It could take 'typical' first home buyers 40 years to save enough for a Sydney home deposit, a new report has found.
In the UBS report Australian Economic Perspectives; Are first home buyers locked out of housing? it was also revealed that Australia-wide, 'typical' first home buyers will need around 11 years to save for a 10 per cent deposit, or 24 years for a 20 per cent deposit when compounding is taken into account.
The findings of the report are based on a number of criteria: buyers are saving for a 10 per cent deposit on a house worth $400,000 (the average first home buyer price) and buyers are individually earning around $80,000 a year with a saving rate of 5 per cent of gross income. The model also accounts for home prices growing in line with household income ahead at 3 per cent each year.
Further, the report claims that in Sydney, an average first home buyer is looking at homes worth $1.2 million, stretching the time needed to save for a deposit out to 40 years.
The authors of the report, Scott Haslem, George Tharenou and Jim Xu commented: "While interest rates have fallen to a record low, the mortgage repayment share of income still lifted to a near decade high, and the key issue for first home buyers is the 'deposit gap' even before buying."
Growth of the house price-to-income
They point to the growth of the house price-to-income ratio to 6.5x — a record high — as a "key reason" prospective buyers are experiencing difficulty breaking into the market, especially when compared to a house price-to-income ratio of 4.5x in 2012 and 3x in 1996.
"Importantly, the key driver of time to save is house price growth v income. In the last five years, house price growth averaged 7 per cent, but income only 4 per cent," they said, warning that should this rate of growth continue, first home buyers "likely can never save enough".
The UBS model predicts that a 'typical' first home buyer saving 10 per cent of gross income for a $400,000 home would require 5.2 years to gather a deposit.
Those looking to buy a property worth $1 million while saving 20 per cent of their gross annual income are looking at 6.6 years of saving.
However, a buyer looking at buying a $1 million property by saving 2.5 per cent of their gross annual income will be saving for 92.1 years, while first home buyers saving 20 per cent of their gross income, according to the model, should be able to save for a deposit on a $300,000 home within 1.9 years.
The report comes after the NSW government last week decided to slash stamp duty for first home buyers purchasing new and existing homes under $650,000.