Saving a home deposit is toughand it’s not getting any easier. In the second article in our home deposit series, we meet Todd and Renima, a young Aussie couple saving hard, but treading water. Here are some tips that’ll help them save their deposit faster – and get into their first home sooner.

Give me the main points

  • Even on two incomes, saving a deposit can take several years.
  • You’ll need $100,000 – plus – upfront for a deposit on the average Aussie house.
  • Cars keep you poor! An average couple can’t afford more than one.
  • Consider radical changes, even moving home for a while, to help you save faster.
  • Investigate all options, especially a family loan or Family Guarantee.

There’s no way around it—Australian house prices, relative to income, are at historic highs. Stats suggest our house prices are the second most expensive in the world. Even saving a 20% deposit seems Mission Impossible.

Meet Todd and Renima

Todd and Renima are a hard-working couple in their late 20s. They returned from overseas three years ago. The plan was to get a house ASAP, keep working for a couple of years, and then hopefully start a family.

They’ve been saving hard, but the house—and that house deposit—seems miles off. How can they get a deposit together more quickly before Renima goes on maternity leave?

How much are they saving now?

Todd and Renima’s combined gross income is $110,000—pretty typical for an Aussie couple. Take out tax and super, and they take home $78,856 a year.

They pay $475 a week for their flat ($24,700 a year) which leaves $54,176. They both have a car, which costs more than they realise (the average cost of owning a car in Australia is $8000 annually). Now add $5,000 for utilities (power, phones, internet, water, gas), $12,000 for food (and eating out), and $4,000 for clothing.

That leaves just over $17,000. Now this is a conservative budget—pretty much just the basic food/clothing/shelter scenario. We haven’t considered medical bills, insurance, pet costs, holidays etc.

How much do they need?

If Todd and Renima want to buy a $600,000 house—the median house price in Australia—they’ll need to save a 20% deposit ie. $120,000, as well as pay stamp duty and other costs (lawyers, conveyancers, movers, etc.). Realistically, they might need $140-150,000 all up.

Since neither has owned a house before, they’re eligible for a First Home Owners Grant (FHOG), and stamp duty concession. This cuts their required amount by $25,000.

That’s the good news. But they’ll still need around $120,000. At their current savings rate—and assuming house prices don’t go up—it’ll take them seven years to save a deposit.

How can they get there more quickly?

So what can Todd and Renima do to save their deposit faster? They have a few options:

  • Ditch one or both of the cars.
  • Look for a cheaper place to rent.
  • Go in with a smaller deposit—but pay Lenders Mortgage Insurance (LMI). This is a one-off charge you can pay if you don’t have a 20% deposit. If they put up a 10% deposit on that $600,000 home, LMI will cost them around $12,000.
  • Ask family for money, either a loan or a gift.
  • Perhaps the best bet is to ask their families if they’d take out a Family Guarantee. This is an official obligation the family will cover the loan should Todd and Renima be unable to repay it. It means they can now go in with a minimal or even non-existent deposit.

Todd and Renima’s Masterplan

Let’s revisit Todd and Renima’s situation. If they opt for a cheaper house, say $400,000, this cuts their required deposit to $80,000. Deduct the FHOG and stamp duty concession—but include legal costs etc.—and they may need just $70,000.

Let’s say they move into a cheaper flat ($400 a week; $20,800 a year), and get rid of a car—a net transport saving of $5000 a year. This takes their net annual savings to $27,000. Lose the second car and they’re up to $32,000.

Move home for a year—and have kindly parents who expect minimal board—and you could add another $10,000 to this.

We’re now looking at two to three years of hard saving—no longer such an impossibility.

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