Key points
  • Those purchasing property in Sydney might end up saving for eight years to realise a median deposit
  • The time it takes to secure a deposit in the eastern states has blown out by two years since 2020
  • First home buyers are among those hardest hit, with many who can't lean on parents of the government likely to be priced out of the market

That’s assuming they earn a medianfull time wage for the city –  around $123,000 a year – and save 15% of their income to grow their deposit size. 

It’s a slightly better situation in Melbourne, with first home buyers expected to take nearly five and a half years to secure a deposit, while Brisbane buyers could be in for a five year savings slog. 

It marks a notable uptick since 2020, with those purchasing property then expected to save for around three years to buy in Melbourne and four years to buy in Sydney or Brisbane.

More first home buyers are being forced to tap into the ‘bank of Mum and Dad’ in the current climate. 

Those unable to do so, or ineligible to receive government assistance, may find themselves locked out of the property market, PEXA notes.

It comes as Australian property prices hit a new record high last week, according to CoreLogic’s daily Home Value Index. 

CoreLogic executive researcher Tim Lawless said the uptick “may seem counter intuitive, given high interest rates, deeply pessimistic levels of consumer sentiment, and high cost of living pressures.”

However, he noted rising prices are the result of an imbalance between supply and demand.

"From a supply perspective, advertised stock levels have held remarkably low through 2023,” Mr Lawless said.

“At the same time, demonstrated demand, based on the volume of homes sales, is trending roughly in line with the five-year average."

Rising interest rates have also tightened serviceability testing conducted by banks, meaning buyers now need a higher income to realise their previous borrowing power. 

“Coupled with high property prices, home buyers now need to work for at least two years longer to save for their home deposits,” PEXA head of research Mike Gill said. 

“This has made the generational wealth gap more apparent, with younger demographics facing growing challenges to enter the property market.”

Use of lenders mortgage insurance falls amid higher rates 

As a consequence of buyers needing a higher deposit, the use of lenders mortgage insurance (LMI) has dropped. 

The average loan-to-value ratio (LVR) of new home loans has slipped by between 0.9% and 1.5% in the eastern states.

“Our research found average LVRs peaked at around 83% at the end of 2020 during the onset of the Covid pandemic, meaning homebuyers needed to put down a deposit of only 17%” PEXA head of research Mike Gill said.

In financial year 2023, the average LVR on a new home loan was 80%.

A 3% increase represents a difference of around $22,000 on a median priced Australian property ($747,424 in October). 

Lenders mortgage insurance (LMI) is typically charged on LVRs greater than 80% i.e. less than a 20% deposit.

Using the above example, an 83% LVR on the median would have incurred an approximate LMI charge of around $4,200 according to an LMI estimator.

The average LVR on home loans written by the big banks hovered between 81.1% and 81.9% last financial year across the eastern states.

Meanwhile, that of non-major lenders spent the fiscal year between 76.2% and 77.6%.

PEXA noted existing banking relationships between borrowers and lenders could be one reason for the disparity, as major banks might have greater insight into a borrower’s income and expenditure.

In the financial year 2023, 56.5% of new borrowers in Victoria turned to LMI to get their foot on the property ladder sooner. 

In NSW and Queensland, 53.4% and 54.1% of new borrowers paid for LMI.

For comparison, over 65% of new borrowers needed LMI in the final quarter of 2020. 

Homebuyers will need to weigh up the extra time taken to save for a deposit, compared to potential capital gains offset by the cost of LMI. 

Image by Dillon Kydd on Unsplash.