Deposit Hurdle gets slightly lower for first-time home buyers

First home buyers are able to enter the market a little faster than a year ago, new research has found.   At a national level in February, it took 4 years 9 months for a first home buyer to save a 20% deposit on an entry-level house, compared to 4 years 11 months the year before. For an entry-level unit, the time to save a deposit was 3 years 5 months – one month faster than the year before.

Domain classified an entry-level property as one ranked at the 25th price percentile (with the 1st percentile being the cheapest home and the 100th being the dearest). Domain’s calculations assumed that first home buyers were a couple aged between 25-34, earning an average salary for someone their age.

The reason that first-time home buyers are now able to save a deposit more quickly is not because property prices have fallen over the past year; they’ve actually increased. Rather, it’s because earnings power (through a combination of higher wages and higher savings account interest rates) has grown faster than property prices.

In order to help first home buyers enter the market, we have comprised a list below of some common criteria a lender will require a first-home buyer to meet to gain finance:

Lending criteria for first-home buyers can vary between lenders, but there are some common elements that most financial institutions consider when assessing a loan application:

1. Income and Employment:

Lenders will look at the stability and amount of your income to determine your ability to repay the loan. This includes your salary, any additional income like bonuses, and sometimes even financial contributions from other household members. Employment stability is also crucial; lenders prefer applicants who have been in the same job or within the same industry for a significant period.

2. Credit History and Score:

Your credit history plays a vital role in your loan application. It gives lenders an idea of your reliability when it comes to repaying debts. A higher credit score can enhance your likelihood of getting approved and might help secure a more favourable interest rate.

3. Deposit Amount:

Generally, first-home buyers are expected to have a deposit of at least 10% of the property’s purchase price, although a deposit of 20% can help avoid the need for Lender’s Mortgage Insurance (LMI). Some lenders may allow lower deposits, but securing LMI or additional guarantor support might be necessary.

4. Existing Debts:

Other financial commitments, such as personal loans, credit card debt, or car loans, can impact your borrowing capacity. Lenders will consider your debt-to-income ratio to determine how much additional debt you can realistically manage.

5. Living Expenses:

Your day-to-day expenses are scrutinized to ensure you can comfortably afford your mortgage repayments on top of your existing lifestyle costs. This includes bills, groceries, transportation, and leisure activities.

6. Loan-to-Value Ratio (LVR):

This is the amount of the loan divided by the value of the property, expressed as a percentage. A lower LVR means you’re borrowing less in relation to the property’s value, which reduces risk for the lender.

7. Property Valuation:

The lender will usually require a valuation of the property to ensure it provides adequate security for the loan amount being borrowed.

Each lender may have specific criteria or offer different types of support for first-home buyers, such as grants, concessions, or additional lending products tailored to assist those entering the market for the first time. It’s wise for first-home buyers to shop around or consult with a mortgage broker to find the best fit for their personal circumstances and financial goals.

IF you’d like to understand more about where the market is headed this year according to the RBA this article is a good read – “Navigating the 2024 Financial Landscape“.

The best way to learn about the grants and government schemes that you may be eligible for is to give us a call or fill in our contact sheet. You can also check out our website, because we are the FHB experts.