Saving for a home deposit?  You’re forgetting a KEY aspect

Saving for a home deposit? You’re forgetting a KEY aspect

Instead of buying a coffee before work, you’ve stuck it out with instant at home, you’re avoiding visiting your local, you’re pre-packing your lunches and you’ve even canceled your Netflix subscription; you’ve been resisting life’s luxuries in an effort to save for a deposit. Savvy saving is imperative and you’ve managed despite the difficulty, however, if you’ve still got debt to repay, it’s time to shift your focus.

Take your outstanding debt, triple it, and deduct that amount from the home loan amount you’re expecting. New research from has revealed just how severely debt can affect your borrowing capacity.

With the average Australian owing $12,643 on their personal loan, $3,114 on their credit and $16,330 on their home loan; the combined debt is reducing home loans by $99,000 – a substantial increase in the severity of housing affordability.

High house prices combined with the reality of accumulated debt presents a difficult challenge to young Australians looking to enter the property market. With an average debt of $29,191, the borrowing power held by members of Generation Y is reduced by an incredible $97,000. With the average Australian house price sitting at $612,100, such lending restraints present a significant handicap.

It’s easy to neglect your debt if you’re comfortably meeting repayments, however debt in the eyes of the lender is a monetary mishap that’ll influence the size of your home loan immensely. Considering that lenders reserve the ability to deny an application due to outstanding debt, it’s not something you should be content with lingering. Delaying paying off your debt in favour of saving for a deposit is a counterproductive effort.

Generation breakdown (on average):

● Generation Y has debts totalling $29,191, reducing borrowing power by $97,000

● Generation X is $36,821 in debt, affecting borrowing capacity by $121,000

● Baby Boomers are lumbered with $41,472 in debt, shaving $129,000 off their borrowing power

The reality of debt is that you could miss out on more than you owe. Prior to applying for a home loan, a determined effort should be made to pay off as much outstanding debt as possible. Before you consider babysitting for the brats down the road, check out some more appealing ways to reduce your debt:

  • Avoid interest: Transfer your outstanding debt to a balance transfer card and avoid paying interest for up to 20 months. The longer the term of the balance transfer, the more time you’ll have to repay your debts.
  • Exploit savings: There are accounts available that reward you for consistent saving. If you commit to depositing an agreed amount per month, high interest savings accounts will offer you increased interest repayments. Your ability to demonstrate ongoing savings is very important to lenders – consider direct debiting some of your salary into your savings each pay period.
  • Pay more than the minimum: The faster you pay your debt off, the more you’re able to save. Paying more than the minimum monthly payment will see you save on interest throughout the life of the loan, as well as speed up the payback process. Note that some providers will enforce penalties for extra repayments, so be sure to do your research first.
  • Negotiate: There’s always a better deal. Banks want your patronage and sometimes they’re willing to bend a little to keep your loyalty. Negotiate for lower interest rates on your credit cards. If you’ve a good record, there’s a good chance your request will be granted.

Debt is just as important as the deposit.

Bessie Hassan is the Consumer Advocate at, one of Australia’s biggest comparison websites.


Bessie Hassan is a consumer advocate at comparison website

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