Domain's First-Home Buyer Report found the time it takes first home buyer couples between 25-34 to save a 20% deposit for an entry-priced home has increased in most capital cities.

The biggest leap was in Canberra, where it now takes first home buyers an extra nine months to save a 20% deposit compared to the same time last year.

Following behind was a six-month leap in Sydney, Darwin, and Hobart.

Domain Senior Research Analyst Dr Nicola Powell said saving for a deposit is becoming even more of a challenge for first home buyers as house prices reach 'meteoric' highs.

"Low interest rates have improved the affordability of mortgage repayments, but they have also been a key driver of rising property prices, making it harder to save a deposit," Dr Powell said.

"While there have been several incentives offering financial help for first-time buyers, saving a deposit is a tall order in the current rapidly rising property market.

"This has created a growing sense of urgency among entry-level buyers and may mean a compromise on their 'ideal home' to mitigate missing out."

Related: Median value hits $1m in over 200 suburbs, pricing millennials out of housing

Time to save a 20% deposit for an entry-level house

City Time to save Annual change 5-year change
Sydney 7y 1m 6m 11m
Melbourne 6y 1m 0m 13m
Brisbane 4y 2m -4m 2m
Adelaide 4y 1m 3m 4m
Perth 3y 7m 2m -3m
Hobart 4y 11m 6m 22m
Darwin 3y 8m 6m -4m
Canberra 6y 9m 20m
Source: Domain

The research assumes a couple on an average wage can save 20% of their after tax income on a monthly basis, deposited into a standard online savings account.

The research excludes any other transaction costs, such as stamp duty.

Brisbane has bucked the trend with the time to save a 20% deposit becoming a little shorter for entry-level houses, while Melbourne has held steady.

"Conditions have rapidly changed in most cities for entry-level buyers vying for a house," Dr Powell said.

"The average wage growth in each city, interest accrued on savings and personal tax cuts have been unable to match the leap in prices, apart from Brisbane and Melbourne."

Time to save a 20% deposit for an entry-level unit

City Time to save Annual change 5-year change
Sydney 5y 5m -4m -6m
Melbourne 4y 3m -2m 1m
Brisbane 3y 4m 0m -5m
Adelaide 2y 10m 0m 0m
Perth 2y 6m 1m -3m
Hobart 4y 3m 2m 20m
Darwin 2y 2m -18m
Canberra 3y 5m 0m 1m
Source: Domain

Despite this, it would still take more than six years for first home buyers to save a deposit in Melbourne, and more than four years in Brisbane.

The research also found that the gap between saving for an entry-priced house or unit continues to widen. 

"A significantly lower entry-level unit price already means quicker market access," Dr Powell said.

"However, weaker unit price growth across most cities has translated into a quicker deposit savings time in Sydney and Melbourne, remaining stable in Brisbane, Adelaide and Canberra."

The data found that the difference in savings time between an entry-level house and unit has doubled in Sydney over the past year.

For an entry-level unit, it would take five years and five months to save a deposit - four fewer months than a year ago. 

It's quickest to save for an entry-level unit in Darwin, Perth, Adelaide, and Brisbane, while Sydney remains the most expensive.

Dr Powell said the work from home phenomenon has impacted unit prices.

"Changed lifestyle preferences post-lockdown and the option of remote working have driven demand to the outer suburbs," she said.

"Unit prices could increase as affordability bites, our cities begin to repopulate and investors renew their market presence."

Related: Rents to rise as vacancy rates tumble to lowest level since 2012

Mortgage affordability improves

Domain's research also found that while falling interest rates have been a key driver of house price growth, it has also improved the affordability of mortgage repayments.

It is generally recommended that homeowners dedicate no more than 30% of their gross income towards mortgage repayments to avoid mortgage stress.

According to the data, all capital cities currently fall below this threshold based on the income of a couple between 25-34, assuming a 20% deposit has been paid on the entry-level home. 

On average, the amount of income required to service a mortgage repayment has dropped from 24% in 2012 to 18% in 2021 for an entry-priced property (assuming a 20% deposit). 

For units, this has dropped from 21% to 13%. 

However, recent data from Digital Finance Analytics (DFA) found that more than two in five (41%) NSW households are in mortgage stress, up from 38.2% in April.

DFA defines mortgage stress as "when household cash flows are negative and money coming in isn’t enough to cover the cost of mortgage repayments and other outgoing expenses".

'Risky' loans, too, have increased their market share in the wake of the pandemic, according to data from the prudential regulator (APRA).

Photo by Nicolas Gonzalez on Unsplash  

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