Despite industry competition, home loan promotions and a low interest rate environment which characterises the current mortgage season, acquiring property still sits on the expensive end of the spectrum for many Australians, and the notion of completing a 20 per cent deposit is both a fiscal and emotional challenge.
As it turns out, we may become a nation of renters. New research commissioned by finder.com.au found that 47 per cent of renters are considering renting for their lifetime if property prices continue to move north. This culture of renting is a knock-on effect of housing unaffordability which has seen 3.6 million Australians locked out of the property market.
However, we shouldn’t be disheartened. Saving up for a deposit (although the idea may be a little off-putting) is still achievable. But in the current climate, it means we need to do a little extra legwork to pursue homeownership.
Follow these steps to carry out a financial spring clean so that you’re better equipped to save your deposit.
1. Step back and reflect on your financial behaviour
Understanding and improving your relationship with money is a great way to begin your financial audit. What kind of spender are you? Does the thought of your credit file make you want to cringe or are you confident that you repay your bills on time? Are you an impulsive spender or are your purchases well thought-out and planned? Do you make regular deposits into a
high-interest savings account or do you spend every cent you earn?
Take an honest look at your financial behaviour and think of ways to improve it. One way you can do this is to request a free copy of your credit score and your credit file as this can give you a snapshot of your financial position and help you decide what to do next. For instance, if you’ve missed mortgage or credit card repayments you may want to consolidate your debt to boost your savings (this will also help you better manage your debt).
2. Evaluate your existing costs
With a renewed understanding of your financial habits, you can be proactive about budgeting but first you need to cut back on existing costs. Think of the full spectrum of your expenses including transport, household bills, utilities and entertainment and consider ways that you can lower these costs.
Are you getting the best deal on your internet bill? Can you save on your weekly groceries by shopping online or at a budget supermarket? A saving of just $50 a week will go a long way to your deposit fund (especially if you’re earning interest on your funds).
Be ruthless when it comes to removing unnecessary expenses. If you’re eating out three nights a week, consider pulling back to one night a week. If you’re paying $95 for a monthly phone plan with features you don’t use, it may be time to downgrade
3. Have a number in mind
For a full documentation home loan, you normally need to complete at a 20 per cent deposit if you don’t want to pay lender’s mortgage insurance (LMI). This means you need to come up with 20 per cent of the property purchase price which gives you an idea of what you need to save. So if you’re looking at a property with a $550,000 price tag, you’ll need to save $110,000.
Speak to an Accountant or Financial Adviser to set a savings target and a realistic timeframe of when you can save this amount. Generally you should allocate about 10-15 per cent of your total savings for your home loan deposit, however this will depend on your income and financial commitments
4. Get tactical
After trimming your existing costs and setting your savings goal, you need to think of the tactics you’ll follow to achieve your goal. This may be making regular deposits into a high-interest savings account or finding ways to make some extra cash such as by refinancing to a more affordable home loan or by taking on extra freelance work
5. Be diligent about saving, and learn the art of compromise
A clear savings goal and timeframe will motivate you when it comes to making lifestyle changes but it’s also important that you have a diligent and long-term approach when saving for a deposit.
Being diligent not only means sticking to your savings goal but it also means being proactive about saving and coming up with tactics (as discussed above) to help you realise your savings goal. For instance, if you have more than one credit card you may want to apply for a balance transfer so you can pay no interest for a specified period.
You need to mentally prepare yourself to make sacrifices along the way. If you want to meet your savings target, you’ll need to resist overseas holidays and expensive impulse purchases
6. Consider a co-borrowing agreement
If you can buy a property with a close family member or friend, then saving for a deposit may become a whole lot easier. However, before you decide to go down this path, protect yourself by having a co-ownership agreement in place that outlines both of your financial responsibilities.
For example, you’ll need to agree on the goals, financial contribution, legal and tax implications before signing on the dotted line.
Saving for a deposit is by no means easy, but you can certainly pave the way for success if you’re savvy about your finances and you follow steps to improve your financial wellbeing and your propensity to save for a deposit.