Although record low interest rates have helped keep mortgage repayments down, the rising median house price means buyers will need to save more for a deposit.
At the May meeting, the RBA once again kept the cash rate on hold and it is now in its 9th consecutive month at 2.50%.
Although the record low interest rates have helped keep mortgage repayments down, the rising median house price means buyers will need to save more for a deposit.
According to the Australian Property Monitors housing market report, the national average house price increased by 2.0% over the March quarter and 11.3% over the year.
Sydney had the largest increase of 3.1% over the March quarter with the median house price sitting at a record of $782,973 and the median unit price at a record of $547,053.
Although the March quarter was slower than the December quarter, the yearly price growth has been steady for all capital cities. Both Sydney and Melbourne have reached double digits for the annual house price growth (16.9% for Sydney, 11.7% for Melbourne).
This steady growth means that buyers will need to start putting away more for a deposit. Saving a deposit is one of the main hurdles for property buyers and if you feel like saving 20% or more of the property price is impossible, you are not alone. According to the Genworth Homebuyer Confidence Index (March 2014), almost 60% of first home buyers estimate it would take them four years or more to save for a 20% deposit.
Although it may seem like an unmanageable task to save for a 20% deposit, it can have a significant impact on how much your home loan will cost in the long run. Firstly, if you have a deposit that is less than 20%, your lender will charge Lenders Mortgage Insurance which can cost you thousands of extra dollars. Secondly, the larger your home loan amount is, the more interest you will pay and the bigger your monthly repayment will be.
Another benefit of having a deposit of 20% or more is that you will have a wider selection of lenders and home loans that you may be eligible for and you can actually select a lender you want, not one that will take you.
However, as history has shown, the property market is no always predictable and property prices can change quickly. Therefore in order to find an affordable option, buyers need to keep up to date with the latest property information and re-adjust their saving plan if the property market changes.