The current low interest-rate environment has stocked the fire of first homebuyers around the nation. With low rates anticipated to stay for at least the next three years, piggy banks are being shaken and budget plans drawn as buyers attempt to gather the deposit needed to secure their property dreams.
Out in full force, first home buyer activity is high. December 2020 saw the number of first home buyer loan commitments soar, rising by 9.3% to 15,205 (seasonally adjusted), according to the Bureau of Statistics (ABS). Representing a 56.6% rise since December 2019, it’s the highest level of first home buyer owner occupier loan commitments since June 2009, when the temporary tripling of the first home owners grant spurred similar activity.
Supported by historically low rates, according to Reserve Bank (RBA) figures the average interest rate on a new owner-occupier variable rate home loan in December 2020 was just 2.80% p.a. To put this figure in perspective, almost 18-months prior in July 2019 the average interest rate for the same loan type was 3.50% p.a.
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With interest rates influenced by the cash rate, which now sits at 0.10%, the RBA says it doesn’t anticipate movement in its monetary policy for at least three-years.
“The Board expects that this new lower level of interest rates will be in place for an extended period,” RBA Governor Dr Philip Lowe said in a speech following November’s meeting on monetary policy.
“… the Board is not expecting to increase the cash rate for at least three years. It remains the case that prior to any increase in the cash rate target, the Board intends to remove the three-year yield target.”
But for those still on their saving journey, FOMO (Fear-Of-Missing-Out) can be a real concern. While we can’t promise to make your property ownership dreams come true, we can support you on your way with these 10 tips to help you save for a home deposit.
The act of budgeting can be broken up into two parts – the first being creating the budget itself, and the second being sticking to it. Often easier said than done, your commitment to both creating and seeing out a budget plan could make or break your savings goals.
- Take note of your income versus your outgoings.
- Remove unnecessary spending and cutback where you can. For example, this could mean revaluating lifestyle choices such as takeaway coffees and excessive meals out.
- Define a realistic savings target per month and stick to it.
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2. Investigate high-interest bank accounts
Although they can be scarce nowadays, if you shop around it’s still possible to find savings accounts with interest rates above 1%. While this may not sound like much, depending on the value of savings you have and the length of time you leave it in a high-interest account, this can add up over time.
Hot Tip: Before deciding on a new savings account, be sure to check the fine print. While some accounts may look suitable, there could be conditions you need to meet to be eligible for the high rate. For instance, you may need to deposit a minimum amount each month, make a minimum number of transactions or the account may have a maximum eligible balance.
You might also like: What to do with your savings when interest rates are low
3. Consider investing
If buying a home is still a little way down the road, investing may be a worthwhile consideration. Options differ depending on how much you’re looking to invest and what level of risk you’re willing to take. For example, while some people may prefer to invest in exchange-traded funds (ETFs), which are often cheaper to buy into, others may prefer to invest directly in individual stocks. We recommend seeking professional advice before investing.
4. Automate your savings
If you struggle with over-spending, setting up an automatic transaction that directs a certain percentage of your pay into your savings account may be worthwhile. Most banks have an online portal to help you set up automatic transactions. Otherwise, your employer may even give you the option to split your salary between multiple accounts, including a dedicated savings account.
Hot Tip: Before setting up an automatic transaction, be sure the amount allocated to savings is sustainable. If not, you may be tempted to ‘dig-in’ from time-to-time, defeating the purpose.
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5. Check what government grants and schemes you could be eligible for
Depending on what state you live in, you may be eligible to benefit from various government grants and schemes for first home buyers.
Possible grants and schemes you might be eligible for:
- First Home Loan Deposit Scheme (FHLDS) – Buy a home with a deposit under 20% while avoiding LMI.
- First Home Buyers Grants – Eligibility criteria and grant or concession amount differs by state or territory.
- First Home Super Saver Scheme – allows you to save money for your first home inside your super fund.
6. See if a guarantor loan is an option
If you’re well on your way in your savings journey but still don’t have enough saved for a full 20% deposit, a guarantor loan could be an option. This could allow you to buy a home sooner while still avoiding LMI.
It works by having a parent or guardian sign onto your loan. This increases your equity and helps make up for a low deposit in the eyes of the bank. However, it also means that if you were to lapse on repayments, your guarantor would be obligated to step in.
Learn more about whether a guarantor loan could be right for you: How do guarantor loans work?
7. Sort out any debt
Depending on the type and amount of debt you are dealing with, its presence could impact your borrowing power or chances of approval. If you have a lot of debt, it may be beneficial to talk to a financial counsellor.
You might also like: What is a debt consolidation home loan – and how can it help you manage your debts?
8. Turn saving into a game
While some people do well by setting up automatic transactions into a savings account, others need something a little more hands-on. If you want to have some fun while saving, why not turn it into a game of bingo?
To set it up, simply set your savings goal then create a bingo grid, with each square devoted to a bite-sized chunk of your desired total. For example, you could have a goal to save $5000 in 12 months – which could look like a 52-square grid where you cross off one square per week. Alternatively, search “bingo savings challenge printable” for ready-made templates.
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9. Look at the savings features of neobanks
Some neobanks have special features designed to help you save. For example, Up Bank has a feature that will let you round up purchases to the nearest dollar, with the difference automatically diverted to your savings account.
10. See a financial advisor
Everyone has unique circumstances, which is why seeking professional advice can be a great way to refine your savings strategy.
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Words by Kathryn Lee
If you’re saving for a home loan deposit, then it’s worth discussing your borrowing power and potential mortgage repayment with an eChoice Home Loan Consultant. We have access to hundreds of products across a panel of multiple lenders, so – once you’re ready to buy – we can help you find a competitive mortgage.