Do I need a deposit to buy a home?

Do I need a deposit to buy a home?

A new study by economists from the Reserve Bank of Australia (RBA) has found that a deposit is a key factor when it comes to home ownership success, especially for first homebuyers.

We’ve taken time to explain the main takeaways from the report, and provide insights into how you can improve your chances of becoming a homeowner.

What you need to know

The study concluded that higher deposits filter out borrowers who are less likely to meet their mortgage repayments.

These prospective borrowers are deemed ‘less financially secure’ than those who have the capacity to place a ‘steep’ deposit on their loan.

RBA economists found that borrowers who put a high deposit down on a property are in a healthier financial position to pay their mortgage off.

The report also addressed whether first homer buyers are paying excessive debt in the wake of the Global Financial Crisis.

RBA economists Tahlee Stone and John Simon said in the report that first homebuyers were actually better placed in today’s property market.

"While the first step on the property ladder is more of a stretch than before the crisis, those who do make the step are, on average, better placed to pay off their loans than prior to the crisis."

Is saving for a deposit important?

Saving for a deposit will improve your chances of securing a home loan, but it is not the only factor that impacts whether you will be approved for a loan.

Lenders look at the whole picture when deciding whether to approve a loan application. Some lenders focus on one criterion more than others, so it also depends on who you apply to.

We recommend asking a mortgage broker to assist you with securing a loan, so you can approach a lender that is more likely to align with your specific circumstances.

For example, certain lenders are more likely to assist business owners than others, while others will provide a loan on only two pay slips.

Of course, there are many other factors involved, which your mortgage broker will explain to you. But simply pinpointing the right lender will improve your chances of loan success even more.

Sometimes niche lenders are the ones who offer these more niche terms, so it is useful to speak with someone who knows which lenders are better suited to which borrowers.

How do I save for a deposit?

If you’re in the position to save for a deposit, we recommend putting funds away on a regular basis to build it up over time.

Some people report that saving a percentage of earnings is the most effective way to build a deposit, especially if your income varies week to week.

You can also schedule a set debit amount from your bank account on a weekly, fortnightly or monthly basis, which transfers funds into a ‘Deposit Account’ with a good interest rate.

Many banks offer accounts that incentivise savings, with higher interest and penalties for withdrawals.

Take a look at what your bank offers, and see if there’s a cost effective option for you.

Looking for a home loan?

Talk to our brokers about securing a loan for your new home. We have more than 30 lenders at our disposal, which is more than most major mortgage broking companies in Australia.

Get started now.

Financial Advice Disclaimer: This information is general in nature. Mortgage brokers do not provide financial advice. Clients seeking financial advice will be referred to a qualified financial planner.