‍You’re diligently saving for your 20% deposit but the market keeps moving the goal posts as prices continue to get away from you. What’s going on? And what can you do?

I have just come from a meeting where a couple were busy struggling to save a 20% deposit so they could purchase their first home. They had conceded that they were simply going to need to purchase a property in a lower price bracket.

This was due to the speed at which they could save being far slower than the speed at which house prices are increasing. So, they’re now looking to live in an area lower than their wish list. Furthermore, there is a high chance they would need to spend their weekends doing work to the property once they move in!

This couple is not unlike many anxious first-home hunters that I meet each week. So, let’s explore what’s going on and what they can do.

“If I have 20% deposit means I get better interest rates. Right?”

Yes, this is true.

However, while rates are so low, paying slightly higher for your loan is still extremely affordable. Also you will only be at the higher rate until your property has increased in value and/or your loan has reduced to the point where the gap between the loan amount and value of the property is at 20%. For some of our clients over recent times, this may only take two to three years. Then they are enjoying the same amazing best rates out there on the market.

“Will I face more hurdles to purchase if I have less than 20%?”

Yes, this is also true. You will need to pay for a valuation on the property you wish to purchase and this means potentially a conditional offer. However, you could pay for this before you offer and still be able to put an unconditional offer (I suggest after consultation from your solicitor). 

“Is it true that banks won’t lend with less than 20% deposit?”

This is often true. Banks have limited amount of cash to lend for those without 20% deposit.

However, there are multiple banks to choose from, and they pop in and out of this lower deposit cash constantly.

We at Velocity know each week who as money to lend and who has turned that tap off. Just because you may have first been told “no” doesn’t mean there is not a “yes” out there.

And if you can get a “yes”, the difference in purchasing ability is dramatic. If this couple could purchase a property with 10% deposit, there scope would go from buying a $500,000 home, to a property over $800,000! 

Think of the options this would open up for them, now think about what this could mean for you.

Finally, here are some helpful deposit or LVR (Loan to Value) ratios as at January 2020.

10% Deposit for first owner-occupied homes (often)

20% Deposit for owner-occupied home

30% Deposit for rental (non-new homes)

10% Deposit for brand new rentals (i.e. never been lived in/ less than 6 months old)

Lance Shearman is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A Disclosure Statement is available free of charge upon request