Financial Planning for Buying a Property in Australia

For many Australians, buying a property is the single largest financial decision of their lives. It represents stability, a chance to build equity, and for some, a way to leave the rental market behind. Yet it also comes with challenges: high housing prices, complex taxes and duties, and lending rules that can overwhelm first-time buyers.

In 2024, the median house price in Sydney exceeded A$1.6 million, while in Melbourne it was close to A$1 million. Even in smaller capitals like Brisbane and Perth, strong demand has pushed prices up. Combined with rising interest rates and a high household debt-to-income ratio, entering the property market is more daunting than ever.

To navigate this journey successfully, buyers need a comprehensive financial plan that covers not only the deposit but also hidden costs, timelines, and alternative models like shared ownership. This article offers a step-by-step guide tailored to the Australian context.

1. Why Financial Planning Matters in Property Purchases

Unlike many purchases, buying a home requires not only having enough for the price tag but also for a web of related expenses: legal fees, inspections, moving costs, and government taxes. Without planning, buyers risk overextending themselves, leading to “mortgage stress.”

Mortgage stress occurs when more than 30% of household income goes towards housing costs. According to recent surveys, nearly 1 in 4 Australian households are in this situation. Careful planning helps avoid becoming another statistic.

2. The Deposit: How Much Do You Really Need?

The 20% Benchmark

Traditionally, lenders in Australia recommend a 20% deposit. For a A$700,000 property, that’s A$140,000. Reaching 20% has two major advantages:

• It reduces the size of your mortgage.
• It avoids Lenders’ Mortgage Insurance (LMI), a premium charged when you borrow more than 80% of the property’s value.

LMI doesn’t protect you—it protects the lender in case of default. Premiums can run into tens of thousands of dollars, depending on the property value and deposit size.

Buying a property with Less Than 20%

It is still possible to buy with a 5–10% deposit, but the trade-offs are:

• Higher monthly repayments.
• Added LMI costs.
• Stricter lending criteria from banks.

Some government programs, such as the Home Guarantee Scheme, allow eligible buyers to purchase with deposits as low as 2–5% without paying LMI. This has opened doors for many first-home buyers struggling to save.

How to Calculate Your Savings Goal

A realistic savings goal = Deposit + Buying Costs (3–5% of price).

Example: For a A$700,000 property:

• Deposit (20%): A$140,000
• Costs (approx. 4%): A$28,000
• Total goal: A$168,000

3. Taxes and Upfront Costs

Stamp Duty (Transfer Duty)

This is often the biggest additional cost when buying. Each state and territory sets its own rates and exemptions.

• NSW: First-home buyers can choose between paying upfront stamp duty or an annual property tax for homes under certain thresholds.
• Victoria: Offers concessions for first-home buyers and off-the-plan purchases.
• Queensland and WA: Provide rebates and lower rates for first-home buyers.

For a median-priced property in Sydney, stamp duty alone can exceed A$40,000—a figure buyers must budget for well in advance.

Other Common Costs

• Conveyancing and legal fees: A$1,000–A$3,000.
• Building and pest inspection: A$400–A$700.
• Loan application fees: A$500–A$1,000, though some lenders waive this.
• Mortgage registration and transfer fees: Around A$200–A$400 depending on the state.

4. Timeline: From Dreaming to Settlement

Step 1: Saving and Pre-Approval (Months to Years)

Most Australians spend years saving their deposit. Once close, they seek pre-approval, a conditional commitment from a lender. Pre-approvals usually last 3–6 months and give buyers a clear budget when house-hunting.

Step 2: Searching and Making an Offer (Weeks to Months)

Finding the right property varies greatly by market. In hot cities, homes sell within days; in regional areas, buyers may take longer to decide.

Step 3: Exchange of Contracts (Immediate)

Once an offer is accepted (or an auction won), contracts are signed. At this stage, buyers usually pay a deposit of 5–10% of the property price to secure the purchase.

Step 4: Settlement Period (4–6 Weeks Typical)

During settlement:

• Lenders finalise approval and valuations.
• Conveyancers perform title checks and arrange payments.
• Stamp duty and fees are paid.

On settlement day, ownership officially transfers.

5. Long-Term Financial Considerations

Ongoing Costs

• Council rates: A$1,500–A$3,000 per year depending on location.
• Strata fees: For apartments, can range from A$2,000 to A$7,000 annually.
• Insurance: Building insurance is mandatory for mortgaged homes.

Tax Implications

• Investment properties generate rental income, which is taxable. However, expenses can often be deducted.
• Capital Gains Tax (CGT) applies when selling investment properties, though main residences are generally exempt.

6. Alternatives: Shared Ownership and Government Schemes

Shared Equity Programs

The federal Help to Buy scheme allows the government to contribute up to 40% of the purchase price for new homes, reducing the deposit and mortgage burden. Buyers repay the government’s share when they sell.

Several states run similar shared-equity initiatives. For example, Western Australia’s Keystart loans allow lower deposits with no LMI.

Co-Ownership with Family or Friends

Some Australians co-purchase with siblings or friends. This reduces upfront costs but requires legal agreements outlining:

• Exit strategies.
• Division of responsibilities.
• Tax obligations.

Rent-to-Buy and Fractional Investment

Emerging models let buyers lease properties with the option to purchase later, or buy shares in property investment platforms. While less common, they illustrate how the market is evolving to meet affordability challenges.

7. Common Mistakes Buyers Should Avoid

• Ignoring hidden costs: Focusing only on the deposit without planning for fees and duties.
• Overestimating affordability: Banks may approve higher loans than you can comfortably repay.
• Skipping inspections: Saving a few hundred dollars now can lead to tens of thousands in repairs later.
• Forgetting ongoing costs: Council rates, strata, and maintenance quickly add up.
• Not seeking advice: Professional mortgage brokers, conveyancers, and financial advisers can prevent costly missteps.

9. Future Trends in Australian Property Buying

• Digital settlements: Platforms like PEXA make transfers faster and more transparent.
• Government reforms: Expect more shared-equity schemes and stamp duty reforms as affordability remains a hot political issue.
• Alternative ownership models: Fractional ownership and property syndicates may grow, giving investors new options.
• Rising role of fintech: Apps are emerging to help Australians save for deposits, simulate mortgage repayments, and track hidden costs.

Conclusion

Buying property in Australia is a dream for many, but without planning it can quickly turn into financial stress. By calculating not just the deposit but also taxes, fees, and ongoing costs, buyers can set realistic savings goals. Understanding the timeline, from pre-approval to settlement, helps avoid rushed decisions.

For those struggling with affordability, shared-equity schemes and co-ownership arrangements provide viable pathways. Ultimately, the key is preparation: the more thoroughly you plan, the smoother your journey into property ownership will be. Keep following us for more financial content.