Saving a down payment to buy your first home is a major commitment - and it will turn out to require not only a financial commitment but a life-style one as well.
The size and length of the commitment depends on where you live and what you are being paid.
You can adjust your lifestyle if you really want that house. But there is little you can do to change your take-home pay or the cost of houses in your area.
Your own circumstances make up the most important determinants of what you need to save.
But using the median and first-quartile data we have for our Roost home loan affordability research we can track how things are changing for people saving a deposit for a first home purchase.
Otago central lakes, - where it takes 73 months to save a 20% deposit
The toughest market to save in is Queenstown - and it always has been.
This is true whether you are a single person or a 'household' couple.
Seven years ago in 2006 it took a couple on first-quartile incomes saving a 20% deposit for a first quartile house in the Otago Central Lakes region 8.2 years to get the funds together. That's 99 months where you scrimp so you can save 20% of your take-home pay into a term deposit account earning interest at whatever that pays in the months you are doing this.
Two years ago that was down to 5.3 years.
But with house prices rising again, today this is up to 6.1 years.
And 4.6 years in central Auckland
Median incomes are higher in Auckland and this helps couples there even though prices are probably rising faster. A first-quartile house in central Auckland now needs a couple to save for 4.6 years, the same as it was in early 2011 but up from the 4.3 years of saving commitment needed five years ago.
It is a long commitment of denial in the main urban centres. First you need to pay off your student loan (that comes out before you even get your pay), then you need to pay rent along with all the other essential living costs; only then do you have something to save. Things will get a bit easier when you actually buy the house as you won't be paying rent, but in many cases in the big cities the mortgage payment will swallow up much of your previous 'saving' plus rent.
So looking at other locales may be a less stressful option for some people. For some the jobs may not be there and the pay rates may not match the big smoke.
But for others there will be jobs; and even at lower pay the costs of home ownership and the level of mortgage commitment will be a lot lower making it an attractive choice. (We know folks who moved to Gisborne from Auckland for these reasons and just love their new life.)
The 6 cities where you can save a 20% deposit in under 3 years are...
There are now six cities where it will take you less than three years of saving to buy a first quartile house with a 20% deposit. They are Whangarei, Timaru, Palmerston North, Rotorua, Wanganui and Invercargill.
If you can tolerate up to a four year savings programme, a couple on first-quartile incomes can save a 20% deposit for a first-quartile home in another nine centres - including Tauranga, Nelson, the Hutt Valley, and Dunedin.
Christchurch now requires just over four years, as does New Plymouth.
Over the past seven years, the city with the biggest improvement is Whangarei, falling from 5.2 years of saving to just 2.8 years today and making it an attractive place to get on the property ladder. Queenstown had the next biggest improvement even though it is still the hardest place to get started. Third on this list of improvers over 7 years is Tauranga going from 4.9 years to 3.9 years of saving commitment.
All parts of Auckland have got harder over the same seven years since January 2008. No surprises there.
If you are trying to do this on your own with one income, you are looking at nearly double the couple timeframes.
| Lower quartile income / | Household income* | Single income | |||||
| Lower quartile house in ... | Jan-13 | Jan-11 | Jan-06 | Jan-13 | Jan-11 | Jan-06 | |
| years to save 20% deposit | years to save 20% deposit | ||||||
| Queenstown | 6.1 | 5.3 | 8.2 | 12.2 | 10.6 | 16.3 | |
| AKL - North Shore | 5.8 | 5.1 | 5.1 | 11.6 | 10.1 | 10.2 | |
| AKL - South | 5.2 | 5.2 | 4.7 | 10.4 | 10.3 | 9.4 | |
| AKL - West | 5.0 | 4.1 | 4.3 | 10.0 | 8.3 | 8.5 | |
| AKL - central | 4.6 | 4.6 | 4.3 | 8.2 | 9.2 | 8.7 | |
| Wellington City | 4.3 | 4.3 | 4.2 | 8.5 | 8.5 | 8.5 | |
| Porirua | 4.2 | 3.9 | 4.0 | 8.4 | 7.8 | 8.1 | |
| New Plymouth | 4.1 | 3.9 | 4.0 | 8.0 | 7.7 | 7.8 | |
| Christchurch | 4.0 | 4.1 | 4.1 | 7.9 | 8.0 | 8.1 | |
| Tauranga | 3.9 | 4.0 | 4.9 | 7.7 | 7.8 | 9.7 | |
| Kapiti Coast | 3.8 | 3.9 | 4.0 | 7.6 | 7.8 | 8.0 | |
| Nelson | 3.8 | 3.6 | 3.6 | 7.4 | 7.0 | 7.1 | |
| Hamilton | 3.6 | 3.8 | 4.2 | 7.1 | 7.5 | 8.2 | |
| Napier | 3.3 | 2.9 | 4.1 | 6.4 | 5.7 | 8.0 | |
| Hutt Valley | 3.2 | 3.4 | 3.4 | 6.4 | 6.8 | 6.8 | |
| Dunedin | 3.1 | 2.7 | 3.4 | 6.2 | 5.5 | 6.7 | |
| Gisborne | 3.1 | 2.8 | 3.4 | 6.2 | 5.6 | 6.7 | |
| Hastings | 3.1 | 3.7 | 3.5 | 6.2 | 7.1 | 6.8 | |
| Whangarei | 2.8 | 3.0 | 5.2 | 5.5 | 5.9 | 10.3 | |
| Timaru | 2.7 | 3.1 | 2.7 | 5.4 | 6.1 | 5.4 | |
| Palmerston North | 2.7 | 2.9 | 3.1 | 5.2 | 5.6 | 6.0 | |
| Rotorua | 2.6 | 2.5 | 2.6 | 5.1 | 4.9 | 5.0 | |
| Wanganui | 1.9 | 2.1 | 2.3 | 3.7 | 4.1 | 4.5 | |
| Invercargill | 1.9 | 2.2 | 1.9 | 3.7 | 4.3 | 3.7 | |
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Mortgage choices involve making a significant financial decision so it often pays to get professional advice. A Roost mortgage broker can be contacted by following this link »
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* In this work we have used the LEEDS database for incomes to find the first quartile levels. Our standardised household in this case is one 25-29 year old female plus one 25-29 year old male, both working full time. There are no children in this household yet. Our assumptions add a child in the 30-34 age group.
4 Comments
Interesting data here. I have one question though - is your first quartile income level based on the first income quartile of 25-29 year olds? I doubt many 25-29 year olds are infirst quartile of all age groups. And will those that are in htis fortunate position be happy to buy a lower quartile home?
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