Australia’s lethargic economy has done little to dampen first homebuyers’ spirits, but saving up a deposit still remains a challenge for many.

Property prices are climbing again after the 18 month-long fall that permeated 2018 and early 2019, but more than half the nation’s aspiring property owners still plan to take the plunge in 2020.

IFS head of technical, research and advice Craig Sankey.

But data from the ABS shows young house-hunters are steadily being priced out of the market as lower interest rates and easier lending criteria for banks drive more buyers into the market – bidding prices up.

For first homebuyers, saving enough to take out a mortgage can seem like an insurmountable task, but Industry Fund Services’ head of technical, research and advice services Craig Sankey told The New Daily that’s simply not the case.

All it takes to get onto the property ladder is discipline, planning, and a little know-how.

Make a budget (and then make another)

As with achieving most financial goals, the first step is to set a savings goal and create a budget to help you reach it.

Ideally, homebuyers should work out exactly how much they can afford to spend on a home, then try to save a full 20 per cent deposit, which will help keep repayment and lender’s mortgage insurance costs down.

Some savers do this by moving in with family to minimise their living costs.

For many though, this is not an option, and Mr Sankey suggested using high interest savings accounts (especially those offered by challenger ‘neobanks’ which still offer rates above 2 per cent) to supercharge their savings.

For homebuyers who are happy to wait at least five years to put down a deposit, another option is to place some of their money into high growth investment products like stocks.

But with home prices on the way back up, investors need to make sure their returns are staying ahead of property prices or they could find themselves with less money then they need when the time to buy finally comes.

Savers need to factor in the additional costs – conveyancing, moving, cleaning etc. – when budgeting to buy a home too.

Forgetting these costs can quickly add up and catch buyers out.

Once you’ve bought a home your finances will change significantly, so Mr Sankey recommended creating a second budget which factors in the cost of a mortgage, to help keep your finances on track after moving in.

Seek out support

First homebuyers also have access to a range of support programs to ease the financial burden such a purchase poses.

One of the most-talked about is the First Home Super Saver (FHSS) scheme, which allows Australians to save up to $30,000 for a home deposit through their superannuation.

Under the FHSS scheme, would-be buyers can make additional contributions (up to $15,000 a year) into their super, which can be taken out to finance a home.

This will help some buyers, Mr Sankey said, as it provides “a tax-friendly environment” to grow their savings, but the small withdrawal limit means many buyers will need to make additional savings elsewhere too.

Each state and territory also has its own first home-owners grant program too, with varying benefits and eligibility criteria, which can e checked below.

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Eligible Australians can also apply for the National Housing Finance and Investment Corporation’s First Home Loan Deposit Scheme.

This national program allows low-income and high-risk borrowers to take out a loan with as little as a 5 per cent deposit, by providing a guarantee to the banks.

Things to watch out for

Borrowers in recent months have benefitted from record low interest rates and new lending standards that make it easier to take out a mortgage.

But these two things combined mean many lenders are able to offer loans much higher than borrowers would normally have been able to afford.

Mr Sankey urged first homebuyers to consider how they would make their mortgage repayments if rates were 2 per cent higher – and use this buffer to make sure they don’t over-extend themselves financially.

Home buyers should also review their insurance arrangements – including the insurance they hold through super – to make sure they’re covered in case an accident prevents them from working.

The last thing first homebuyers need to watch out for is their own emotions.

People often fall in love with homes and choose to stretch their budgets to the limit to buy their dream home.

But a home is also an investment, and homebuyers need to think about the financial implications of their decisions.

“There’s no point in living in a place that you hate,” he said, “but it is going to have a major impact on your long term finances.”