Alexandra Cain Finance Writer
Owning our own home is a dream for so many Australians. One of the major building blocks to achieving this is having a sizeable deposit to be able to put towards an initial property purchase. It’s important to understand how much you need to save so you can start working towards this important goal.
Lee Dastey, Credit Manager - Product & Risk at Bank Australia, says the minimum deposit is five per cent of the purchase price. “On top of that, it’s important to factor in stamp duty and other expenses such as conveyancing and pest and building inspections.”
In terms of the ideal deposit, Lee says a realistic goal may be 20 per cent of the value of the property. “We will lend up to 80 per cent of the value of a standard residential property without requiring the buyer to take out lenders mortgage insurance. We may require a more substantial deposit for real estate such as rural properties,” he explains.
In these circumstances, Lee says buyers may need a deposit of up to 35 per cent of the value of the property. He says a larger deposit than 5% may also be required to purchase apartments in high-density areas.
When it comes to saving for your first deposit, Lee says the first step should be to seek the advice of a lending consultant to work out exactly how much you need to save.
“There are also government grants that can assist for first-time buyers. We also offer bonus savings accounts that can help to build a deposit,” says Lee.
“Sometimes an initial loan assessment may find the buyers need a more substantial deposit. The assessment will generally indicate how much more they need to save and how long it may take to build the deposit, based on their circumstances. So the first step is to be clear about how much you need,” he adds.
Help for first-time buyers
While in the past there were generous incentives to help first home buyers enter the market, these have been substantially reduced.
But there are still some state-based incentives for first home buyers who buy or build a new property up to a certain value. Some states also offer stamp duty concessions. Check with the relevant authority in your state to find out more:
- Victoria offers grants of up to $10,000.
- NSW offers grants of up to $15,000.
- Queensland offers concessions of up to $20,000.
- Western Australia has grants of up to $10,000
- South Australia offers grants of up to $15,000.
- Tasmania offers grants of up to $10,000
- The Northern Territory offers grants of up to $26,000.
- The ACT offers grants of up to $12,500.
In early March 2017 the Victorian state government announced first home buyers who buy a property for less than $600,000 won’t need to pay stamp duty in the future. Discounts will be available for first home buyers who purchase properties valued between $600,001 and $750,000. Subject to the legislation passing through parliament, this concession will apply for houses sold after 1 July 2017. This does not apply in other states.
After the new stump duty rule is applied, regional Victorian home buyers can see the grants doubled of up to $20,000 for properties valued less than $750,000. This will only be applied for new built homes.
While it’s unusual, it is possible to purchase a property without a deposit. Lee says while Bank Australia won’t generally approve a loan without a deposit, borrowers could use a guarantee, often provided by the borrower’s parents accessing the equity in their property.
“We tend not to do it, but it is possible. If a borrower had a 30 per cent guarantee to cover the 20 per cent deposit plus any costs, we would consider it. But we prefer to see that the borrower has a savings history,” he adds.
Ultimately, the best way is often to set a deposit goal and work hard to achieve it. After all, owning a property is a great achievement, and one of the best ways to build wealth.
For more information on buying your first home, you can download Bank Australia’s free ebook ‘All you need to know about buying a home’ here.
About the author
Alexandra Cain is a finance journalist who contributes regularly to The Australian Financial Review, The Sydney Morning Herald and The Age.
Please note that this article is not financial product advice and does not take into account any person’s individual objectives, financial circumstances or needs.