The days of buying a first home as a 20-something could be over.
Subscribe now for unlimited access.
$0/
(min cost $0)
or signup to continue reading
Today's first home buyers are likely to be closer to 40 than 20, and it has the potential to radically change the way Australians save a first home deposit.
A UK study found the average age of a first home buyer in Australia is 36.
That's not too bad on an international scale.
In Switzerland the average first home buyer has celebrated their 48th birthday.
It's a similar story in Japan and Spain where first home owners have an average age of 41.
The 'ageing' of first home buyers isn't just about rising property prices.
Lifestyle choices are also playing a role.
Many Australians are using their 20s to study, enjoy the freedom of renting or staying longer in the family home.
We're also delaying having children, something that used to be a key trigger for buying a home.
What's interesting is that buying a first home in our 30s can open the door to new ways to grow a deposit that go beyond shunting money into a savings account.
Today's first home buyers are likely to be closer to 40 than 20 ...
With a longer savings timeline, it can make sense to build a portfolio of 'growth' investments like shares and exchange traded funds (ETFs) that have a track record for delivering much higher returns over time.
It's true that sharemarkets can be volatile over short periods, but first home buyers who start investing in say, their 20s, can have plenty of time for values to recover.
To see the impact of higher returns, let's say that in July 2021, a 25-year old invests $10,000 in a portfolio comprised mainly of shares and ETFs plus some cash savings.
By adding an extra $500 each month, our investor will have a portfolio worth around $105,000 by age 35.
This assumes annual returns averaging about six per cent.
Investing the same amount in a savings account paying one per cent interest - and right now you'd be lucky to earn that - would see the balance reach $74,000 in the same timeframe.
That's $30,000 less than the growth portfolio.
Looked at differently, our first home buyer would have to tuck away $750 each month in a savings account to reach the same final balance of $105,000 by age 35.
Growth assets like shares and ETFs do involve more risk.
However, if you have a long-term plan to buy a first home, it can be worth adding shares and ETFs to your savings mix. Compounding returns will do more of the work growing a decent deposit, so you need to tuck away less on a regular basis.
