Australians trying to break into the property market today face their fair share of challenges. Property prices have risen at a much quicker pace than incomes, and the high cost of living can make saving a deposit seem next to impossible.

Right now, the property landscape seems as unfriendly to first home buyers as it could possibly be, but do younger Australians really have it worse than their parents did?

We explore a few key points in the debate below.

What was it like buying a home 30 years ago?

Interest rates might have recently risen from their pandemic era lows, but they’re still a far cry from the double digit interest rates Australians had gotten accustomed to in the late 80s and early 90s.

Back in 1990, high inflation and excessive commercial property speculation were threatening economic stability, and the Reserve Bank lifted the cash rate to 17.50% in an attempt to bring things under control.

This ‘bitter medicine’ approach flung the country into a recession and sent unemployment skyrocketing. At its peak, 11% of Australians were without a job, and many among this unlucky cohort found themselves defaulting on their loans.

The ones who were able to keep up their repayments were at one point allocating around 45.5% of their household income towards their mortgage.¹ Fortunately, the pain was short lived — within two years the recession had ended and official interest rates had fallen by ten percentage points.

What are the challenges homebuyers face today?

High interest rates might have been the bane of homebuyers in the 90s, but today it’s sky high property prices. According to CoreLogic, house values across capital cities have risen 453% in the 30 years to 2022, while units have jumped up 307% over the same period.²

While mortgage repayments as a percentage of income are hovering at around the same levels older Australians faced in the early 1990s,³ it’s arguably saving up a 20% deposit that’s the most formidable challenge for buyers.

Without help from parents, who might be able to leverage their own property or gift part of their retirement savings, young Australians could find themselves spending a decade or longer saving up a deposit.

In fact, research from 2023 found it would take households 12 years to save a deposit for the average unit and 16 years for the average house, assuming they can squirrel away 25% of their income each year after spending on necessities.⁴

What can today’s borrowers do?

Would-be buyers might feel that the odds are stacked against them, especially now with rents eating up a greater share of household income. But the good news is that there are several Government initiatives aimed at helping people break into the property market.

The first is the Home Guarantee Scheme, which makes it possible to take out a loan without having the 20% deposit lenders like to see. Those eligible include individuals earning up to $125,000 or joint applicants earning up to $200,000 who haven’t owned a property in Australia in the past 10 years. The scheme comes in three forms:

• First Home Guarantee (FHBG): lets eligible homebuyers purchase a home with a deposit as little as 5% without paying Lenders Mortgage Insurance (LMI). Up to 15% of the value of the loan will be guaranteed by Housing Australia, which administers the scheme on behalf of the Government.
• Regional First Home Buyer Guarantee (RFHBG): similar to the FHBG in that up to 15% of a loan will be guaranteed, this initiative caters to Australians buying in regional areas.
• Family Home Guarantee (FHG): available to eligible single parents and single legal guardians of at least one dependent, this initiative lets you purchase a home with a deposit as little as 2%.

There’s also the First Home Super Saver Scheme (FHSSS), which lets you use your superannuation as a savings vehicle ahead of purchasing a home. Under the scheme, first home buyers who have made voluntary contributions into their super can withdraw up to $15,000 of these contributions at a later date to use as a deposit. Up to $50,000 can be released, along with associated earnings.⁵

* CoreLogic’s housing data for Darwin did not extend back to 1992

Sources

1 SMH
2 CoreLogic
3 SMH
4 Finder
5 ATO