Fastest way first home buyers can save for a deposit

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With the Government launching the First Home Loan Deposit Scheme less than three months ago – enabling first home buyers to commit as little as five per cent towards their deposit – will Aussies get their foot on the property ladder sooner? A financial advisor says yes, there are ways to fast-track the accumulation of a deposit.

Helen Baker, licensed financial advisor and spokesperson at Money.com.au – a new information platform for Australian consumers seeking financial products such as loans – says: “When saving for your first property, remember that it’s exactly that – your first home. You’re likely to upgrade down the track, so consider whether getting the highest mortgage possible is the right path for you, if it requires you to have unsustainable goals. The First Home Loan Deposit Scheme has thresholds in place with this in mind, but allows for the purchase of a modest home, with just a five per cent deposit.

“A young couple with a combined salary of $120,000, could buy a $600,000 apartment using the new Scheme. They need a deposit of $30,000 plus administration costs and would need to save about $1260 a month – $630 each – to get this deposit in place in two years. This is 15.7 per cent of their monthly salary after tax. There are various ways Aussies can meet this goal by tweaking their financial habits and making other small changes along the way.”

home buyer holding a house key in their new home. They are standing in their new modern house. Both are happy and smiling. The house key has a house icon keyring

 

Helen reveals her top 9 tips to help first home buyers accelerate their home deposit:

 1 – Have a ‘spending and investment plan’ rather than a ‘budget’. Budgeting is associated with being tied down and handcuffed – you’re saving with a purpose, but it’s not sustainable in the long term. Instead, assess your finances by having a spending and investment plan, where spending includes any bills, fixed commitments, credit cards, holiday and ‘pocket money’, and investment is your home deposit savings. If you’re ‘budgeting’, it indicates that you’re strict for a short period, but you also need to prove to your lender that you can meet mortgage obligations and have money on the side for the future.

2 – Consider salary sacrificing to superannuation. If your cashflow allows for it, consider the First Home Super Saver Scheme, which will enable you to save for your first home within your super fund by making voluntary contributions. The total cap is $25,000 less your employer contribution. You can make a voluntary contribution to the maximum of $15,000 in one financial year, and up to $30,000 in total. The benefit of this salary sacrifice arrangement is you’re taxed at 15 per cent going into super, instead of your marginal rate of up to 46.5 per cent when you save outside super. Be aware that when you withdraw, you pay tax on that money but with a 30 per cent rebate i.e. if your marginal tax rate is 32.5 per cent as above, you would net 2.5 per cent tax. Given you intend to save this money anyway, you get a win: a saving of 17.5 per cent on the way into super, less 2.5 per cent tax on the gap on the way out – netting a gain of 15 per cent or $4,500 – higher if you are in a higher tax bracket. Additionally, you benefit from a forced saving as you can’t touch superannuation until you meet a condition of release.

3 – Prioritise paying down debt as quickly as possible over saving. Credit card debt and personal loans weighing you down? Pay them off as soon as possible to minimise the interest payable – starting with the one with the highest interest rate. Credit cards incur around 20 per cent interest, which quickly adds up and could also jeopardise your chances of getting a mortgage if you have a poor credit rating. If you’re wondering which to prioritise between getting rid of debt and setting aside savings, get rid of all your debt first.

4 – Consider opening a high-interest savings account. High-interest savings accounts (HISA) offer various benefits: competitive introductory interest rates if you’re a new customer and bonus interest when you meet certain savings conditions, such as depositing a certain amount each month. For example, the AMP Saver Account has a four-month introductory rate of 2.36 per cent, standard rate of 1.4 per cent pa, and a variable bonus rate of 2.11 per cent.[1] Some accounts will also penalise you if you withdraw money from the account – by not giving you interest that month – motivating you not to dip into your home deposit. With plenty of HISA offered by banks, do your research to find the best option for you. Finance platforms such as Money.com.au can help you better understand HISA and compare popular options on the market. Make sure you check out all your options for someone safe to invest in.

5 – Generate a second source of income with a side hustle. You can find a side gig to earn extra money for your deposit, thanks to the internet and share economy. For example, consider applying for roles on Airtasker or freelancing in your area of specialty if you have a specific skill – such as photography or design – or become an Uber driver and make extra cash. By taking up a side hustle, it minimises the amount of leisure time you have, in turn, cutting down your spending. A couple of hours doing this each week could see you earn an extra $200-300, depending on the job.

6 – Consider opening a term deposit. Despite interest rates being at an all-time low, opening a term deposit can still help you achieve your goal sooner. The Judo Bank Term Deposit offers a 2 per cent interest rate over 24 months, with a minimum opening deposit of $1000.[2] It’s advised that you compare interest rates between banks before you commit, assess how long of a term you need and ensure you feel safe with who you invest in. The general rule is the higher the interest rate, the longer the term, so don’t get caught out having to pay a penalty if you need to withdraw money before it hits maturity. Be aware of the minimum deposit requirements as well, so you know when this might be a valid option for you to consider.

7 – Try living off one salary and banking the rest. If you’re a dual-income couple, living off one salary and saving the other is one of the hardest but fastest ways to accelerate your savings – if you can do it, you should be able to cover your deposit in just one year! You may want to consider opening a new savings account that each person can deposit half their salary into, so you can keep individual accounts and monitor your own spending.

8 – Declutter and sell items on online marketplaces. There’s a high chance you have double-ups in furniture and white goods if you’re moving in with your partner for the first time. Consider listing items you no longer want or need online so you can bank the money made from your sales.

9 – Move back home temporarily. While everyone can’t move back into their family home, consider taking advantage of it if the option is there. The amount you’re saving in rent will likely cover your monthly savings target for your deposit. Don’t expect it to be completely expense-free though. Discuss your family’s expectations of you contributing to household expenses and bills.

[1] AMP Saver Account, information correct as of 12 March 2020, https://www.amp.com.au/banking/savings-accounts/amp-saver-account

[2] Judo Bank Term Deposit rates, information correct as of 12 March 2020, https://www.judo.bank/personal-term-deposit

 

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