The sizeable sums needed to secure and service a loan for a median-priced house are the result of 11 cash rate rises since May last year, which have slashed buyer borrowing power faster than prices and increased mortgage costs. With more rate rises still expected this year to slow down inflation, the biggest issue in the housing market is mortgage stress. We look at how much you need to earn to be able to afford a housing loan as well as what income levels are needed to avoid mortgage stress.

Although the house prices on the west coast continue to rise new Canstar modelling shows a Sydney buyer who purchased a house for about $1.46 million – the median price for the March quarter on Domain data – would have needed a gross annual income of $255,600 to have sufficient borrowing capacity to purchase with a 20 per cent deposit.

That is $50,700 more than was needed the previous March, despite a sharp fall in house prices since, and more than triple the $78,800 median pay of full-time employees last year, according to the latest Australian Bureau of Statistics figures. Average full-time earnings sit at $94,000.

Sydney house hunters need to earn more than $250,000 to borrow enough to purchase a typical home, while their Melbourne counterparts need almost $180,000, making homeownership near impossible for the average Australian. Brisbane and Perth buyers needed almost $145,000 and $124,000 respectively, requiring a pay rise of more than $27,000 from the previous year.

That is $50,700 more than was needed the previous March, despite a sharp fall in house prices since, and more than triple the $78,800 median pay of full-time employees last year, according to the latest Australian Bureau of Statistics figures. Average full-time earnings sit at $94,000.

The table below sets out the data applicable to Perth.

How much income you need to purchase a unit in Perth and service the loan

  March 2022 March 2023 Change
Median house price $364,054 $360,428 -$3,626
Loan amount (80% LVR) $291,243 $1,167,885 -$107,469
Gross annual income (Single) required to…
Have sufficient borrowing power $65,200 $78,500 $13,300
Avoid mortgage stress $49,200 $70,200 $21,000

How much income you need to purchase a house in Perth and service the loan

  March 2022 March 2023 Change
Median house price $633,762 $672,177 $38,415
Loan amount (80% LVR) $507,010 $537,742 $30,732
Gross annual income required to…
Have sufficient borrowing power $93,900 $123,900 $30,000
Avoid mortgage stress $85,600 $130,800 $45,200

Notes:

The modelling assumed a single buyer purchased in March, when the cash rate was 3.6 per cent, with a 20 per cent deposit and no existing equity. It shows the income required to secure a 30-year loan with a variable mortgage rate of 6.13 per cent, and a 3 per cent interest rate serviceability buffer.

The cash rate has since lifted to 3.85 per cent and could rise again when the Reserve Bank meets on Tuesday.

Canstar group executive Steve Mickenbecker said the modelling showed how challenging the market was for first home buyers, and noted the situation had likely worsened since earlier this year – given another increase to the cash rate and an uptick in property prices. In Perth, a buyer would need a $30,000 increase in income as at March 2023, when compared to purchasing a home in 2022 – the average  household income required in 2022 was $93,900 compared to $123,900.

“For single first home buyers, 99 per cent of them are going to be excluded from buying a house at the median price,” Mickenbecker said.

AMP Capital chief economist Dr Shane Oliver said first home buyers would find it almost impossible to get into the market at the median house price. “Prices are still down from their highs, so that is helping, but the roughly doubling interest rates are working against that,” Oliver said. “That means even if you have a 20 per cent deposit saved up, you’d be struggling to buy at the median.”

“Tax data shows that only 1 per cent or 2 per cent of Australians earn above $180,000 a year, so you’d have to be relying on having two high-income earners, or alternatively, relying on the Bank of Mum and Dad to be able to buy,” he said.

Oliver said with inflation at 6.8 per cent, there was likely another rate rise to come on this month, or next month. The Agency’s Catherine Murphy said first home buyers had been able to stretch themselves to buy at close to the median house price, when interest rates were at record lows, but were now priced out.

Source: Canstar & smh.com.au

How can we help?

If you have any questions or would like further information, please feel free to give our office on 08 9221 5522 or via email – info@camdenprofessionals.com.au  or arrange a time for a meeting so we can discuss your requirements in more detail.


General Advice Warning

The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.

Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.

Although every effort has been made to verify the accuracy of the information contained on this page and on this website, Camden Professionals, its officers, representatives, employees, and agents disclaim all liability [except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this website or any loss or damage suffered by any person directly or indirectly through relying on this information.