There was one group of certain winners from the weekend’s Federal election: first home buyers.
Launched by the Coalition, and then quickly matched by the ALP, the first home-loan deposit scheme will be introduced to top up a 5 per cent deposit with a government guaranteed loan for another 15 per cent of the value of the property.
In other words, a 5 per cent deposit becomes 20 per cent with the help of the government.
It’s limited to 10,000 first home buyers earning up to $125,000 as a single or $200,000 for couples.
It is an interesting scheme and a big help for those trying to save for a deposit on their first home in a still-expensive property market — even after the recent falls in some capital cities.
But it’s not a grant. It’s a guaranteed loan.
The reality is that using this scheme still means first homebuyers will have a loan equal to 95 per cent of the value of their first property, but 15 per cent of that loan will be government guaranteed.
It will save on mortgage insurance costs and help people to get a loan, but buyers still need to be sensible in how much they borrow and make sure they can afford it.
Last year, there were 110,000 first home buyers but only 10,000 will get access to this scheme. A lot of people will miss out.
If you’re looking to buy your first property, here’s our five-step savings mantra to help you get there. We’re not saying it’ll be easy but in the long run it can be worth it both financially and for lifestyle.
I WILL SET GOALS
The first step is to work out when you want to buy, how much you can realistically afford to spend and how much you’ll need to save.
Once you have this big, hairy goal to work towards, make a plan about how to get there. It helps to break it down into more manageable steps, like committing to save a certain amount each month, week or even day.
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What can appear to be a massive number can seem so much more achievable if broken down to a daily amount. For example, $50,000 over two years is $68.49 a day which, for a couple, can be cutting down on takeaway coffee and making your own lunch rather than buying it.
But don’t think these things will just happen. It takes discipline.
Build a budget to get on top of cash flow and always think of your savings first by setting up a regular automatic transfer.
I WILL MAKE SACRIFICES
According to recent data, the median price of properties sold in Australian capital cities was around $530,000.
A 10 per cent deposit means you’ll need to front up $53,000 before costs like stamp duty and lenders mortgage insurance, and that’s before making a single repayment.
For most people, saving an amount that large means serious sacrifice, so prepare to do the hard yards and cut back on life’s guilty pleasures.
Here’s a tip: when times get tough, think about why you want to buy in the first place. For us, it was always easy to make sacrifices when we thought about the long-term security of our growing family.
I WILL FOCUS ON MY CAREER
Forget the property you want to buy: your income is your biggest asset, and the higher it is the more you can save for a deposit.
So invest in your career to maximise earning potential. Why not enrol in further study, take a course to improve your skill set, or simply knuckle down and get noticed at work?
Remember that a bigger deposit means lower repayments, less interest charges and hopefully brings forward that magical date when you’re finally debt-free.
I WILL INVEST MY MONEY WISELY
Building a deposit isn’t going to happen overnight, so with time on your side it could make sense to invest some of those savings and increase potential returns.
Over the long-term, letting cash wallow in a bank account earning low interest means the real value of that money is eaten away by inflation. You can guard against this by sensibly investing savings in higher-risk dividend-paying blue chip shares, managed funds or higher interest term deposits.
If you’re not comfortable investing, then see a financial adviser for some professional help. They’ll be able to assist with setting and achieving those financial goals, too.
I WILL BE REALISTIC
It’s easy to get carried away and borrow more than you should.
But remember interest rates are historically much higher and can change very quickly, so taking on too much debt now could mean trouble down the track.
This means being practical about property. It’s a long-term game and your first home doesn’t have to be perfect (and it probably won’t be).
But play it safe and, over time, hopefully you’ll be in a position to upgrade to the home you’ve always wanted. And by that stage you’ll have earned it.
SPEED UP DEPOSIT SAVING
• Shop around for best savings rates
• Earn extra income through a second job or home business
• Implement a strict spending budget
• Save at the start of the monthly pay period and live on the remainder
• Ask relatives for help or a guarantee
Originally published as How to save for your first home faster