Deposit hurdles are falling – but this doesn’t make buying a house easier

For the first time in two years, the amount of time needed to save for a deposit has been reduced due to falling property prices in capital cities, but prospective buyers may be finding it tougher to put money aside.

This was according to the ANZ CoreLogic Housing Affordability report, which found that since March, the time needed for a median-income household to save a 20% deposit has decreased by about three months in Sydney and Melbourne to 13.7 years and 11.1 years, respectively.

But higher living costs meant homeowner hopefuls, including renters, may not be able to divert as much money to a deposit, said Eliza Owen, CoreLogic’s head of Australian research.

“Renters in particular are facing persistent challenges in attaining affordable and secure housing as rents increased by 9.8% nationally over the past year, the fastest rate on record,” Owen said.

The report also found that the portion required to service rents has hit record highs in regional Australia, with 34% of income required to service rent on a new lease. This compared with 28.4% of income across combined capital city markets.

Meanwhile, the portion of income required to service a new mortgage nationally rose to 44% in June – the highest level since June 2011 and significantly higher than the 33% of income needed in September 2020.

Findings also revealed that the deposit hurdle in regional Australia has almost caught up with capital cities. Median income earners in regional Australia now need four months less to save for a deposit – 10.7 years in regional Australia compared to 11.1 years in capital cities. This is the closest these metrics have been since June 2011.

Felicity Emmett, ANZ senior economist, said that while many recent homebuyers are facing rising mortgage costs, several factors create some protection against further interest rate hikes.

“Households are in good shape to absorb further rate rises as people have been saving more,” Emmett said. “Wages have increased and many recent borrowers remain on low, fixed-rate mortgages. Borrower assessments on those loans take potential rate rises into account. Mortgage serviceability assessment buffers mean that people who took out a new home loan over the past nine months should be able to absorb rate rises three percentage points higher than the variable rate at the time their mortgage was initiated. Also, mortgage serviceability may improve in 2024, as we expect the Reserve Bank of Australia to cut the cash rate by 50 basis points by the end of that year.”