‘Very onerous’: The huge hurdle facing first home buyers

“The deposit required is still very high,” AMP Capital chief economist Shane Oliver said.

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“We’ve really only gone back to where we were – depending on which property you’re looking at – back to the middle of last year or somewhere. It’s still very onerous, the amount that’s required that you need to save for.”

He said the NSW stamp duty change had also eased the burden somewhat, but this had not solved the fundamental problem.

Although Baby Boomers and Generation X faced high interest rates, property prices were not as high.

“Your deposit hurdle was nowhere near as great. It enabled people to get into the property market,” he said. “They’d have that interest rate burden up front, then interest rates fell.”

Faced with a high deposit gap, many first home buyers are looking for alternatives.

Mortgage broker Chris Foster-Ramsay said the way buyers assembled a deposit was “chalk and cheese” compared with five or 10 years ago.

“Where there’s clients that are really set on a 20 per cent deposit, there’s usually some level of family assistance there, whether it be a gift or an inheritance,” the principal broker at Foster Ramsay Finance said.

“The clients will have saved a lot, but there will be a deposit match from family to a certain extent in most cases.”

Some savers buy with a 10 per cent or 5 per cent deposit and either pay lenders’ mortgage insurance or use a federal or state first home buyer scheme that allows low-deposit purchases but waives LMI.

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There is a risk in a falling market that low-deposit buyers could end up in negative equity, where they owe more on their home loan than their property is worth. Foster-Ramsay suggested low-deposit buyers look for established properties in well-connected areas, in terms of infrastructure and location, rather than buying off-the-plan or house and land packages.

Equilibria Finance managing director Anthony Landahl said even though the deposit gap is reducing as property prices fall, saving a deposit remains one of the biggest challenges for first home buyers.

“One of the most important things for first home buyers is to educate themselves around some of the state and federal government initiatives to assist first home buyers,” he said.

“They make a massive difference to the deposit and the requirements around the deposit. It still remains one of the biggest challenges.”

He welcomed the choice to opt out of stamp duty in NSW, allowing buyers to use funds that would have been put aside for taxes on their deposit instead. But he also warned first home buyers had been hit by rising mortgage costs.

“Even at a 5 per cent deposit, getting into the Sydney or Melbourne markets can be a challenge for some first home buyers,” he said.

That might be a deposit of $50,000, “which can take some time to save”.

He said low-deposit buyers need to be able to service their loans, and he has been working with clients on savings plans to purchase or repayment plans to build up equity.