Those are the findings from a study released by Gateway Bank and Genworth Insurance that surveyed 2,127 millennials across Australia.
The Millennial Home Ownership survey found that while the majority (94%) of millennials consider home ownership important to them, many don’t understand the basic requirements of getting a home loan.
Currently, 58% of millennials are saving up for a deposit but almost the same amount (57%) claim they have never even heard of Lenders Mortgage Insurance (LMI).
Of those who had heard of LMI, nearly a quarter (23%) were unaware that LMI would allow them to buy a home with less than a 20% deposit.
Low levels of awareness may be the reason why almost a third (31%) of respondents don’t think they would qualify for a mortgage and why a majority (58%) believe they can’t afford the deposit yet.
Interestingly, 36% of those who were aware of LMI didn’t know this could be built into their home loan and paid as part of their regular mortgage repayments.
Genworth CEO and Managing Director, Georgette Nicholas said it’s important to make sure millennials are aware of all the options available to them, and that they don’t necessarily need to delay buying a home for a decade to save the elusive 20%.
“We understand the challenges millennials face in saving the 20% deposit typically required by lenders. For more than 50 years we have been working with our lenders to help young Australians secure a home loan sooner, with less than a 20% deposit, thereby enabling them to save on rent and achieve their dream of home ownership,” Mr Nicholas said.
It follows research from property analyst CoreLogic which also found an alarming number of Australians were unaware that banks can lend without a 20% deposit.
Despite this, the number of loans to first home buyers has risen by 5.2%, marking the strongest rise this year, according to data released by the Australian Bureau of Statistics (ABS) today.
Compared to the same time last year, the number of first home buyer loans is up 8%.
Falling interest rates on savings accounts making it harder to maximise deposit savings
Not being able to save for a house deposit remains the top barrier to home ownership and plummeting interest rates on savings accounts aren’t helping.
ING recently cut the maximum interest rate on its Savings Maximiser account made popular by the Barefoot Investor by 25 basis points to 1.95% p.a.
Prior to June’s cash rate cut, ING had one of the highest interest rates on savings accounts in the market, at 2.80% p.a.
With a rate of 2.80% p.a., you would have accumulated over $4,000 in interest (if you deposited $1,000 a month for five years). In comparison, with an interest rate of 1.95% p.a., you would only earn just over $2,000 in interest if you deposited the same amount.
Lexi Airey, CEO at Gateway Bank said while economic and market conditions have made it harder to enter the property market, it’s still achievable.
“Those in the position to get a helping hand from their relatives might want to consider a Family Pledge home loan, which can accelerate their journey to owning a home,” Ms Airey said.
“Additionally, first home buyers should look into the government’s First Home Owners Grant initiative and check to see if they’re available for stamp duty concessions.”
While savings account interest rates are falling, so are the interest rates on home loans – which is good news for everyone with a variable home loan.
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