How rising rates helped reduce time it takes to save for mortgage deposit

Surprisingly, rising interest rates have helped many Australians shave off a chunk of time needed to save for a house deposit.

According to Domain’s First Home Buyer report, the time it takes for couples to save a 20% deposit on an entry-priced dwelling has declined by up to 13 months since before the rate hikes started last year.

A couple in Sydney, for instance, took around eight years and one month to save a 20% mortgage deposit in April 2022. In February 2023, however, the same couple would only take six years and eight months to do the same.

On a national level, it now takes only four years and 11 months to save for the typical home loan deposit, down from five years and seven months last year.

The time needed to save a deposit declined more significantly for houses than for units.

The tables below show the changes in the time needed to save a mortgage deposit for houses and units, covering the period before the cash rate, pre-pandemic, and five years ago:

How interest rates influence time to save for deposit

Domain chief of research and economics Dr Nicola Powell said the movement of interest rates had a huge part in reducing the time it takes for homebuyers to save for a deposit.

“A time machine has been offered to first-home buyers across Australia, as falling property prices in certain cities, higher interest rates accrued on savings and wage growth have aligned to reduce the time to save for an entry-priced property deposit,” she said.

“Previously, rock-bottom interest rates greatly benefited mortgage holders, making it cheaper to borrow and repay a home loan. It was a key driver of property price growth, making time to save a deposit longer.”

Meanwhile, Domain Home Loans general manager Kareene Koh said rising mortgage rates adds another level of complexity, as it negative impacts the costs associated with a home loan.

“The decline in prices has assisted buyers in shortening the time to save, but higher interest rates have seen the affordability of mortgage repayments deteriorate,” she said.

Ms Koh said the stabilisation of interest rates provide green shoots for aspiring homebuyers for the months to income.

“For first-home buyers, it’s important to be across the numbers and use things like a digital mortgage calculator tool, to work out what strategies might suit your budget best,” she said.

Why first-home buyers must be flexible

Dr Powell said while the time it takes to save for a mortgage deposit has declined, it would still pay for first-home buyers to consider compromises, particularly in terms of location.

“The decentralisation of our workforce has supercharged affordability for some with remote working bringing increased flexibility and greater housing choice,” she said.

“In saying this, we know that not everyone is able to do this, with lower-income workers often needing to be close to their workplace as they are unable to work from home.”

First-home buyers can also explore other property type options or even strategies like rentvesting to help them break into the market sooner.

Government incentives are also a must, as it could shave off years from the time needed to save for a deposit.

“The First Home Guarantee program allows low-deposit purchases without mortgage insurance. Meanwhile, in NSW and some other states, first home buyers can also take advantage of shared equity schemes which reduce the upfront and ongoing costs of taking out a home loan,” Dr Powell said.

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