For most of us, buying a house is the single most expensive purchase we will ever make in our lives. There’s so much to consider when buying a house and in recent years the property market has been less than buoyant. The recession has caused a huge downturn in the property markets and many first time buyers are still put off from making the leap into purchasing. However, saving for a house is still an absolute necessity, as we all want to own, and will consequently need to buy a home at some point. With that in mind we decided to look at the current state of the housing market and examine what kinds of savings are the most useful when trying to save for a house.
Over the past few weeks, the Reserve Bank of Australia announced that it was cutting the cash rate by 50 basis points. This was in an effort to re-invigorate the flailing housing market as housing finances, the property market and the mortgage market continue to suffer. According to a recent article in the Sydney Morning Herald housing finance commitments have fallen by 7.3 per cent since the start of the year and are now 16 per cent below the five year moving average level. Property prices are at their lowest in decades; though in some places they are starting to see tentative recovery and growth. At the same time the national and global financial situation is still straining the markets. One of the biggest problems the recession has caused is that it has made credit more expensive. This has, in turn, made it harder for individuals to secure mortgage loans and it made it harder for mortgage lenders to offer lower mortgage rates. Combined these factors have caused the markets to decline severely. However the recent changes from the Reserve Bank of Australia should help the market slowly recover so now is a good time to increase or start your savings towards a house.
The reality is that the more money you can find towards your house the better deal you will be able to secure on a mortgage. This means that savings as early as possible are crucial to being able to secure the house that you want. However, choosing the right savings is essential to maximising the amount you can put towards your home so, with that in mind, we turn to look at savings.
When deciding between the two options above, or choosing a third, wholly different variant, you will need to pick something that suits your financial situation. Eventually you will, hopefully, have the money to invest in more serious savings but when you are starting out, these two core options are what you will be looking at. In terms of interest rates, deposit accounts are usually better but you need to realise that you can easily lose your interest if you need to make additional withdrawals, outside those allowed, or if you need to switch amounts being deposited and saved. For many people saving for a house we often need to dip into our savings for emergencies or just for some additionally needed funds so it can be problematic having the majority of our savings placed within deposit accounts.
Conversely, other savings accounts offer you a much greater degree of flexibility but usually with a lower interest rate. However, this flexibility is often very important for people saving towards a house and the difference between interest rates often isn’t significant enough to warrant the loss of flexibility.