It’s no surprise that the Australian housing market is best known for being a complete rollercoaster ride, with prices, properties and interest rates fluctuating on a daily basis. Here in Australia, our housing market has seen a significant spike following the impacts of covid-19. With house prices sky rocketing, and interest rates following along closely, it can be hard to know how much money you really need to purchase a property. Historically, a house deposit of 20% has been the benchmark when going to lenders, however this isn’t necessarily the case anymore. While it is all contextual, some lenders are willing to accept deposits as little as 5%, and the Australian government has introduced initiatives to support the purchase of your new home. Another option for homebuyers is to consider having a guarantor, which can provide additional security for your home loan by offering part of their home equity to augment your deposit. However amidst all of these policies, changes, and initiatives one question remains; how much money do I really need for a house deposit?
What is a house deposit?
A house deposit is the upfront amount of money needed by the buyer as their commitment towards the total property price. This deposit will also play an important role in the mortgage terms and interest rates.
Impact on Mortgage Terms and Interest Rates
A larger house deposit will result in a lower loan-to-value ratio (LVR) which will make buyers in this position seem more reliable and less risky to lenders. By having the flexibility of a larger deposit you will have access to better mortgage terms, and even a reduced interest rate which will result in greater savings over the life of the loan.
Minimum Deposit Requirements.
In Australia, while the general range of a minimum deposit is somewhere between 10-20% of the property price, this figure really does vary depending on the lender, loan, and your individual circumstances. It is also important to note that with a smaller deposit you may attract higher interest rates with a longer term mortgage.
Lenders Mortgage Insurance (LMI)
Lenders Mortgage Insurance (LMI) is something to consider when your house deposit is sitting below 20% of the property price, as it provides protection for lenders, in the case of borrower default.
Australian government Assistance Initiatives:
The Australian Government has established a number of initiatives under the Home Guarantee Scheme (HGS) that are in place to support home buyers on their journey to homeownership.
- First Home Guarantee (FHBG): Allows eligible buyers to secure a home loan with as little as a 5% deposit without paying LMI.
- Regional First Home Buyer Guarantee (RFHBG): Assists regional home buyers with a 5% deposit without LMI.
- Family Home Guarantee (FHG): Aims to fast track homeownership for single parents with a 2% deposit without LMI.
Alternative Options for Low House Deposits:
If you feel that your house deposit will be too low to take to lenders, you also have the opportunity to seek assistance from a family member who can act as a guarantor. Having a guarantor provides additional security for your home loan by offering part of their home equity to elevate your deposit.
While saving for a house deposit in Australia can pose a number of challenges, there are options available and government initiatives that have been introduced to assist on their home-owning journey.
If you’re looking to purchase property then get in touch with our team today, so we can point you in the right direction.
Let us point you in the right direction and turn your homeownership dreams into a reality.