Shocking number of years it will take first homebuyers to save a deposit

The grim reality of trying to break into the property market has been laid bare with new research showing that it would take a first-time homebuyer an astounding 17.5 years to put away a 20 per cent deposit to buy a house in Sydney at lower rates. of increasing interest.

Across Australia, shocking research revealed that with all eight cities combined, it would take 14 years to save up for a deposit.

Surprisingly, the city that took the second longest time to save for a 20 per cent deposit was Hobart and buyers faced a long wait of 13.7 years to accumulate the money, investment bank Barrenjoey found.

Brisbane is not far behind with the time required to collect a deposit of 13.2 years, while in Melbourne it is 12.8 years.

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In Adelaide, buyers had to spend just over a decade saving for a house deposit, while in Perth it was 9.2 years.

The most affordable capital was Darwin and homeowners were expected to spend 6.8 years saving.

However, outsized interest rates also mean buyers’ borrowing capacity is taking a hit with predictions that the amount of money people can borrow will plummet by around 25 per cent by mid-2023. .

And if interest rates rose to 3.8 percent, total borrowing capacity would drop 30 percent.

This would be the largest decline in borrowing capacity in modern history and would also affect house prices, the research found.

“What is worrying is that there is a clear downside risk to this outlook. In fact, if interest rates rise to current market prices and inflation is applied strictly to borrower spending, borrowing capacity could drop by more than 35 percent,” Barrenjoey’s report said.

“We would expect this to trigger an even more severe correction in the housing market and credit growth, which will have implications for the economy and the banking sector.”

But higher interest rates and forecast inflation then could spell even bigger disaster, the bank warned.

“The combination of these factors could cause borrowing capacity to fall as much as 37 percent from the peak in mid-2023,” the report said.

“Such an outcome would undoubtedly cause house prices to fall more than our base case, which would affect the economy in general. We would expect the RBA to quickly ease monetary policy in this scenario.”

The bank’s model has forecast an extraordinary 25 per cent drop for Sydney house prices due to rising interest rates, but forecast it could be as low as 30 per cent, a larger drop than most forecasters have predicted. The experts.

Reserve Bank Governor Philip Lowe recently predicted that home prices could fall 10 percent across the country.

But with housing affordability at an all-time low, there’s also bad news for people who already own a home.

Barrenjoey’s analysis found that mortgage payments in Sydney were already absorbing more than 61 per cent of household disposable income, but rising interest rates were expected to push this figure even higher.

“Over the next three to six months, we expect rising interest rates to offset falling home prices, pushing the cost of paying a new mortgage to new highs,” the report said.

Across Australia, monthly mortgage loan payments have risen to 49.4% of income on average in Australia’s capital cities from a low of 34% during the pandemic, but are expected to get even worse.

“In the very short term, rapidly rising interest rates (both fixed and floating) are expected to offset falling home prices and the cost of paying a new mortgage on the median home is expected to rise by up to maximum of 56 percent of the median. income: a record for the indicator at the national level”, says the report.

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