With interest rates slashed to a historic low of 1.5 per cent in Australia, first home buyers are madly saving to pursue the ‘Australian Dream’. Many see it as prime time to get a foot onto the property ladder with a discounted home loan, as low rates will enable them to pay down their mortgage quicker.
Interestingly, more than one in three experts recently surveyed by finder.com.au agree now is a good time for first home buyers to enter the property market. But with housing unaffordability, saving for a 20 per cent deposit may seem unattainable for most. For many people, saving the deposit for a property takes years, where you should aim to save at least 20 per cent of the purchase price so you don’t have to pay mortgage insurance.
There are strategies that young Australians can use to grow their hard-earned savings. The larger the deposit, the less money you'll have to borrow, which means you’ll pay less interest over the life of a 25 or 30 year mortgage.
Our top tips for saving a deposit as quickly as possible while rates are so low:
Identify expenses that you can cut back on
Take a look at your expenses and identify areas where you can trim your outgoings. Can you opt for a cheaper mobile phone plan, or reduce your spending at the supermarket? The first step for building your bank account balance is to cut back on outgoings.
If you're renting, you may consider moving into a cheaper rental property or going to live rent free with your parents for a while. Look at every area of your life to see where you can save money. Everything from cutting a gym membership to downgrading an insurance policy will help. Dining and entertainment is a big money waster – try going out every second week or replacing your daily coffee at a cafe with one from home to help you put more money away each week. Small savings add up, so have your savings goal in mind.
Rid yourself of excess debt
Do not make the mistake of applying for your first home loan while you're carrying excessive debt. The more debt you have, the more of your monthly income goes towards those debt expenses and less into savings. Do away with any credit cards you don't need and reduce the limit on the ones you have, and pay down any personal loans.
Put every penny towards reducing your debt. One option is to consolidate the debt on a credit account with a special zero interest free period and work on paying back the debt as fast as possible. Bad debt can also reduce how much a bank will lend you for a mortgage, so consciously reducing that debt will benefit you two-fold.
Be finance savvy
Once you’ve reviewed your budget, be smart about where you park your funds. Consider opening a high-interest savings account. A ‘bonus saver’ typically lets you earn a higher rate of interest on your savings if you meet certain conditions, such as depositing a minimum amount every month. Have a portion of your income directly deposited into your online savings account – you’ll never miss what you can’t see and it’s simple to organise with your payroll officer. These accounts are designed to incentivise you to save and can help you get to your new home sooner.
You might also consider investing a portion. Consider your personal financial situation – including your tolerance for risk, whether you need access to the money and how quickly you want to grow the savings before choosing where you'll park your hard earned savings.
Starting a new savings plan is easier said than done, however willpower combined with a plan can see you fast track your efforts so you'll be one step closer to purchasing your first home.
Bessie Hassan is the Money Expert at Australia’s most visited comparison website, finder.com.au.
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