Financial adviser on income, deposit needed for $900k apartment in Sydney
They had a $100k deposit they’d saved themselves, yet this Sydney couple still couldn’t buy their first home. Then they asked one question.
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With the current cost of living crisis, saving money today is harder than it’s been for a long time – but it’s also the key driver of your ability to get ahead.
When most people think about saving more, they think about spending less. But spending less is only one part of the equation, and the reality is that there’s a limit to how much you can cut your expenses.
But there’s no limit to the other side of the equation – how much you can increase your income.
Emily and Ethan were a typical young couple in their late 20s, living in Sydney and trying to break into the property market. They had their hearts set on buying a two-bedroom apartment in Sydney’s inner-west with a price tag of $900,000. But like many first home buyers, they were struggling.
Based on this purchase price, they didn’t qualify for the first homebuyer stamp duty exemptions but they did qualify for the first home deposit guarantee. This meant that they could use a deposit below 20 per cent and not have to pay lenders mortgage insurance (LMI) but they’d need to pay the stamp duty on their property.
Emily and Ethan were approved for a loan of $800,000, which was almost, but just not quite enough to buy the property they really wanted and cover the costs associated with the purchase.
They didn’t have family support to help them buy property but had been working hard to build up their property deposit for the last few years, and had saved just over $110,000 in that time. Based on their combined income of $200,000, they were pretty happy with the work they’d put in to get there – and it did take a lot of work.
While their mates were some of the first people to jet off overseas once the borders reopened post-Covid lockdowns, they were focused on hitting the savings target needed to make their property purchase happen.
But even with this sacrifice, their deposit still wasn’t enough to buy the property they wanted. At the same time, the huge jump in interest rates had reduced the amount the banks would lend them. They were at a loss and were close to putting the property purchase in the too hard basket.
When we started working together, we started by stress testing their approach and realised there was a big opportunity they hadn’t considered. They ultimately took advantage, and recently purchased their first home – and did it almost two years sooner than they thought was possible.
How they did it
Like many others before them, Emily and Ethan had followed the conventional wisdom – do a budget, set a goal, and then put in the work to build up their deposit to the point they needed to buy the property they wanted. All good, smart, things to do.
But through our conversations we realised that one thing Emily and Ethan hadn’t considered was the impact increasing their income would have on their property purchase.
They told us they didn’t really think a pay rise was particularly likely in the short term, but that they were keen to understand what impact it might have.
We started crunching the numbers, and found that if Emily and Ethan could get a combined income bump of $30,000 it would increase their borrowing capacity. This, combined with a couple of small tweaks to their property strategy and what they were doing with their money would give them the ability and confidence to purchase the property they wanted almost immediately.
Emily and Ethan were excited by the possibility of making this happen in a way they felt was much easier than continuing slugging away with their savings for the next two years. They agreed to give it a crack.
Emily and Ethan went to their employers. Ethan was up first, and when he talked it through with his manager it was a difficult conversation. He was uncomfortable asking the question, and his manager wasn’t very receptive.
The manager agreed to take it up the ladder and let Ethan know. Ethan left that conversation feeling OK, but not super hopeful.
Emily got a more positive response. She had been working hard to make a name for herself in her company over the past couple of years, and business was good – but Emily also got lucky with her timing.
A couple of days prior to the conversation with her manager, one of Emily’s colleagues had resigned. Her manager was figuring out how to resource the role, and by talking it through Emily’s manager advised that if she was prepared to pick up some of the responsibilities of this team member, the business would save money on replacing the outgoing team member, which would create the ability for them to look at a pay bump.
They agreed to think about this further.
A couple of days later, Emily was offered a $20,000 pay increase. Emily was pumped, but at the same time a little disappointed as it didn’t quite get her to what she needed for the property purchase.
She considered taking the win and using it to put a solid dent in their property purchase timeline. But after talking it through, we agreed she didn’t have a lot to lose by going back to them to see if there was any way she could get to her $30,000 target.
Emily outlined the importance of the $30,000 increase to her manager and explained what it would mean for her personally, and ultimately her company agreed to come to the party. She thought that they figured that it would essentially give them a good staff retention strategy, as they knew she’d be appreciative, but also not likely to move on from the business if she was able to buy her first home.
Unfortunately Ethan’s manager didn’t come through on an increase, saying business conditions didn’t allow them to uplift salaries in the current environment. He was a little disappointed, but ultimately they’d collectively hit their target, and so it was game on.
Emily’s pay rise came through, and they were able to reapply for a mortgage and were approved for a higher loan of up to $850,000, which gave them enough to fund the purchase at $900,000, cover the deposit and stamp duty, and leave them with some cash savings to hold as an emergency fund – something that was important to them.
I’m happy to report that just last week Emily and Ethan had an offer accepted on their first home, and are due to settle on the property in a few weeks. They’re stoked, because it’s all happening more than 18 months sooner than what they thought was humanly possible.
The wrap
Emily and Ethan’s story goes to show that there’s always more than one way to get what you want. Emily and Ethan had been putting in the work for years to get to where they were, but like a lot of people hadn’t thought about seriously targeting a pay increase.
If you’re trying to save and invest more, it makes sense to look at where you can cut expenses to free up more cash. But don’t forget to consider the other side of the coin, what you can do to increase your income. This can help you increase your savings rate today faster, and make your money easier every year moving forward.
Ben Nash is a finance expert commentator, podcaster, financial adviser and founder of Pivot Wealth, and the Author of the brand new book, ‘Replace your salary by Investing’ and the host of the Mo Money podcast.
Ben runs regular free online money education events to help you make better money choices and get ahead faster. You can check out all the details and book your place here
Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstances before acting on it, and where appropriate, seek professional advice from a finance professional.
Originally published as Financial adviser on income, deposit needed for $900k apartment in Sydney
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