The age old advice of saving a 20% deposit before buying a home has long been considered the gold standard in Australia.

While it certainly has its advantages, the reality of today’s housing market demands a closer look at whether this approach is still the most practical.

Let’s explore the key considerations to help you decide whether to wait to save your 20% deposit or jump into the property market sooner.

THE CHICKEN AND EGG SCENARIO

Rising property prices
One of the biggest challenges in saving for a 20% deposit is that property prices often rise faster than your savings.

For instance, if you’re aiming for a $150,000 deposit on a $750,000 home and property prices increase by 10% while you’re saving, that same home could now cost $825,000.

Your required deposit has then also increased to $165,000. This creates a frustrating cycle where you are always chasing a moving target.

By waiting, you risk being priced out of the market altogether. Historical data shows that even diligent savers can fall behind as housing affordability worsens.

In Sydney, for example, ten years of savings wiped out only three years of deposit needs due to soaring prices. If this trend continues, waiting could cost you more than just time – it could cost you your dream home.

The real cost of waiting
When deciding whether to wait for a larger deposit or buy now with less, it’s essential to weigh the potential capital growth against the costs of entering the market earlier.

If property prices rise by 5-10% annually, entering the market sooner – even with Lenders’ Mortgage Insurance (LMI) – could result in significant financial gains over time.

Consider this example
A buyer who entered the market in 2013 with a 5% deposit saw their property value increase by 31% by 2017. Despite paying LMI upfront, they were financially better off compared to someone who waited to save a 20% deposit.

The key takeaway?
The potential capital growth often outweighs the cost of LMI or smaller deposits.

A tool to get there faster
LMI is often misunderstood as an unnecessary expense.

However, it can be a strategic tool to help you enter the property market sooner.

LMI allows you to buy with as little as a 5-10% deposit and reduces the time spent saving as well as giving you access to potential capital growth.

For first home buyers, government schemes such as the First Home Guarantee can eliminate LMI altogether if you qualify with a low deposit.

Even when LMI is required, its cost is often outweighed by rising property values over time.

When is the right time?
The best time to buy property is when you can afford it. This doesn’t necessarily mean waiting until you have a 20% deposit. It means understanding your financial situation and leveraging tools such as LMI or government schemes to make homeownership achievable sooner rather than later.

While saving for a 20% deposit reduces costs such as LMI and lowers your loan to value ratio (LVR), it may not always be the best strategy in today’s fast moving housing market.

Rising property prices and missed opportunities for capital growth can make waiting more expensive than entering the market now.

If you’re ready to take the leap but unsure about your options, consider speaking to our experienced finance team who can guide you through strategies such as LMI or government backed schemes.

After all, homeownership isn’t just about numbers — it’s about securing your future and having a place to call your own.