As a first home buyer, the process of saving a deposit can be a fairly daunting one – especially with rising home prices. However, knowing the factors that can influence your saving timeline may make your journey much more manageable. By better understanding these, you can create a savings strategy that takes into account everything from your income and expenses to your deposit goals. Let's get started!

How much does the average home cost in Australia?

According to the Australian Bureau of Statistics , the mean home price in Australia is currently $959,300 – not exactly chump change. But that figure’s not totally surprising, given Australia’s got some of the priciest real estate in the world.

That being said, there are major variances in average home prices between markets. Big cities like Sydney and Melbourne have historically been more expensive to buy in than smaller ones such as Adelaide and Hobart. There are submarkets within each capital city, too, with some pockets being more affordable than others.

Then we get to regional markets. Some regional areas skyrocketed over the pandemic as Aussies were able to work from home. Consequently, many sought a sea change or tree change over proximity to the office. Now, those areas are competing with some of the big cities as far as prices are concerned.

The recent spate of interest rate hikes has also had a big effect on housing prices. Higher interest rates make mortgages more expensive, which means potential buyers have reduced borrowing capacity. These types of conditions can often lead to a slowdown in price increases – and possibly even price declines in some areas (although it's still too early to find a pattern in the data).

On the whole, though, property prices in Australia have historically gone up over time – which means an ever-increasing goal for anyone saving for a down payment.

Six factors that influence how long it takes to save

While estimates suggest that the average Aussie takes around 5.7 years to save for a 20% deposit, that timeline doesn’t necessarily reflect everyone’s experience. Numerous factors can impact how long it takes, such as:

1. Household income

Your take-home pay is obviously a big factor because it's one of the primary determinants of how much you can save.

It also makes a difference if you’re a single- or dual-income household. Those in the latter camp may be able to save at a faster rate simply because they’ve got two incomes coming in. That’s absolutely not to say that someone on a single income couldn’t reach their savings goal – it might just take a little longer.

2. Savings rate

At the moment, the average Aussie saves around 3.7% of their income. However, your actual savings rate is dependent on several factors. These include your income and expenses, but also your age and even the state of the economy.

When you’re young, you might be on a lower income because you’re just starting out in your career. This might leave less left over to put towards your savings. As you get older, you could start earning more and have a greater ability to save.

As far as economic conditions go, periods of recession or high inflation (like what we’re seeing now) might mean prioritising immediate expenses and foregoing savings.

There are lots of good ways to try and save money. Some of the most popular include setting a budget (and doing your best to stick to it), curbing unnecessary expenses, buying used instead of new, and automating your savings.

3. Home deposit requirements

People typically aim for a minimum home deposit of 20%. However, in some circumstances, i’s not impossible to buy a home with a deposit of, say, 5 or 10%. If you’re a first-home buyer, there are plenty of government schemes that could help you get into the market with a smaller deposit – more on these a little further down.

But if you make the purchase on your own, you may have bigger repayments as a result. You might also face the possibility of higher interest rates on those repayments. Plus, you’ll either have to pay lender’s mortgage insurance (LMI) or get a family member as a guarantor.

The advantage of having a 20% deposit is that your repayments may be lower, meaning you may avoid LMI and potentially access a lower interest rate.

And don’t forget that the deposit is only part of your initial cost. There are other up-front expenses you may need to pay, such as stamp duty and legal fees.

4. Living expenses

Your living expenses will have a huge bearing on your ability to save. If you’ve got ongoing expenses, they can chip away at the money you have left over for your savings. These include rent, bills, transport, childcare or school fees, debt repayments, hobbies, entertainment, or whatever you spend your money on. You might also come up against unexpected expenses that result in your savings taking a hit.

Where you live can also affect your saving capacity. As we know, bigger cities often cost more to live in, which can mean a greater amount of money spent on housing and other immediate expenses.

5. Economic factors

While saving is largely a very personal journey, there are macro factors that can influence it, too.

The first is interest rates, which can massively impact saving behaviours. Generally speaking, if interest rates are high, home loans become more expensive, while many savings accounts offer better returns. This often deters people from saddling themselves with debt and preferring to save instead. On the flip side, if interest rates are low, people might be better able to afford a home loan and have less incentive to save.

Then there’s inflation , which refers to the rise in the price of goods and services. Inflation directly impacts purchasing power, and when it increases, it effectively makes money less and less valuable. Over time, the same amount of money doesn’t stretch as far, which can impact savings – especially if a savings interest rate isn’t able to outpace inflation.

6. Government grants and schemes

Remember those government incentives we mentioned earlier? To help combat the difficulties of buying a first home, both the federal and state governments have introduced different schemes that support first-home buyers in getting into the market sooner. These are designed to shorten the time it takes to save.

The federal government has welcomed the First Home Guarantee, which helps low to middle-income earners. Under the scheme, eligible participants can get their first home with a deposit as low as 5%, and Housing Australia (a government agency) will guarantee up to 15% of the loan value.

There’s also the First Home Super Saver (FHSS) Scheme . The FHSS lets you make voluntary super contributions, reap the benefits of concessional tax treatment and associated earnings, and withdraw those contributions to put towards your purchase.

Every state and territory offers some form of stamp duty exemption or concession, whereby first-home buyers either get a discount on stamp duty or don’t have to pay it at all. There are first home owner grants in every state and territory except the ACT, too.

In some states, like Victoria, SA and WA, the governments have launched shared equity schemes. Under these schemes, the state government helps with your purchase and gets an equity stake in your home.

Remember, though, that there's no such thing as free money. Many of these schemes have strings attached, so do your research into them and be aware of the potential drawbacks before signing up.

What are some saving strategies to consider?

So, if you’re trying to save, how exactly can you go about it? There are a few strategies to consider.

Savings account

The first is the conventional savings route via a bank account. You could opt for a traditional savings account with an interest rate of 2-3% or a high-interest one that offers rates of 4-5% or more.

It might seem like a no-brainer to go for the high-interest option, but bear in mind that these accounts sometimes come with strict conditions. There may be limits on how often you can withdraw or the possibility of not being able to withdraw at all. There could also be variable interest rates or a maximum amount you can hold within the account.

Either way, savings accounts are typically considered a safe way to hold money because up to $250,000 is backed by the Australian government’s Financial Claims Scheme (FCS).

Term deposits

There are also term deposits, whereby you have to put away a lump sum for a defined period and receive a guaranteed interest rate over that term.

The advantage of term deposits is that you get predictable returns at a fixed rate, plus up to $250,000 is guaranteed by the FCS. The downside is that you can’t access your money until the fixed term is up unless you pay a fee. Plus, interest rates typically only go up to about 5%.

Investing

Some would-be home buyers invest to put together a deposit because of the potential for even better returns. On average, the share market offers annual returns of about 6-9% – which is quite a bit more than even the top high-interest savings accounts.

The share market does come with a bigger amount of risk, though, and this is something you seriously need to consider if you’re hoping to conserve your money. Those average figures can also fluctuate wildly, which could impact your plans if you need to withdraw your money by a specific date. Check out our guide to risk tolerance for more info and insights into whether investing towards a home deposit is right for you.

You can also read through our comparison of investing and saving for a home deposit .

To recap…

The path towards home ownership can look completely different for everyone. There are so many variables that impact someone’s journey, from their income and expenses to their financial goals and means of putting together a deposit.

How long it takes is highly personal, and you’ll need to think about your own circumstances when trying to gauge your timeline. Regardless of the length of time you’re looking at, good financial planning and discipline will inevitably make the process easier.

If you ever need a helping hand figuring out your next move, never hesitate to seek professional advice from a licensed financial adviser. They can help you better navigate the ins and outs of saving and/or investing.

Happy deposit-building!