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Interest rate rises are slashing the amount of time it takes for young Aussies to save up the deposit for their first home, but there is a catch.
For many Australians, the 13 interest rate rises of the past year-and-a-half have been a source of acute anxiety. But for one buyer cohort, the rate spike has had a hidden benefit.
According to Domain’s latest First-Home Buyer Report, the time it takes to for a first home buyer to save up a 20 per cent deposit for an entry-priced home is quicker than it was last year thanks to high interest rates.
For houses, saving time has declined by two months, while saving time for units has declined by one month.
With the lump-sum deposit often viewed as the biggest barrier to breaking into the housing market, this may appear to be welcome news.
But Domain’s chief of research and economics, Dr Nicola Powell, warned that there is a catch.
“The current market still poses significant challenges for first home buyers,” Dr Powell stated.
Buyers may be able to enter the market a few months sooner, but new home owners find themselves suddenly grappling with high mortgage repayments that they struggle to repay.
The result is intense mortgage stress.
“Our data shows that mortgage serviceability is stretched across our capitals,” Dr Powell said. “While there has been a slight reduction in the time required to save a deposit … the higher interest rates are also making home loan repayments more difficult, which is why more people are facing mortgage stress.”
According to Domain’s data, entry-level house and unit home loan repayments now account for 46.5 per cent of income for those purchasing houses and 30.7 per cent of income for those purchasing units.
Moreover, Dr Powell emphasised that even the shorter saving time has not affected all young buyers equally.
“This decrease primarily applies to Australians who can save a consistent amount ongoingly and have experienced wage growth, as these factors are key drivers,” Dr Powell said.
She noted that the spike in mortgage stress has led to a growing trend of first home buyers financially relying on their parents.
“The time to save, mortgage serviceability and record high property prices explain the growing reliance of some first home buyers on financial support from the bank of mum and dad to secure a deposit,” Dr Powell said.
“This complex situation does underscore the need for government action. While initiatives like the Help to Buy scheme offer promising solutions, tackling housing undersupply in the long term requires concerted efforts from our government,” she concluded.
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