The 'problem' with rapid home price increases - saving for a deposit

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on September 15, 2021
The 'problem' with rapid home price increases - saving for a deposit

First home buyers are being priced out of the market by rapid increases in house prices, but experts warn it is only going to get harder to save for a first deposit.

As the property market continues to boom, saving for a first house deposit is becoming harder than ever.

EY Oceania chief economist Jo Masters told Savings.com.au that net wealth is actually on the rise, but those yet to break into the market are the ones missing out. 

"The problem is not 'I can't afford a mortgage', it's 'I can't save enough for a deposit'. And that's been a combination of sharp rises in house prices, and restrictions on needing a 20% deposit," Ms Masters said.

"When we think about homeownership, there's two aspects to it. One is your ability to service your mortgage.

"So once you've bought a home, can you afford the mortgage that you have? Obviously, interest rates are so low, even though average loan sizes have gone up, our ability to service those [even with] low wage growth has actually improved.

"The other thing that for first time buyers in your ability to save a deposit. And that's really the hurdle in Australia to homeownership."

ABS data shows the mean dwelling price in Australia broke through the $800,000 barrier, now sitting at $835,700 - about $50,000 higher than last quarter's mean price.

The common rhetoric used to combat rapid house price rises has been to raise the Reserve Bank cash rate. 

However, at an address on Tuesday, RBA Governor Dr Philip Lowe said raising the cash rate would adversely affect jobs and wages growth.

"While it is true that higher interest rates would, all else equal, see lower housing prices, they would also mean fewer jobs and lower wages growth," Dr Lowe said.

Ms Masters also said that when looking ahead to 2022, this gap in income to house prices is only going to widen further.

"When we look at the fundamentals over the next two years, they do point to further house price appreciation, [and] ongoing, very anaemic wage growth," she said.

"When we look at the drivers that have been pushing house prices up, they likely have further to run. Interest rates are going to remain very, very low.

"The labor market is expected to bounce back from these restrictions. So therefore, job security is expected to remain quite high.

"We're likely to open our borders sometime in 2022. And bring in that sort of population growth demand into the market... also, investors are coming back into the market."

JoMastersGraph.jpg 


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Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval

VariableMore details
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
VariableMore details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
FixedMore details
RATE LOCK FOR 90 DAYS

Fixed Home Loan 1 year (Principal and Interest) (LVR < 80%)

  • Easy, digital application process
  • Market leading app to help you pay off your loan sooner
  • No on-going fees
RATE LOCK FOR 90 DAYS

Fixed Home Loan 1 year (Principal and Interest) (LVR < 80%)

  • Easy, digital application process
  • Market leading app to help you pay off your loan sooner
  • No on-going fees
VariableMore details
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments

Rates correct as of December 7, 2021. View disclaimer.


Image by Katie Manning via Unsplash

Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.

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Aaron joined Savings.com.au in 2021. He is a finance journalist with a keen interest in property, the share market, and improving financial literacy in young Australians.

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