10 extra months needed to save for Sydney first home deposit in 2014: Bankwest

The strong Sydney property market in 2014 means it is taking 10 months longer to get into the market than it did during 2013. 

Sydney is the most difficult capital city in Australia for first time buyers to enter the property market, with deposit savings times now approaching seven years for couples, said Ian Rakhit, Bankwest's head of specialist banking said.

The sixth annual Bankwest First Time Buyer Deposit Report revealed it will take 6.7 years for first time buyers in Sydney to save a home deposit for a median priced property.

"This is an increase of 0.8 years (approximately 10 months) on the same point in 2013," said Rakhit.

"The jump in savings time is largely attributed to a 15.4% year-on-year increase in median home values."

First time buyers in Sydney now need to save a $165,100, 20% deposit to purchase a median priced property.

"This is $40,000 more than the next most expensive capital city, Melbourne ($126,200), and considerably more than the average capital city deposit of $104,813," Rakhit said.

“New South Wales continues to see high levels of population growth, which has a direct impact on housing demand and affordability.” 

“This affects everyone in the housing market, but it certainly makes the first step onto the property ladder tough for Sydney-siders."

There are now 12 local government areas (LGAs) in Sydney where it would take a couple more than 10 years to save for a home deposit, which equates to a record 28% of total LGAs for the Sydney region.

Source: Bankwest

A further 44% of Sydney LGAs have savings times of over six years. Only 12 Sydney LGAs offer savings times between two to four years, while 16% would take four to six years.

Mosman remains the most difficult suburb to break into for first time buyers, requiring 14.2 years to save a deposit. The second most difficult suburb is Woollahra, where savings would take 13.8 years.

While Sydney remains Australia’s most expensive capital city for first time buyers, the rest of New South Wales offers much more affordable properties, with a couple on an average income taking 4.8 years to save the $112,700 required for a home deposit.

There are 37 LGAs in New South Wales (25% of the total of 149) where the average first time buyer couple would have to save for less than two years to raise a 20% deposit for their first house. Central Darling in Far West New South Wales has the shortest savings time in the state, taking 0.7 years (eight months) for a couple to save the $13,600 required for a house deposit.

“As first time buyers find themselves priced out of inner Sydney, regional alternatives may become more appealing. If first time buyers are willing to look outside the typical hot-spots there are still good deals to be found,” Rakhit said.

Nationally, first time buyers are being forced to save for longer as the median value of houses outpaces salary growth. On average, Australian first time buyers will now take 4.1 years to save a 20% deposit for a house, up from 3.9 years in 2013.

Source: Bankwest

Despite a rapid increase in the median price of housing across Australia, wages among first time buyers have only grown by 2.6% over the year, leaving first home saver incomes lagging behind rising house prices.

“This year’s report reveals an ongoing and increasing trend in the amount of time it takes to save for a first home in Australia. At the same time, those who are in a position to join the property ladder this year will do so a time when the average price of houses is showing strong growth,” Rakhit said.

A large part of the growth in national housing prices can be attributed to low interest rates, with standard variable rates currently at the lowest level since 2009. The current average rate of 5.9% per annum is well below the average rate of 7.3% seen over the past 10 years, he said.

"While low interest rates may make it easier for home owners to service their loans, they can also make it more difficult for first time home buyers to save for a first home deposit," he said.

"For a couple saving their money in a high interest online savings account, the average interest rate has been 2.5% over the past 12 months, down from 3.17% in 2013, and the average rate of 4.69% over the past 10 years."

The report quantifies how long it would take a first time buyer to save a 20% deposit based on local incomes and local house prices and the level of the First Home Owners Grant where available by state. Data has been sourced from the Australian Bureau of Statistics (ABS) Wage and Salary Earner Statistics for Small Areas, the ABS Wage Price Index, the Reserve Bank of Australia (RBA) and Residex.

Deposit savings times have been calculated on the basis of a first time buyer couple setting aside 20% of their combined pre-tax income annually. The calculation assumes the savings are deposited into an online savings account each month and earn interest on this basis.

A full list of results for 465 LGAs across Australia is available in the Bankwest First Time Buyer Deposit Report 2014, which is available at www.bankwest.com.au.

Source: Bankwest