Saving for a home deposit is no easy task.
For anyone struggling to put away a few hundred dollars each month, that home deposit goal of $100,000 will seem no more attainable than the outright purchase of a multi-million dollar mansion in Sydney’s exclusive suburb of Point Piper.
Millennials feeling locked out of the property market, unable to save while contending with Australia’s high cost of living, are not alone.
While rising property prices are partly to blame, there are other aspects to consider. The Australian Millennial Report 2018  indicates an inability to save could be a factor, with research showing more than 25% of Millennials currently live pay-cheque to pay-cheque. Of those who do have some money to invest, less than 15% are putting money towards a deposit for a home, and more than 20% have simply given up on the prospect of home ownership.
A property survey commissioned by ING earlier this year revealed a similarly dismal outlook . This research revealed that while more than one third of Millennials said they were saving to buy a home in the next three years, 61% of those surveyed were uncertain how much money was required for a home deposit. Of those who said they did know, the average proposed deposit amount was just $76,000.
When aiming for a loan-to-value ratio of 80%, that 20% deposit of $76,000 would buy a property worth $380,000, without taking into account stamp duty and other fees. Going back a decade or so, $380,000 would go a long way, but today, that amount would necessitate the purchase of somewhere much smaller – and further out of town – than many of these respondents perhaps realise. In fact, CoreLogic house price data to the end of April 2018 showed that the median house price across Australia’s capital cities was $655,419 .
But it seems it’s not just a lack of understanding that is causing problems, it’s also a lack of any specific savings strategy. ING’s research revealed that only 63% of survey respondents had a specific savings plan in place to save for a home deposit . Without a savings plan, saving money – particularly the large amount of money required for a home deposit – becomes almost impossible.
Learning how to save is an essential skill, but that doesn’t mean it is easy.
For anyone who is thinking about buying a home, and needs to build up a deposit, there are some savings tips that could help with reaching those deposit goals sooner rather than later.
Assess the situation
To save efficiently, it’s crucial to assess and understand the situation. That means looking
at how much money there is coming in, how much money there is going out, and how much can be put aside. Creating a budget is the first thing any aspiring saver should do, but it does take some effort.
First look at incomings and outgoings over the past month. This should give a good indication of how much is being spent on the essentials – rent, food, transport – and how much is being spent on non-essentials. Also look at how much is being put towards clearing debt, such as loans and credit cards, and consider whether paying off high interest debt would be more beneficial than starting to save.
While no one is asking would-be millennial home buyers to give up their much-loved avo on toast, there will be plenty of little luxuries to cut back on.
Taking lunch to work, cutting back on take-away coffees, avoiding glossy magazine purchases and reducing alcohol intake while on a night out could provide some serious savings. However, don’t expect to cut out everything fun, or the new budget will never last long term.
Evaluate what’s on offer
First home buyers may also be able to get into their new home sooner with the assistance of a First Home Owner Grant (FHOG) and the First Home Super Saver (FHSS) scheme.
Designed to offset the effect of GST on home ownership, the First Home Owner Grant scheme was introduced in July 2000 to provide one-off grants to Australians buying their first home. As it is a national scheme funded by the states and territories and administered under their own legislation, grants offered can vary in amount, with varying eligibility requirements in place. To find out more about eligibility requirements and grant amounts available, visit the government’s First Home Owner Grant website www.firsthome.gov.au.
As for the First Home Super Saver scheme, this allows first home buyers to save for a home deposit within their super fund. From 1 July, 2018, first home buyers may apply to withdraw voluntary contributions made to their super after 1 July, 2017 to put towards the purchase of their first home. This obviously provides the opportunity to save faster thanks to the concessional tax treatment of super, with voluntary contributions including undeducted (non-concessional) personal contributions, deducted (concessional) personal contributions and salary sacrifice contributions.
While working on a budget, it’s worthwhile looking into the various ways in which to potentially save money. For many millennials, moving back to the family home may not seem all that appealing. But, if it is an option, it could save them plenty in rent, getting them into their new home faster. If moving back home is not possible, house sitting or pet-sitting offer a viable alternative, staying in someone’s house rent-free, with only bills to cover.
In terms of lifestyle changes, it could be worthwhile getting rid of the car and relying on public transport instead. Cancelling gym memberships and exercising in the great outdoors is another good one, as is cancelling the home Netflix subscription, but that may not be ideal for anyone trying to stay at home more in order to save money. Locking up the credit cards for a month could also produce savings, as could swapping credit cards with a partner, forcing the verbalisation of potential expenses to potentially decide against making the purchase altogether. Having friends over for dinner instead of going out allows for more money saving, as could setting limits for birthday and Christmas presents, or simply enforcing a present buying hiatus during the money saving period.
Make those savings work
Making savings work means doing more than just putting them in an everyday savings account. Conducting research, seeking the advice of a licenced Financial Adviser when needed, and comparing the various options on offer should uncover ways in which those hard-earned savings could offer a higher return. Trilogy works with a number of Investors who are seeking to accelerate their savings potential. Some choose to invest in Trilogy Enhanced Cash which means their money is pooled with other investors. Approximately 70% of the pool is invested directly into cash-style investments like term deposits issued by the bank, and indirectly in cash-style investments via a range of managed funds. The remaining amount is invested into the Trilogy Monthly Income Trust.
This option is designed to provide enhanced yield, with access to cash within seven days should the dream property come up for sale. This structure is also designed to offer diversity across asset classes, ongoing management and administration of the investment provided by Trilogy’s experienced fund managers. There is the option to reinvest, thereby building capital by reinvesting monthly distributions.
As a longer term option, Trilogy Monthly Income Trust is designed to provide capital stability, yield and portfolio diversity. As a pooled mortgage investment, it provides access to the returns available from an investment in loans secured by registered first mortgages, offered predominantly to the residential property sectors along the eastern seaboard of Australia.
It’s important to understand that by choosing this option your investment must be held for a minimum of six months. This could provide an incentive not to dip into those savings, as is often the temptation with an everyday savings account. The Trilogy Monthly Income Trust also allows for the reinvestment of monthly distributions, aiming to assist with capital growth while removing the temptation to spend.
While the task of saving for a deposit may seem insurmountable for many a Millennial, there are ways to make saving easier. From making everyday changes to creating a workable budget, this is the way to start building savings and then help them grow. Find out more about investment options with Trilogy today, and guide the potential home buyer in your life on their journey towards their new home.
This article originally appeared in Issue 03 of Angle Magazine. This article was prepared by Trilogy Funds Management Limited (Trilogy) ABN 59 080 383 679 AFSL 261425 as responsible entity for the managed investment schemes mentioned in this publication. Trilogy has issued a Product Disclosure Statement for each of the managed investment schemes mentioned within this publication. The PDSs are available at www.trilogyfunds.com.au or by contacting us. You should obtain a copy of the relevant PDS, understand the risks, and seek personal advice from a licensed Financial Adviser before investing. Investment in the Trust is subject to terms and conditions, and risks which are disclosed in the PDS. These risks include the risk of losing income or principal invested. Applications will only be accepted on the current application form that accompanies the PDS. These managed investment schemes are not a bank deposits and Trilogy does not guarantee their performance. Trilogy provides only general financial product advice on its own products and does not consider your objectives, financial situation, or needs in providing such advice.