Buying a home is harder today than it was for Baby Boomers, even with 17% interest rates. New research challenges the idea that high rates were the biggest hurdle for past generations.
A Primara Research comparison for HomeLoanRates.com.au shows today’s buyers face larger loans and higher repayments as a share of income, despite lower rates.
The numbers reveal a shifting burden
In 1990, a $100,000 mortgage at 17% meant $1,426 monthly repayments. Today, an $800,000 loan at 6% requires $4,796 — a stark contrast.
This isn’t just about rates. ABS data shows home ownership has declined across generations when compared at the same age. In 1991, 66% of Baby Boomers aged 25-39 owned homes, versus 55% of Millennials in 2021.
The deposit hurdle is a major barrier
Saving for a deposit is a growing challenge. The National Housing Supply and Affordability Council estimates a median-income household now needs 11.2 years to save a 20% deposit, assuming they save 15% of their income annually.
For a $900,000 home, that’s $180,000 before purchase costs. Rental affordability has also worsened since 2015 in most capital cities, according to the AIHW, making it harder to save while renting.
While family gifts can help some buyers, this creates unequal opportunities. Two buyers with similar incomes may face very different paths depending on family wealth.
Government incentives have aimed to help first-time buyers with deposits, but this often leads to larger loans. Increasing purchasing power without addressing housing supply has also driven up prices in some markets.
A practical approach is to start with a sustainable repayment and consider smaller properties.
Acknowledging these changes is key to helping younger Australians work through the housing market.
The deposit hurdle starts long before the mortgage
The challenge of homeownership begins with saving for a deposit, a task that has become increasingly difficult.
Saving this amount while paying rent is a significant challenge, even for those with stable incomes and prudent spending habits.
Family Wealth and Generational Support
Financial assistance from parents can significantly impact a young Australian’s ability to buy a home. A substantial gift can shorten the saving period by several years, but this advantage is not available to everyone. Two individuals with similar incomes and saving habits may face different opportunities due to their family’s financial situation.
This disparity raises concerns about the role of existing family wealth in homeownership. While helping children is a natural desire, it requires careful planning. Families should clarify whether support is a gift, loan, or guarantee and seek professional advice to understand the financial implications.
Fewer Australians own homes at the same age
ABS data provides compelling evidence of declining homeownership rates across generations. This trend shows the growing difficulty in achieving homeownership.
Government incentives aimed at reducing deposit requirements have helped some first-time buyers enter the market. However, these measures often result in larger loans, highlighting the need to balance deposit assistance with repayment affordability.
A practical approach involves recognizing that a first home may not be a long-term family home and considering smaller properties like villas or apartments. Rentvesting is another option, but it requires careful evaluation of rental income, costs, and tax implications, especially following recent Federal Budget tax changes.