Q. I've been saving up for a house deposit for the last few years, but it seems like property prices are going up faster than I can save. Am I ever going to be able to afford to buy my first house?
Melbourne house prices are at the highest they’ve ever been, with the median price reaching $725,000 in June 2016 according to the REIV. For many first home buyers, the thought of saving up a 10 – 20% deposit for a property almost sounds impossible, especially when the market doesn’t seem to be slowing down. But don’t despair, saving for a home deposit is possible but it will require a detailed savings plan and change in mindset.
Step 1: Savings Plan
The sooner you commit to saving for a deposit, the quicker you’ll get there. Here a few recommendations some of our youngest landlords have shared with us.
- Set your budget. Most people know how much they earn each week but are a little less clear on what their fixed expenses are each month. Understanding your financial situation will help you highlight where you can save money to put towards your deposit.
- Clear your debts. If you have any bad debt, then it’s time to get rid of it. Pay off any credit cards or any other small loans that you’re paying interest on. That money will be better spent contributing towards your deposit.
- Setup a Savings Account. Once you’ve completed your budget, you’ll know how much you can regularly contribute towards your savings account each month. To ensure this money goes towards your savings and not shoes, set up a separate savings account (high interest/low fee’s if possible) and arrange a regular direct debit payment from your main account to your savings account so you’re not tempted to use that money for anything else.
Step 2: Savings Mindset
Saving for a house deposit can be a slow process and you’ll be forced to make a few sacrifices along the way. Committing to your savings plan may seem tough at times, but it’ll all be worth it when you finally buy your first property.
Here are few tips our clients have shared with us that helped them get into the savings mindset.
- Set a savings goal and time frame. If you’re looking to buy a property worth $500,000 and you want to put down a 10% deposit, then you’ll need to save $50,000. Workout how much you can afford to set aside each week towards your deposit and then calculate how long it’s going to take you. Keep in mind, the longer it takes for you to save your deposit, the higher property prices could be.
- Understand interest rates. With interest being at an all-time low, repayments on property is affordable for many people. However these interest rates can fluctuate. If interest rates increase, so will your mortgage repayments. Ensure you have a buffer when you’re doing your repayment calculations.
- Don’t sacrifice too much. As much as you want to save for your first home, it’s important not to sacrifice all the things you love. Cut down on holidays, shopping and dining out as often but still spoil yourself from time to time.
- Keep your eye on the prize. Buying a property almost seems like mission impossible from the start. You keep pumping money into your savings account but it doesn’t look anywhere near where you need to be to put down a decent deposit. As disheartening as it is, it’s important to always keep your goal front of mind because eventually that money you’ve set aside over the years will allow you to buy a home or investment property.