of the loan you can access will be much less than the average mortgage.

Saving money has some very distinct similarities with going on a diet. It can affect your lifestyle, as you consume less of what you love in order to achieve a goal that often takes forever before you see any results.

The recent Suncorp Bank Australians’ Saving Habits Report found that many people in our nation are in fact already putting significant amounts of money aside, particularly the younger generation. Their main motivation? Property investment.

“On average, Australians aged 25 to 34 are saving $533 per month (12.7 per cent of their personal income). This is $100 more than the national average (11.5 per cent or $427),” Suncorp Bank Regional Manager Monique Reynolds said.

Just like discovering new exciting recipes from Jamie Oliver that fit your brutal diet regime, there are many ways to help you save your money faster. Here’s just a few to take on board before seeing your mortgage lender.

1. Focus on the cost of your time

The saying ‘time is money’ rings true when it comes to saving for home loans. The Australian Bureau of Statistics (ABS) found that the average household in our country spends around $1,200 a week on goods and services. However, before you buy, say, that new pair of shoes, think about its worth in time rather than the price tag.

For example, the shoes cost $200 and you earn $20 an hour, therefore they will cost you ten hours of work – is that really worth it?

2. Trick yourself

When it comes to the devil and the angel with a shoulder each, it’s normally the former that eats into your savings account. However, there are ways around this, including:

• Arrange an automatic payment into a savings account that coincides with your pay day – once you adjust you won’t even realise you’re putting it aside

• To reduce the chance of transferring money back to your spending account in moments of weakness, make your savings account inaccessible by electronic means

• They all taste pretty similar, so go generic with food brands, as the Suncorp Bank survey found that Australians spend a whopping 17.5 per cent of their personal income on food

3. Get smarter with household use

According to the ABS, for the year of 2014 the average family household in our nation spent more than $50 on energy per week. This results to around $2,600 a year, and is money that can be easily saved with some slight tweaks.

The Department of Industry, Innovation and Science recommends reducing your reliance on heating and cooling systems, as these generally make up for about 40 per cent of your power bill. Instead, wrap up with a few blankets and a friend, or snuggle an ice pack in the warmer months.

Reducing your energy use will mean you have more money left over once your bills have been paid.

4. Or you could…

“The saving strength of younger Australians could also be attributed to the fact that people in this age bracket are increasingly staying at home for longer, with the most current data indicating one in four adults (20 to 34 years old) still live at home,” said Ms Reynolds.

While you may see it as a last resort, moving back in with your folks is actually a terrific way to save money, not to mention being able to take advantage of your mum’s famous meatballs, lasagne and Sunday roast (although these dishes may not be the best for your diet).

Archives for October 2015

How Much Of a Deposit Do You Need For a Home?