First home buyers locked out of market as research shows it takes four years to save for deposit

First home buyers now need to save 20% of their salary for four-and-a-half years before they are able to put a deposit on a house or unit, a new survey from BankWest reveals.

The survey has prompted some serious questions from property experts, who suggest the market could change dramatically if first home buyers are no longer a driving force.

The second annual First Time Home Buyer Report has found that new buyers must save for an extra 10 months, compared to last year, while many are forced to live at home with parents while scrounging up for a deposit.

The survey suggests a couple needs to raise $85,800 for a deposit based on median house prices, while a deposit of $76,900 is required for a unit. But in some local government areas in Sydney, Melbourne and Perth – new home buyers on an average wage will need more than a decade to save.

These prices were based on Residex figures, which state the median price in Melbourne is at $582,000, with Sydney the most expensive at $657,000.

The calculation of a 20% deposit assumes buyers put away 20% of their pre-tax income each year, and also includes any federal and state government grants.

Buyers in Sydney are the most affected, and need to save over six years before they can buy a house. But Melbourne units are the hardest to purchase, with some buyers 15km out of the city needing six years to save.

The most expensive areas in Melbourne were Stonnington, which requires 15.3 years of savings, followed by Boroondara, which requires 13.5. In Sydney, the area of Mosman requires a massive 24.2 years of savings, followed by Woollahra with 21.9 years.

The shortest time for a deposit was found in Adelaide, with 4.2 years and 3.1 years required for houses and units respectively. The longest time was recorded in the Perth area of Peppermint Grove, which requires a 42-year savings period.

The rural area of Brewarrina in New South Wales requires just two-and-a-half months for a deposit, the shortest time in the country. There are only 11 local government areas where the time to save for a unit or house is the same.

Experts say the market is shifting. Over the next several years there will be fewer first home buyers, and they will be purchasing units rather than homes, BankWest capacity manager Jason Grey says.

“I think what we’re seeing is that more first home buyers are switching to units, based on the long amounts of time needed to save for houses. Choices are becoming increasingly limited.”

“Also, buyers are becoming more and more picky about where they are going to live. They’ll need to think about commutes, the area in which the house or unit is located and so on. All of these will be increasingly more important for buyers.”

But Harley Dale, chief economist at the Housing Industry Association, says the changes will be more widespread. Firstly, fewer first home buyers means tighter rental conditions, and secondly, more people will start living together.

“You’re potentially going to have a reversion to large numbers of people per household – which is what has happened over the last year or so. This could have the possibility to change the scope of the market if first home buyers just find it too hard to break in.”

Dale suggests there could even be a rise in the number of younger workers who abandon buying a house in favour of renting. But, he says this would be a disappointing development and would erode Australia’s international standing.

“I would really hope that doesn’t happen, because it implies a cultural change that’s being forced on households rather than being chosen. Australia does have a high ownership rate, especially compared internationally, and it would be good to keep that high.”

“The flip side of all of this is that things will get better on the home-building front. We are seeing a cooling down at the moment, and that should get better over the next few years so hopefully first home buyers will see an entry point.”