Purchasing your own home provides you with a sense of certainty and security that renting will never be able to match. This is particularly true if you're planning on starting a family in the near future and want to create a stable environment in which to raise the kids. In addition, knowing that any renovations you perform on the house results in direct capital gains for you offers greater financial security in the years ahead.
What's holding people back from purchasing property?
However, due to wider economic conditions, saving up for a home loan deposit is easier said than done. Over the last few years, the cost of property has skyrocketed in many regions across the country. In fact, the average house prices in Australia increased by 11.7 per cent in the last year alone, according to figures collated by property experts Domain.
The average house price in Australia increased 11.7 per cent in the last year.
This growth has been especially pronounced in Sydney. Domain Senior Economist Dr Andrew Wilson explained just how much the property market in the New South Wales capital has expanded in the last 12 months.
"Sydney's median house price has increased by 22.9 per cent over the 2014-15 financial year which is one of the highest annual growth rates ever recorded by the city. It's a result that is now exceeding the boom time results of 2001 and 2002," said Mr Wilson.
So, property prices are on the rise, but what's driving this trend? Mr Wilson surmised that it largely comes down to accommodative home loans.
"The main catalyst has been low mortgage rates - the lowest since the mid-1960s. It's a perfect storm of local supply and demand factors generating the price growth," he said.
Regardless of the reasons behind the booming property market, the fact remains that house prices are prohibitively high. This is particularly true for young or first time buyers who don't have a high level of equity to use as leverage to help them secure the home loan necessary to purchase a house.
However, while breaking into the property market might be tough, by no means is it impossible. Design a saving strategy, set a budget and start building towards achieving your dream home with these nine tips:
1. Understand your income and expenses
Understand your financial standing by calculating your expenses.
The Commonwealth Bank explained that one of the first steps of designing an effective saving strategy is to have a strong understanding of your financial situation. This means calculating your income from all sources, including wages and interest on investments.
In addition, you'll also need to work out your expenses. This can be a challenging exercise, but by being as thorough as possible and realistic in your estimations, you'll be in a much better position to create a budget.
2. Set a budget
A budget reveals areas in your life where you could be saving more money.
After determining your income and expenses, you'll be able to identify aspects of your life where you're efficient with money and areas that have room for improvement. With these figures in mind, set yourself a budget that will enable you to channel a solid portion of your weekly income into a savings account, while still allowing you to pay for day-to-day necessities such as food, rent, clothes and other essentials.
3. Get rid of existing debt
Paying off credit card debt ensures you won't incur any hefty interest.
Australia has around $51.5 billion of credit card debt, according to figures collated by the Reserve Bank of Australia .If you're contributing towards this statistic, you should strive towards paying off your debts before you even think about applying for a home loan.
Why? Well, fulfilling your other financial obligations removes the risk of incurring any interest and also ensures that there are no black marks on your credit rating, which may make it more difficult to secure a competitive mortgage.
4. Be realistic about your goals
Setting an attainable goal is central to staying committed to your saving strategy.
While your saving strategy will involve a certain level of sacrifice, it's important to be realistic about your goals and expectations. Setting overly ambitious targets will ultimately end up leaving you unmotivated when you fail to hit them. Set an achievable timeline for your objectives and allow yourself a little discretionary money to spend on recreational activities and the occasional luxury item. Remember, the best saving strategy is centred on balance.
5. Open a dedicated savings account
Opening a high interest savings account can help you reach your financial goals quicker.
Channelling money into a savings account is an excellent way of growing your wealth over the long term. The Australian Securities and Investments Commission (ASIC) noted that the high interest rates of these types of accounts allow you to accelerate your savings. In addition, they often come with withdraw penalties, which will discourage you from using the cash for daily purchases.
6. Understand the First Home Owner Grant
The First Home Owner Grant provides financial assistance to newcomers to the property market.
To help newcomers to the market deal with the high housing prices, the government has introduced the First Home Owner Grant, which provides buyers with a one-off cash injection.
The exact amount you'll be eligible for will depend on your jurisdiction. For example, if you're buying in Queensland, you can receive up to $15,000 towards building or buying a property up to the value of $750,000.
7. Consider a lower down payment
Low deposit home loans may come with additional fees.
If you're struggling to save for the typical 20 per cent down payment on a house, it's worth noting that some types of home loans only require a 5 per cent deposit. Due to the additional risk associated with a larger loan, these mortgages do come with fees such as lender's mortgage insurance, which can increase the cost of buying by thousands.
However, in some circumstances, these can be a cost effective way of stepping onto the first rung of the property ladder. Make sure you talk to a finance professional to find out if this type of loan is right for you.
8. Ensure that you and your buying partner are on the same page
Both you and your partner should be striving towards the same financial goals.
If you're buying your first home with one or more other parties, make sure that you're all committed to the savings strategy and consistently moving towards the same goals. You can achieve by this regularly reviewing your budget (perhaps on a monthly basis) to assess any parts of the strategy that may need modifying and discuss any tips you have for reducing expenses.
9. Make lifestyle changes
Adopting healthier financial habits can help you reduce expenses.
Perhaps the most effective - and most difficult - way to save for a home deposit is to make some significant lifestyle changes with the aim of adopting healthier financial habits.
The average Australian household allocates $161 per week to recreational pursuits, according to figures collated by ASIC. If you're able to minimise the amount you spend on these luxuries, you'll be in a better position to save and will be able to secure a home loan deposit that much quicker.