In reality, few are saving the extra $80,000 a year out of their wages, and many are getting help from home-owning family members who have benefited from price gains.
“When house prices rise, the deposit gap increases, and in addition, record-low interest rates make it virtually impossible for you to gain any return on the savings you’ve accumulated,” independent economist and Corinna Economic Advisory principal Saul Eslake said.
Anyone who has spent time trying to buy without success has watched prices run away. Credit:Peter Rae
“Depending on how much interest rates rise, it’s possible that gap between the interest rates on the deposit, and the rate of increase in house prices, could narrow. It still isn’t helping you very much.”
He expects the rate of house price growth to slow, which could encourage first home buyers, although warns they face competition from investors.
For anyone who can afford a mortgage, low interest rates meant housing affordability had not deteriorated much, but the need for parental help to get a mortgage is a trend set to continue, he said.
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“People will find the only way they can get into the housing market is by tapping into their inheritance early,” he said.
The Bank of Mum and Dad has been an increasingly active financier of first home purchases, as prices have risen out of reach.
Among the first home buyer clients of mortgage broker Chris Foster-Ramsay who settled in the past three to four months, 20 to 30 per cent had saved all their deposit themselves. The vast majority of his customers had some assistance such as a parental guarantee or cash gift.
“All have been involved in multiple offer scenarios, and they would have made formal offers on probably a dozen-plus properties, most of them, so securing the right home is exceptionally difficult if there’s an intense amount of competition,” the Melbourne-based principal finance broker at Foster Ramsay Finance said.
The lucky ones had bought within two to three months of starting their search, while most took up to 12 months with multiple increases in loan pre-approval amount, he added.
After missing out at a few auctions, many first-home hopefuls go back to the Bank of Mum and Dad.Credit:Peter Rae
As prices rise above a client’s budget, he discusses the option of buying with a smaller deposit and paying lenders mortgage insurance, or they come back to him with their own solution.
“And that solution is usually family help of some description. The conversation will be: ‘We keep missing out on xyz, we want to live in that area, the prices keep going up, so our parents have said to us, we’ll help you out’.”
Mortgage Broker Sydney principal Michael Brown noticed some first home buyers started to shelve their plans from June last year, realising they could not save fast enough to match the price rises.
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“I also had some others who were fortunate enough to be able to make a withdrawal at the Bank of Mum and Dad, and a couple who were able to use what we call a family pledge or a family guarantee,” he said.
“A lot of the first home buyers have sufficient income to be able to afford these larger loans that are around at the moment, but they are struggling to be able to stump up the extra $10,000 or $15,000 that they need to make it a viable transaction.”
He has seen first-time buyers take anywhere from two weeks to two years-plus to buy, with many looking at mortgage insurance. He also has conversations about family support, or about whether a potential buyer has other investments such as shares that they could sell to top up their home deposit.
“I would counsel people – it isn’t that prices can’t fall, and at some stage they most certainly will, but relying on that as your method is perhaps not the greatest way forward.”
Deposit gap growing faster than first-home hopefuls can save
Source: Philippines Alive
