Smart ways to approach housing affordability

Housing affordability feels like a moving target when you're trying to save a deposit while rent and living costs keep climbing.

The gap between what you've saved and what you need doesn't always mean you're years away from buying. There are specific loan structures and government schemes designed for buyers with smaller deposits that can bring home ownership forward without requiring you to wait until you've saved 20%.

Low deposit home loans bring forward your purchase timeline

You can apply for a home loan with as little as a 5% deposit if you meet lender criteria. Most lenders will require you to pay Lenders Mortgage Insurance when your deposit is below 20%, but this cost can be added to your loan amount rather than paid upfront. LMI protects the lender if you default, and while it adds to what you'll repay over time, it means you're not stuck renting while you save another two or three years.

Consider a buyer who has saved $30,000 and is looking at units in Oakleigh South. At a 5% deposit, they could borrow enough to purchase without waiting to reach the $60,000 they'd need for a 10% deposit. The LMI in this scenario might add several thousand dollars to the loan, but they're building equity in their own property instead of paying rent that increases each year. Over a five-year period, the equity gained and rent saved often outweigh the LMI cost, particularly in suburbs where property values are rising steadily.

Government schemes reduce or remove the need for LMI

The Home Guarantee Scheme lets eligible first home buyers purchase with a 5% deposit without paying LMI. The government guarantees part of your loan, which means lenders don't require the insurance. There are income caps and property price limits that vary by location, so it's worth checking whether you fall within the criteria before assuming it's out of reach.

Another option is the Help to Buy Scheme, where the government takes an equity share in your property in exchange for contributing up to 40% of the purchase price for a new home or 30% for an existing home. You only need a 2% deposit to qualify. The government doesn't charge rent on its share, but when you sell or refinance, you'll repay the same percentage of the property's value at that time. This works well if you're confident in your ability to increase your income over the next few years and buy out the government's share, but it does mean you're sharing any capital growth in the meantime.

Offset accounts and split loans improve repayment flexibility

Once you've secured a loan, the structure you choose affects how much interest you pay and how quickly you can reduce your debt. An offset account linked to your home loan reduces the interest charged by offsetting your savings balance against your loan amount. If you have $10,000 in your offset and owe $400,000, you're only charged interest on $390,000. You still have access to that $10,000, which makes it more flexible than putting extra money directly into your loan.

A split loan lets you fix part of your loan and keep the rest on a variable rate. You might fix 50% to lock in certainty on repayments, while the variable portion gives you the option to make extra repayments without penalty. This structure is useful if your income fluctuates or if you're expecting a bonus or tax return that you want to put toward your loan without triggering break costs.

Boosting your borrowing capacity makes more properties accessible

Lenders assess what you can borrow based on your income, expenses, and existing debts. Small changes to your financial position can increase your borrowing capacity by tens of thousands of dollars, which opens up more options in your target suburb.

Paying off a car loan or personal loan before you apply increases your borrowing capacity because it reduces your monthly commitments. If you're paying $400 a month on a car loan, clearing that debt could increase what you can borrow by $70,000 or more, depending on the lender's assessment. The same applies to credit card limits. Even if you don't carry a balance, lenders assume you could max out your card at any time, so reducing your limit or closing unused accounts improves your serviceability.

In our experience, buyers who consolidate debts or adjust their credit limits before applying often find they can afford properties in suburbs they thought were out of reach. It's not about earning more, it's about reducing the commitments that limit what lenders will approve.

Choosing the right loan product affects what you pay over time

Not all home loan products are structured the same way, and the features you choose determine how much flexibility and control you have. A variable rate loan gives you access to offset accounts and the ability to make extra repayments, which can reduce your loan term and the total interest paid. A fixed rate loan locks in your repayment amount for a set period, which helps with budgeting but usually restricts how much extra you can repay each year.

Some lenders offer rate discounts for borrowers who meet certain criteria, such as borrowing above a specific amount or maintaining a loan-to-value ratio below a certain threshold. These discounts can reduce your interest rate by 0.10% to 0.30%, which adds up over a 30-year loan. It's worth comparing what's available rather than assuming all lenders offer the same rate for your situation.

Interest-only loans are another option, though they're less common for owner-occupied buyers. You pay only the interest for a set period, which keeps your repayments lower in the short term, but you're not reducing the loan amount during that time. This structure works if you need to keep repayments low while you're building income or managing other costs, but you'll need a plan to switch to principal and interest repayments before the interest-only period ends.

Refinancing brings your loan in line with your current situation

Once you've been in your property for a year or two, refinancing can reduce your interest rate or adjust your loan structure to suit your current income and goals. Lenders compete for established borrowers, and you may qualify for a lower rate than you received as a first home buyer. Even a 0.25% reduction in your interest rate saves thousands of dollars over the life of the loan.

Refinancing also gives you the opportunity to remove LMI if your property has increased in value and your loan-to-value ratio has dropped below 80%. This doesn't refund the LMI you paid initially, but it means you're no longer carrying that cost if you want to restructure or increase your loan in the future.

Housing affordability improves when you know which levers to pull. A smaller deposit doesn't mean you're not ready to buy, it means you're using the tools that exist to bring your timeline forward. Call one of our team or book an appointment at a time that works for you.

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