Buyers hunting for their first property are reaching the mortgage broker $15,000 to $20,000 short of the deposit they need, and a quarter of Australians have already raided their superannuation before retirement to cover financial gaps. A Finder survey of 1,011 people found 24 per cent had accessed super early for any reason, with 43 per cent of that group now regretting it. That translates to roughly 2.2 million Australians wishing they had left their retirement savings alone, while another 11 per cent are weighing early access now.
Four per cent said they used super to fund a house deposit. The research did not separate legitimate First Home Super Saver scheme users from those who accessed super under other eligible conditions, so the motivation mix is unclear. Medical expenses topped the early-access list at 9 per cent, with another 9 per cent citing other reasons and 8 per cent pulling funds during COVID-19.
Why buyers are coming up short
One broker reported first-home buyers typically arrive $15,000 to $20,000 below the deposit threshold, often turning to parents or personal loans to close the gap. The anxiety is palpable: buyers fear savings growth will lag property price rises, leaving them permanently priced out. That fear is not irrational when deposit targets climb faster than wage growth, but it can push people toward decisions that trade long-term security for immediate entry.
The mechanics of the shortfall are straightforward. Median dwelling prices in capital cities have risen faster than median household income over the past decade, so the absolute dollar amount needed for a 10 per cent or 20 per cent deposit has grown. Buyers who started saving three years ago often find the goalposts have moved by the time they are ready to transact. Delaying means chasing a higher target; buying now means accepting a smaller buffer or higher loan-to-value ratio.
The compound-growth trade-off
Withdrawing super solves an immediate cash problem but forfeits years of compounding returns. A dollar taken out at 30 misses three-and-a-half decades of growth before the preservation age, which at conservative long-run equity returns can multiply several times over. The younger the withdrawal, the steeper the retirement cost.
The First Home Super Saver scheme lets eligible buyers make voluntary concessional or non-concessional contributions, then release up to $50,000 (plus deemed earnings) toward a deposit. The tax treatment delivers a modest arbitrage: contributions go in at 15 per cent concessional tax, versus marginal rates that can reach 47 per cent. For buyers who would otherwise save in a high-interest account taxed at their marginal rate, the scheme offers a small edge. It does not, however, manufacture extra capital; it reshuffles the tax burden and timing.
Using super outside the FHSS scheme (compassionate grounds, financial hardship, terminal illness, permanent incapacity) imposes stricter tests and often tax consequences. Buyers who tap super under hardship or compassionate access typically face immediate tax at marginal rates, eroding the withdrawn amount before it reaches the deposit.
Personal loans and parental top-ups
Some buyers bridge the deposit gap with unsecured personal loans. Lenders assess serviceability on the combined mortgage and personal loan repayments, which tightens borrowing capacity and raises the monthly cashflow burden. Interest rates on personal loans sit well above mortgage rates, so the net cost of borrowing the shortfall can exceed the benefit of entering the market sooner. One broker described the strategy as inadvisable, and the math supports that view unless property price growth dramatically outpaces the loan-rate differential.
Parental guarantees or cash gifts remain the other common route. A parent offering equity in their own home as security lets the buyer avoid lenders mortgage insurance and access a higher loan-to-value ratio. The risk transfers to the guarantor: if the borrower defaults, the lender pursues the parent’s asset. Gift deposits carry no ongoing liability but reduce the parent’s liquidity and may trigger capital gains or estate planning considerations depending on structure.
Policy settings that still pinch
Government schemes now allow 5 per cent deposits with a Commonwealth guarantee, removing one barrier. Stamp duty, however, remains a substantial upfront cost in some states. Victoria charges full duty on purchases above the first-home buyer concession threshold, adding tens of thousands to the transaction cost. Queensland, New South Wales and South Australia offer broader concessions or exemptions, creating an interstate wedge in effective entry costs.
The result is a patchwork: a Sydney buyer under the threshold pays no stamp duty, while a Melbourne buyer purchasing the same-value property in Victoria wears the full impost. Stamp duty does not compound or deliver any return; it is a sunk cost that could otherwise sit in offset or emergency reserves. Calls to replace it with a broad-based land tax have circulated for years but face political resistance from existing owners who have already paid.
The catch
Waiting for the bottom is a strategy with no finish line. No one rings a bell at the cycle trough, and by the time consensus forms that prices have turned, the moment has passed. Buyers who defer in hope of a better entry often find suitable stock moving beyond budget as rates stabilise or supply tightens. The trade-off is not “buy now versus buy later at a lower price,” it is “buy now versus buy later at an unknown price with higher deposit requirements.”
Timing versus readiness
Attempting to pick the market bottom trades a known cost (today’s price and repayment) for an uncertain future saving. A buyer financially ready today, stable income, cashflow buffer, serviceable debt, faces a different risk profile than one stretching to meet repayments. The latter should wait regardless of price direction; the former weighs opportunity cost.
Holding a first property for the medium term (five-plus years) smooths short-run volatility. Buyers who treat the purchase as a trade or expect quick capital gains amplify timing risk. The base case for a first-home buyer should assume modest long-run price growth in line with income and population, not the double-digit annual gains seen in selective post-pandemic windows.
What happens if you’re $20,000 short
First option: keep saving. Delaying six to twelve months to close the gap avoids super withdrawal penalties, personal loan interest, or parental guarantee risk. The deposit shortfall might widen if prices rise, or it might narrow if they fall; neither is certain.
Second option: use the FHSS scheme if eligible. Make voluntary super contributions over the minimum 12-month holding period, then release the balance toward the deposit. The tax arbitrage is real but modest; it does not replace the need to save the bulk of the deposit through other means. Contributions are capped at $15,000 per year and $50,000 total (plus deemed earnings), so the scheme supplements rather than replaces traditional saving. For context on how non-bank lenders and broker-channel dynamics interact with deposit requirements, see this analysis of broker-channel consolidation pressure.
Third option: accept a higher loan-to-value ratio and pay lenders mortgage insurance. LMI is a one-off cost (often capitalised into the loan) that protects the lender, not the borrower. It adds to the total debt and slightly raises the interest cost over the life of the loan. For a buyer confident in cashflow and job security, LMI may be cheaper than waiting if prices are rising.
Fourth option: parental guarantee or gift. The guarantee lets you borrow more without LMI; the gift reduces the loan amount outright. Both require clear family conversation about risk, repayment expectations, and estate implications.
Fifth option: personal loan to top up the deposit. This is the highest-cost path and the one most likely to fail serviceability tests or create repayment stress. Avoid unless the alternative is losing a non-refundable deposit on a contracted purchase.
Red flags in the next twelve months
Serviceability buffers tightening further would shrink borrowing capacity even for buyers who meet the deposit threshold. If lenders lift assessment rates or regulators impose stricter debt-to-income limits, the bottleneck shifts from deposit to income.
Unemployment rising above 4.5 per cent would increase the risk of forced sales among recent buyers with thin equity buffers. First-home buyers who entered at high loan-to-value ratios are the cohort most exposed to negative equity if prices fall and they need to sell.
Stamp duty reform stalling in Victoria and New South Wales leaves the upfront cost wedge in place. Without movement, the gap between first-home buyer entry costs across states will persist, steering marginal buyers toward lower-duty jurisdictions.
What to do if you’re $20,000 short
Start here: model the five options above with actual numbers, your savings rate, time to close the gap, FHSS contribution limits, LMI quotes, parental guarantee terms, personal loan rates. Compare the total cost of each path (including opportunity cost of withdrawn super) against the risk of price movement over the delay period. If you are financially ready and the shortfall is modest, LMI or a family guarantee may be cheaper than waiting. If cashflow is tight or job security uncertain, close the gap through saving rather than layering debt. Check whether your state offers stamp duty concessions that change the math. Subscribe to the newsletter for weekly updates on lending conditions, deposit scheme changes, and borrowing capacity shifts.
General info, not financial advice.
