Australians have a particular connection with owning a home — fulfilling the ‘Australian Dream’ has historically been deeply ingrained in the national psyche.
But homeownership has become increasingly challenging.1 Rising home prices, tight supply and cost of living pressures have made it hard for many to save for a deposit.2
Despite these obstacles, the aspiration for homeownership remains strong.
Owning a home can bring financial security and stability. Paying off a home loan acts as a form of forced savings and, provided you meet each repayment, the time will come when you own your home debt-free.3
Achieving this dream requires careful planning and a disciplined approach.
Whether you're a first-time buyer or looking to invest, this guide offers a roadmap for aspiring homeowners.
The first step in any journey is understanding where you are starting from.
Begin by looking carefully at your current income and spending habits and identifying how much you can put towards saving. From there, you can start to work out how much you can afford to borrow and what size deposit you will need.
Remember that a larger deposit can save you money in the long term4 by reducing the amount you borrow. If you borrow more than 80 per cent of the value of the property, you will also likely have to pay the additional cost of lenders mortgage insurance which protects the lender if you can’t make repayments.
It’s also important to review any existing debts and obligations like credit cards that can impact your borrowing capacity and affect your ability to save. Having a strategy to manage or reduce these debts should be part of your plan. Credit card debt can come with steep interest payments and increasing repayments can generate substantial savings.5
Online budgeting tools6 can help you understand where you spend and if you can cut back.
Saving for a deposit can be a long process and patience is the key.
Automating a savings deposit from each pay can be an effective way to build savings by taking away the conscious effort of transferring money between accounts and reducing the risk of forgetting to make a deposit.
High interest savings accounts can help you grow your money faster while protecting you from the risk of loss. Compound interest has a snowball effect that can turn small deposits into significant sums over time, meaning starting early can pay off in the long run.7 Regular saving, even in small amounts, helps create a habit.
An option worth exploring is the First Home Super Saver Scheme8 which allows eligible people to make voluntary contributions to their super funds to save for a home. A maximum of $15,000 a year can be contributed up to a total of $50,000. Superannuation is lower taxed than most people’s marginal rates, meaning more of your money is saved.
A financial adviser can help devise a saving scheme that suits you.
Money set aside for a home deposit doesn’t have to be held in a traditional savings account – allocating money to investments like shares or managed funds can help you achieve higher returns.
However, investing does come with additional risk, and it is important to understand your personal tolerance for risk and your personal requirement for returns, which can be different for different people and can be linked to your time horizon and when you plan to use your savings to buy a home. A financial adviser can help.
There are different types of investment assets that typically generate different levels of return and carry different levels of risk.9 ‘Growth’ assets, such as shares, historically have the best overall returns but also have bigger peaks and troughs. ‘Defensive’ assets like fixed income offer returns that are typically lower, but less variable.
Borrowing to buy investment assets can also be an effective way to build wealth. Borrowing gives you more funds to invest, allowing you to buy more of an investment asset which can mean greater exposure and potentially greater returns, helping your savings grow faster.
Borrowing to invest also allows you to diversify your investments, which can protect you from loss by reducing the impact of any single investment’s performance on your overall portfolio. The interest payments on money borrowed to invest are potentially tax deductible.
But be aware that borrowing can magnify losses and you need to be confident you can meet the repayments.
The purchase price of a home is often the primary focus when saving for a deposit but there are many additional costs to be aware of and factor into your plans.10
The biggest of these costs will often be the stamp duty on the purchase – a government charge on property transactions that is calculated as a percentage of the value of the home. First home buyers are often eligible for concessions or even exemptions on stamp duties.
Other costs include those imposed by your lender. In addition to interest rates, you may also have to pay loan fees and lenders mortgage insurance.
There are also the costs of a lawyer or conveyancer to transfer ownership.
And the ongoing costs of ownership should be understood, including insurance, council rates, utilities, strata levies and maintenance.11
There are many government programs aimed helping people onto the property ladder.12
First homeowner grants differ from state to state and can change from year to year so it’s worth checking with your state government on what’s available.
Assistance could take the form of reduced stamp duty, cash grants, or even shared equity programs that contribute to the purchase price.13
The decision to pursue property ownership is one of the most significant financial choices we can make. But it’s important to realise that the journey begins long before you tour open homes or look for a mortgage. The foundation lies in the financial habits developed in the years leading up to the actual purchase.
Each step matters — from understanding your budget and setting a realistic deposit goal, to adopting strategic savings and investing habits, to understanding what assistance is available.
A financial adviser can help.
Financial advisers can assess your individual needs and develop a personalised plan that can help you achieve your goals.