First home buyers' deposit getting larger

THERE'S good and bad news for first home buyers - their loan repayments are shrinking but the amount needed for a deposit is rising.

Financial comparison website RateCity has found that while falling interest rates are forcing loan repayments down, they are also contributing to increased house prices.

It found the average house price in Australia has risen to $544,071, forcing up the cost of a 10 per cent deposit by $1,430 since last year.

For units, the national median price jumped to $413,179 adding a further $810 to the cost of the deposit.

However, falling interest rates have made mortgage repayments $195 a month cheaper.

"I suppose it's good for existing home owners that median prices are increasing but I think for new home buyers it's making it a little bit more difficult to get their foot in the market," RateCity chief executive Alex Parsons said.

While the higher deposits needed would be offset by smaller repayments, first home buyers still have to save more before they stepping onto the housing ladder.

"I suppose when you're scrimping and saving that is a significant amount of money but it is offset somewhat by the payback conditions on the interest rate side," Mr Parsons said.

"At $1,400 more to get in, you're saving about $2,400 in repayments over the course of the year."

First home buyers in Perth will have a tougher time with a 5.7 per cent increase in the median house price pushing the deposit needed up by $3,011.

Sydneysiders were also facing a greater than average increase with a 5.3 per cent jump in the median unit price inflating deposits by an extra $2,386.

Mr Parsons says while a 10 per cent deposit was all first home buyers needed, they should aim for double that amount.

"Borrowers should also aim to save at least 20 per cent of the value of the property to avoid lenders mortgage insurance," he said.

"The worst thing a borrower can do is rush into a home loan without an adequate deposit. It will end up costing more and can also come with higher risk."

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