This is a great question @Bookman! Apologies in advance for the length of the response!
(Please insert the normal this is not financial advice disclaimer, just pub talk, seek professional advice)
There are four key considerations that need to be thought about to decide this:
Saving: How much can you, and what interest rate can you get?
Rent: How much will you be paying and how long for?
Property growth: What will be the capital growth in the savings period?
Interest rates: What will rates do in this time period?
So we can do a little worked example if you don’t mind!
Let’s say for example you wanted to buy a home that was A$1.0m for arguments sake.
And you had currently clawed and scraped for $100k deposit. Question, buy now (assuming you can get a loan) or save for 20% deposit and avoid LMI?
- Price: $1m
- Growth p.a. NSW long term ~ 9.2% per annum
- LMI premium: $22.5k (rough!) ~ based off 2.5% rate on $900k
- Interest rate per month ~ assume a rough rate of around 5% (factoring in some increase and long term rates)
= $4,952 per month repayments (assuming you’ve rolled the LMI into the loan and a 30yr term)
- Purchase price $1.0m (but note the house you can buy now will be less than the ~$1.5m the original house is now worth @ 9.2% per annum)
- You’ve had to save $360 per week for 5 years @ 3% interest - this would be a tough ask. But I suppose doable?
- You’ve paid rent of $125,000 during that time at your proposed roughly $500 per week
Buying now = - $222k in interest - $22.5k LMI + ~$500k growth = +$255k (approx.)
Buying later = -$125k rent + $7k interest on savings = -$115k (approx.)
Here in lies two major assumption.
- Interest rates don’t increase dramatically in the interim which eat up the value of the growth
- Prices continue to increase at the ordinary clip (which at present they are not in Syd/Mel)
It’s difficult to recommend that non-first home buyers buy a home with LMI it’s more expensive and you should have enough equity from your previous property. But if this is your first home, the real issue in Australia is that you’re rarely going to save faster than property outgrows your buying capacity… (based on long term cycles, not just the current bull run).
A final word on prices btw. Prices go up, prices go down, they are cyclical. Owning a home is a hedge against the future cost of rent/living in your city, especially in retirement where your income will not increase at the same rate it does during your working life.