Saving for your home loan deposit – a case study of a single person

Meet Alicia

In the first article in this series we saw that saving a house deposit is tough, perhaps tougher than it’s ever been. Relative to income, Australian house prices are at an all-time high. We saw how difficult it was in Todd and Renima’s case to get on the housing ladder. Though it’s even harder for Alicia who’s on her own, it's not impossible.

Alicia’s just turned 30. She’s been saving hard for a couple of years, though her designated ‘House’ account has only just reached $10,000.

A single woman, it seems half her income gets gobbled up in rent (and most of the rest disappears on bills). How can she increase her savings—and get her deposit together quicker?

How much is she saving now?

Alicia earns around $60,000 a year, the average Australian wage. Taking out tax and super, she takes home just over $42,000 per annum.

Rent for her one-bedroom flat costs $350 a week—just over $18,000 per year. That leaves her with $24,000.

Now add in the cost of running a car, estimated to be $8000 a year in Australia. Also include $3,000 for utilities (electricity, phone, internet etc.), $6,000 for food and eating out, and $3,000 for clothing (“conservative”, Alicia will tell you).

After all this, she’s left with just $4,000 a year. Note this is a basic budget, and we haven’t taken into account personal insurance and unexpected costs like a huge dental bill.

How much does she need?

Alicia’s got her eye on a suburb 45 minutes by train from the CBD. She’s seen houses there for $400,000. So she’ll need a 20% deposit—$80,000—and money for stamp duty and other costs (lawyers, conveyancers, removalists, etc.). All up, she’s looking at $100,000.

Happily, she qualifies for a First Home Buyer Grant (FHOG), and stamp duty concession. Depending on the state or territory, that can be up to $30,000—check out our First Home Owner Grant article for more detail. Nevertheless, at her current savings rate—and assuming house prices don’t surge further—it’ll take her 12-15 years to save her deposit.

How can she get there more quickly?

So what can Alicia do to save her deposit faster? She has a few options:

• use public transport
• move back home for a bit
• move into a flat-share
• go in with a smaller deposit—but pay Lenders' Mortgage Insurance (LMI). This is a one-off charge you pay if you don’t have a 20% deposit. If Alicia put up a 10% deposit on that $400,000 home, LMI would cost her $6,336
• ask family for money, either a loan or a gift
• Alicia could also check if she's eligible for the First Home Guarantee or Regional First Home Buyer Guarantee. This mean she could buy a house with a smaller deposit.
• If Alicia was a single parent, she could check if she’s eligible for the Family Home Guarantee. Under this scheme eligible single parents can buy a home with a deposit as small as 2%.

Alicia's masterplan

Let’s look at the numbers. If Alicia opted for a cheaper house, say a $300,000 flat, this cuts her 20 per cent deposit to $60,000. With the FHOG and stamp duty concession—plus legal/moving costs—she’d need around $55,000.

If she follows a super-saver plan—ditches the car ($5000 transport saving) and moves back home (paying $150 board, or $7,800 a year)—her potential savings soar. Instead of saving just $4,000 a year, she’s putting aside $22,200.

Even the less drastic option of a flat-share ($10,000 pa. plus $1500 bills) minus the car would see her savings increase to just under $20,000.

That’s only two to three years of saving.