The unexpected hurdle for first home buyers after saving a deposit

First home buyers can have a tough time raising a deposit, but once they do, securing a home is no easy feat.

Entry-level buyers can spend months searching for a home because they face strong competition, and even in a cooling market their property searches can be delayed by financing issues, their own uncertainty about how far their budget can stretch, and guide prices that do not match sales results.

“It takes at least three months [for first home buyers] to wrap their heads around pricing and where value is because that’s shifting all the time,” said Melbourne buyer’s agent Julie DeBondt-Barker, founding director of Property Home Base, who specialises in helping first home buyers.

First home buyers typically needed to explore different areas and adjust at-times inflated expectations for their budget. Most have spent an average of six months searching for a home before engaging her help.

“It’s also just confronting. They’ve never spent this much money in their life, so it’s also the fear of the unknown … the fear of: Am I doing the right thing? Could I get it for less? Or should I be looking somewhere else?”

While some first home buyers were putting property searches on hold in hope of lower prices later this year, others, mostly those who had been searching for some time, were pushing ahead, DeBondt-Barker said.

About one in five first home buyers (18 per cent) spend at least a year searching for a home, according to Finder’s latest First Home Buyers Report.

Another 39 per cent take three to six months from initial search to purchase, while only a quarter take three months or less.

Sarah Megginson, senior editor of money at Finder, said rapidly rising property prices, sales above advertised price guides and strong competition had proved challenging for first home buyers.

“For some people, it’s a multi-year situation; they have several years of saving up, then the process of looking for properties and trying to find one that fits,” Megginson said.

Of 1001 first home buyers surveyed, only a quarter had bought or planned to buy with a deposit of 20 per cent or more, the report found.

Of the 372 respondents who had already purchased, as of April, more than a third had exceeded their initial budget.

Previous research found it would take first home buyers 11.4 years to save a 20 per cent deposit for a home costing $738,975 – the national median in March – according to the latest ANZ CoreLogic Housing Affordability Report. This assumes a household income savings rate of 15 per cent a year.

But the outlook for first home buyers is changing. Australia’s median home value has fallen for two months in a row and is expected to fall further as consecutive interest rate hikes reduce borrowing power and increase mortgage repayments.

While competition and prices had eased, Megginson said it was unlikely to help first home buyers purchase much faster because rising interest rates reduced the amount they could borrow. She encouraged first home buyers to take their time searching for the right home and to get a pre-approved loan first so that they had a firmer budget and did not risk financing delays.

Sydney real estate agent Jackson Cox, of Richard Matthews Real Estate, said most of his first home buyer clients in the inner west had been searching for six to 12 months.

“I think it will get easier for them to buy, but I’m also expecting them to be more apprehensive,” he said, adding that rising interest rates and falling property prices could make first home buyers even more nervous about making the wrong purchasing decision.

Strong competition and prices last year had made it difficult for first home buyers, Cox said. They also tended to take longer to adjust their property wishlist to their budget and were more likely to make the mistake of getting too invested in one property and risk missing out on others.

First home buyer Jasmin Kelaita, 34, is among his recent clients. She bought a two-bedroom apartment in Croydon Park with her partner, after about six months of searching.

Their search started in Ashfield and Summer Hill, then expanded across the inner west and western suburbs, Kelaita said, and they opted to prioritise quality over location.

“We were quickly priced out of all the areas we wanted … and the places we were looking at when going to auction would be going $150,000 over the guide,” she said.

“We would be going to seven or eight different viewings every weekend and not seeing anything.”

Had they not secured a home in the week before their pre-approval expired, along with their spot in the First Home Loan Deposit Scheme, they likely would have rented for another few years.

“I honestly think [we were able to buy] because the market quietened; because people were a bit worried about [rising] interest rates, auctions weren’t as busy as we thought.”