How much should you spend on your first home?

How much should you spend on your first home?
How much should you spend on your first home?

As a first home buyer, it's sometimes hard to figure out how you compare to others in the same position.

Are you spending way more than you should and overcommitting yourself? Or are you trying to scrimp and eyeing a property that most buyers, first timer or otherwise, wouldn't touch?

If you're planning on laying money down for your first purchase, you have to be realistic about how much you can spend. You may be able to save up for a deposit on a $650,000 house by eating baked beans every night for a year, but that's not a sustainable way to live.

Once your mortgage payment obligations start, they don't stop - not if you decide to get married, or have a baby, or get sick. So be honest with yourself about what you can afford.

The Australian Bureau of Statistics (ABS) gathers data on different segments of the market, including first home buyers. According to the ABS, the average loan size for a first time buyer in July this year was $307,400.

Adding an assumed 10% deposit, that brings the typical first home buyer price to an estimated $338,140 (though remember, those aren't the only costs associated with buying your first home). While the ABS figures can allow you to make a rough guess at what others are spending, remember - there is no one particular loan size, loan to value ratio, or finance scheme that fits everyone. 

It's important to note that our $338,140 is a national average, and prices vary from city to city. For a more specific breakdown, see what Property Observer's expert contributors picked around Australia

So what exactly will $338,140 buy you?

In Melbourne, that might get you a one bedroom apartment like this one, located three kilometres from the CBD in Flemington. The lowrise apartment pictured below sold for $340,500 in August.

How much should you spend on your first home?

Showing just how much things change a mere 3,400 kilometres away, in Perth's Balga you can pick up a three bedroom attached house for $340,000.

 How much should you spend on your first home?

If the average first home buyer across Australia is paying around $340,000 for home, does that mean you should too?

Not necessarily. Prices, household incomes and living costs vary all across the country - what might work for your friend in Balga may not be such a wise decision in Sydney. You might be better off waiting until you can afford a property that offers good capital growth.

Perhaps you're wondering what the first home buyer market was like five years ago (or how much easier your older brother had it).

In July 2009, the average loan size to a first home buyer was $269,100 - meaning the average first home buyer commitment size has increased by 14% over the past five years. According to the ABS, the proportion of first home buyers in the market was higher then, with 25.7% of all homes financed in July 2009 belonging to first time purchasers.

First home buyers make up less than half of that proportion of the market now: only 12.2% of all dwellings financed in July 2014 were first home purchases.

Some think the apparent decline in first home buyers is the result of an increasing unwillingness to overcommit on housing - or to commit at all. Others believe the ABS needs to revise its methods.

There's no single number that represents how much a first home buyer should spend. But if you're purchasing your first home, be realistic and know your limit.

First Home Buyers

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