More People Than Ever Reckon They’ll Never Own a Home But Are They Right?

how much money to buy a house

With the looming possibility of a rescession drawing every nearer each day, the property market has ducked under the table like a frightened house pet. Australian property prices are falling at their fastest rate in decades and non-homeowners appear not exactly mad about it.

Those who do have equity in housing are clearly feeling the pain however as the Reserve Bank of Australia wields the clumsy sword of interest rate rises against the monster of inflation. With inflation pegged at 6.1%, the RBA has hit the interest button repeatedly over the past few months and doesn’t plan to stop until the crisis can be brought underway.

This has caused a cooling effect in the Aussie housing market which is certainly a good thing for prospective buyers, given that it has been absolutely red hot for the past few years. Even with the decline, however, many younger buyers and those yet to step foot on the property ladder are still not loving their chances of owning their own pad any time soon.

New research from the comparison site Finder has revealed that young people are in fact more disheartened than ever about the idea of home ownership.

Their nationally representative survey found that 37% of non-homeowners believe they will never be able to afford a place of their own, a substantial increase from 23% in 2021.

In the Gen Z crowd, 15% think they’ll never own a home, up from 6% in 2021. 34% of Millennials feel the same which has grown from 21% in the same period.

Even with the decline, the amount of money you need to be able to get on the property ladder is staggering. While it varies widely from place to place, most of the major cities are largely unaffordable for young people and those on average incomes.

How Much Money Do You Need to Buy a House?

Buying a house doesn’t mean stumping up the whole cost upfront. Instead, you’re going to be looking at a deposit, which is usually 20% of the asking price, although this can be lowered through certain schemes.

Beyond that, you’ll need a mortgage, a loan from the bank that guarantees you’ll be able to pay for the property. These can be long or short-term — depending on your ability to pay them off — but are not usually well beyond the price of renting in most metropolitan areas. This is especially true if you’re going into this venture with a partner and thus have dual incomes to service the mortgage.

In that regard, it’s the deposit that you need to save for and this is the stumbling block for the majority.

The median house price in Australia’s capital cities is $928,812 while the median unit price is $636,352. In regional areas, the median price for a house is $623,011, according to the latest data from CoreLogic.

There’s good reason not to trust median prices but for our purposes, this is a rough gauge for what you might be looking at as a financial target. Obviously, the median nation price will get you a lot less in Australia’s most expensive capital city of Sydney than what it will in the cheapest, Darwin.

Given the above, you’ll need to save $185,000 for a 20% deposit on a house on average and $127,000 for a unit.

If you’re buying your first home, you could be eligible for the government’s First Home Guarantee scheme. This allows 50,000 people per year to apply to buy a home with just a 5% deposit.

Taking the above figures again, this would mean you’d only need to save $46,250 to meet the national median for a house or $31,750 for a unit.

Although this sounds much more reasonable, the scheme is only open to individuals with an income of $125,000 or couples with a combined income of $200,000. There are further caveats as well, including the need to move into the place within six months and caps on the value of the property you can buy. Taking on such a loan will also mean paying back over a much longer period, increasing the overall cost of the loan through interest.

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How to Save For a First Home Deposit

Richard Whitten, the home loans expert at Finder, has said it was sad but understandable that many young people are worried about the prospect of owning a home.

“House prices have skyrocketed over the past few years, and have become downright ridiculous in some areas.

“But with economists predicting a recession and interest rates finally rising from their rock-bottom lows, it’s likely we’ll see house prices fall in the second half of 2022, especially in Sydney where prices can be more volatile.”

However, Whitten said that given the strong price growth of recent years, a small decline in prices doesn’t help housing affordability all that much.

“That said, the situation should improve as interest rates continue to climb, and prices fall further.

“This is a good opportunity for aspiring homeowners to get in while prices are lower, and balance out the extra costs that will come with rising mortgage rates.”

Whitten said not everyone can afford property, and some don’t even want to.

“Australians are obsessed with property, but there are other ways to build your wealth.

“Start with keeping your cash in a high-interest savings account. Savings rates are becoming much more competitive, and as they increase all that interest you earn will compound.

“Share trading is also a way to build wealth, and you can get started with as little as a dollar with some platforms, or even investing your spare change through micro-investing apps.”

Top tips for building your wealth:

Work towards a goal

Savings goals are easier to achieve if they’re specific, so work out a figure and write it somewhere you’ll see often to keep you on track. Try to aim for at least 3 months’ worth of living expenses saved.

Track your expenses

Take a look at your transactions for the last few months and what you’re spending on living expenses versus everything else. Money management apps – like the free Finder app – can help you see your income and expenses all in a single place. From here, you should be able to find opportunities to cut back on your spending and work out how much you can realistically save each month.

Use your existing savings to grow your wealth

Don’t just let it sit there. One option is to open a high-interest savings account and earn bonus interest on your balance when you meet the account conditions each month. Other non-savings products like Finder Earn allow Aussies to earn up to 4.01% p.a. for deposits of up to $100,000, with interest paid daily.

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