Buying your first home has never been easy. The Baby Boomers might talk about Millennials having as much of a chance of home ownership as they did, but facts are facts: rates of first home buyers are steadily decreasing.
According to revised data from the Australian Bureau of Statistics (ABS) and the Australian Prudential Regulation Authority (APRA) from May 2017, the number of first home buyers in Australia is close to record lows.
First home buyers now account for just 14% of owner occupied home loans (“housing finance commitments”), although this number has increased slightly from 13.2% the previous year.
Canstar recognises the significant difference between first-time home owners and experienced investors, and we have just released our 2017 First Home Buyer Award results. As a part of this research, we found some market trends that first home buyers need to be aware of.
Current interest rates on first home buyer loans
Almost all mortgages can be available for first home buyers, with very few loans available exclusively to first home buyers. When it comes to our First Home Buyers Award, Canstar considers more than just interest rates – we also look at fees, deposit requirements, research tools, support networks and more.
However, interest rates are still an important thing to consider when taking out a mortgage, whether you’re a first home buyer or an established home owner looking to refinance. With this in mind, we’ve compiled the minimum, maximum, and average rates that are currently available for the various loans considered in Canstar’s First Home Buyers Award.
| Profile | Minimum Interest Rate (% p.a.) | Average Interest Rate (% p.a.) | Maximum Interest Rate (% p.a.) |
|---|---|---|---|
| Variable – $350k | 3.44% | 4.48% | 6.01% |
| Variable – $500k | 3.44% | 4.51% | 6.01% |
| Variable – $750k | 3.54% | 4.54% | 6.01% |
| 3 Year Fixed – $350k | 3.59% | 4.18% | 5.05% |
| Construction Variable – $350k | 3.54% | 4.54% | 5.83% |
| Source: www.canstar.com.au
Rates as at 14/07/2017 and include all home loans on the Canstar home loans database, including those assessed in the 2017 First Home Buyers Award. |
|||
If you’re currently considering a home loan, the comparison table below displays some of the variable rate home loans on our database with links to lenders’ websites that are available for first home buyers. This table is sorted by Star Rating (highest to lowest), followed by comparison rate (lowest-highest). Products shown are principal and interest home loans available for a loan amount of $350K in NSW with an LVR of 80% of the property value.
Before committing to a particular home loan product, check upfront with your lender and read the applicable loan documentation to confirm whether the terms of the loan meet your needs and repayment capacity. Use Canstar’s home loan selector to view a wider range of home loan products.
*Comparison rate based on loan amount of $150,000 and a term of 25 years. Read the Comparison Rate Warning
Average first home buyer is 32 years old
Commonwealth Bank’s Connected Future Report from June 2017 has found that the typical entrant into the property market is 32 years old.
74% of first home buyers who live in capital cities bought a house, compared to 81% living outside major cities. Only 15% bought an apartment or townhouse to live in.
This report also shows that there is light at the end of the tunnel for young home buyers. While many new home owners are struggling to break into the market, almost half of the 1 million people surveyed said that they have not given up on the dream of home ownership.
This is welcome news, as according to Core Logic, the 7.1% of housing loans issued to first home buyers in early 2017 is the lowest on record.
Young people are still determined to own their own home, no matter what it takes.
How long does it take to save up for a deposit?
It really depends on where you live and what the property prices are like in that region.
For example, financial services firm UBS gave a bleak outlook on how long it could take to save up for a deposit for the average first home buyer living in Sydney. According to their research, first home buyers in Sydney could need to save for up to 40 years in order to scrape together a deposit.
The driver of this revelation has been the increase in income-house price ratio; the average house price today is 6.5 times the average yearly wage, which is more than double what it was 20 years ago.
The table below shows how many years it might take, according to UBS’s research, to save a 10% deposit based on an individual’s income equal to the average weekly ordinary time earnings of $80,000 per year, at various monthly savings levels:
| Years to save for a deposit | |||||||
|---|---|---|---|---|---|---|---|
| Monthly saving rate (savings as share of gross income) | 2.5%
$167 |
5%
$333 |
7.5%
$500 |
10%
$667 |
15%
$1,000 |
20%
$1,333 |
|
| Today’s house prices | $300,000 | 17.0 | 8.0 | 5.2 | 3.9 | 2.6 | 1.9 |
| $400,000 | 23.8 | 10.9 | 7.0 | 5.2 | 3.4 | 2.6 | |
| $500,000 | 31.4 | 13.9 | 8.9 | 6.6 | 4.3 | 3.2 | |
| $600,000 | 39.9 | 17.0 | 10.9 | 8.0 | 5.2 | 3.9 | |
| $700,000 | 49.6 | 20.3 | 12.8 | 9.4 | 6.1 | 4.5 | |
| $800,000 | 61.0 | 23.8 | 14.9 | 10.9 | 7.0 | 5.2 | |
| $1,000,000 | 92.1 | 31.4 | 19.2 | 13.9 | 8.9 | 6.6 | |
| Source: UBS and ABS, 2017 | |||||||
In the last 5 years, house price growth has increased by 7%, whereas household income on average has increased by only 4%.
UBS claims that if this trend continues, first home buyers may soon never be able to save enough for just a 10% deposit on a home.
Obviously, waiting 40 years or more just to live in a house that isn’t someone else’s isn’t very desirable. Fortunately, there are ways around this. Read on to find out how.
Ways to make saving for a deposit easier
First home buyers looking at current property prices in major cities can be forgiven for feeling disheartened. But despite the recent price rises, there are ways you can make it easier to reach the amount you need for a deposit, and many people are beginning to employ these tactics more and more. Let’s have a look at what they are.
1. Sign-up incentives for first home buyers
There are a huge number of home loan products on the market and Canstar researches and rates over 3,000 of them from nearly 100 different lenders. Some of these home loans come with special deals that have first home buyers specifically in mind.
Such sign-up incentives can include benefits like lower introductory interest rates for the first few months or years of your loan, $0 fees or fee waivers, personalised help from professional financial planners, rewards points, and more.
We’ve collected data on these incentives, and you can read our article listing home loan sign-up incentives or first home buyers here to see what’s available.
2. The First Home Owner’s Grant
The First Home Owner’s Grant (FHOG) is a grant designed to assist home ownership across the country. Many lenders allow you to use this grant as a part of your deposit, so it is definitely worth investigating if you are eligible to receive it.
This isn’t a recent trend – it was first introduced in the year 2000 – but there have been some changes in the past 12 months in some states that affect how much money you can receive and who is eligible.
For example, July 1 saw changes occur in NSW, which now gives a $10,000 First Home Owner Grant for builders of new homes up to $750,000, and for purchases of new homes up to $600,000. In March, Victoria likewise changed their stamp duty policy so that first home buyers don’t pay stamp duty on new or existing properties of up to $600,000.
For a complete breakdown of what’s available under the FHOG in each state, read our summary here.
3. Other methods of payment
If you’re thrifty and clever, there are plenty of other methods that you can take advantage of. For example, you can use a guarantor.
A guarantor is someone who agrees to repay the loan if you default (fail to make your repayments). This person is usually the first home buyer’s parents. Some lenders will even allow the guarantor to pay for your deposit, although it’s better if you can do this yourself because it proves to the lender your ability to stick to a budget.
You can also use a financial gift, as some institutions will allow you to use money received from your parents or a generous friend. They will often require you to keep the money in an account for a set period of time before using, however, and some lenders will require a statutory declaration stating that the money is a gift.
According to Canstar Research, the majority of lenders considered in Canstar’s First Home Buyers Award allow at least one of these methods to be used to pay for a deposit:
| Deposit Option | No | Yes | Total | Yes% |
|---|---|---|---|---|
| FHOB grant used as deposit | 23 | 56 | 79 | 70.89% |
| Financial gift as a deposit | 10 | 69 | 79 | 87.34% |
| Guarantor can provide deposit | 29 | 50 | 79 | 63.29% |
| Source: Canstar’s First Home Buyers Award. Based on average variable interest rate and a loan of $350,000 taken over 25 years. | ||||
So with a bit of research on your part, you can find a home loan provider that allows one or more of these options without too much trouble. Canstar can help you with that.
For more information on how Canstar researches and rates home loans for First Home Buyers, read our 2017 First Home Buyers Award results: