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Australian housing values have more than doubled in 15 years while wages rose only 49 per cent, pushing the dwelling value to income ratio from 6.5 to 8.7 times and mortgage repayments to 51 per cent of pre-tax income.
Australian households now need two incomes to afford a mortgage, with housing values more than doubling over the past 15 years while wages grew only about 49 per cent.
The national dwelling value to income ratio has risen from 6.5 times to 8.7 times, and repayments on a new loan now take up 51 per cent of a household pre-tax income, up from 36 per cent. Cotality research director Tim Lawless said the last time the cash rate was this high, it cost about half as much to buy a house.
Housing Affordability Compared With 2011
Housing was not as expensive relative to incomes, households did not carry so much debt, and prices were about to boom as rates dropped. The last time interest rates were higher was in October 2011, when the central bank held steady at 4.75 per cent before a series of cuts from the following month. In October 2011, Sydney median house value was just 598,888 dollars on Cotality data, and 472,705 dollars in Melbourne.
It was even cheaper in Brisbane at 458,356 dollars and Perth at 460,361 dollars. Lawless said the stark difference compared to 15 years ago is that housing is much more expensive now, even though interest rates might have been at fairly similar levels. Household debt was at 161 per cent of disposable incomes then and has risen to 178 per cent now.
Lawless said households have become a lot more sensitive to changes in the cost of debt, amplified significantly by broader cost-of-living pressures. He said it has become harder to achieve home ownership, so some buyers look further afield or buy a smaller property. Even those who accessed the Australian government 5% Deposit Scheme needed to show they could repay a 95 per cent mortgage, he said. Despite this, mortgage arrears are relatively low.
It will not last forever, he said. Most households seem to be battening down the hatches and weathering the storm, pulling back on things they do not need to spend on. In Melbourne Croydon South, Sebastian Kenihan, 37, and his wife Danielle Russell, 34, are preparing for more expensive mortgage repayments and the birth of their third child. They have two sons, Matthew, 5, and Lachlan, 3 and a half.
Households Prepare For Higher Repayments
The couple upgraded to a four-bedroom home 18 months ago, fixing their interest rate in January for 12 months. We were aware of the rumblings of rate increases at the start of the year so we decided to take the opportunity to fix for one year, Kenihan said. We should have fixed it for longer, but you do not have a crystal ball to see what is going to happen.
They have not decided their next move for the mortgage but have looked at where they can save money. We are minimising the discretionary spending for meals, we are cooking ourselves and going to the supermarket, looking at streaming services and checking electricity providers, those larger costs, to keep them on track, Kenihan said. The couple has decisions to make when their fixed-rate period ends.
We are obviously grateful we spoke to our mortgage broker and fixed the mortgage, but it only delays the inevitable of reconsidering what we do, Kenihan said. Their mortgage broker, Samuel Power of Loan Market Melbourne, said clients had been planning for higher repayments. Many were cutting costs, cutting back on takeaway food and food delivery, checking grocery bills, looking for the best deals and sales at local markets, or not taking expensive holidays.
They are looking for the mechanisms to limit the damage, Power said. It has been happening for a while now because the cost of living has been so expensive. While many looked to fix at least part of their mortgage, Power warned fixed rates are higher than variable. There would still need to be three more rises to be above where fixed rates are at the moment.
Home Owners Manage Rising Mortgage Costs
Sydney home owner Samantha Spackman, 35, bought a two-bedroom apartment in Dee Why four months ago, a base after years of moving between rentals. She previously owned a property in northern NSW for an intended sea-change that never eventuated, and she also owns a Queensland investment property. She was unsurprised by the hike. I do not think I am unprepared for it, she said.
On top of everything else that continues to rise, it continues to put pressure on, and more stress. It is nerve-racking, the size of the mortgage that I have, being a single home owner not in a relationship, and having to service it myself definitely means that my eyes are on interest rates as they continue to creep up, said Spackman, who works in marketing for a technology company.
The size of mortgages that you have to take out to buy somewhere nowadays weighs into that. Her mortgage broker, Anthony Landahl, managing director at Equilibria Finance, said some home owners have made extra repayments, while some are refinancing or fixing. Some are using offset and redraw facilities more strategically, examining discretionary spending or selling an investment property. Potential borrowers avoid borrowing to their limit, or ask how much they could borrow if there were more hikes.
The amount of income required to purchase a house from an affordability perspective is now a much larger share than 10 or 15 years ago when interest rates were higher, Landahl said. Now it is taking two incomes to afford a mortgage, because the size of the mortgages, relatively speaking compared to back then, is a lot larger, so that is really challenging.
brisbanetimes 
smh:How far house prices have risen since the last time rates were this high 
theage:How far house prices have risen since the last time rates were this highThis story was compiled and edited by the HeadTopics newsroom and HT AI from the reports above.
Interest Rates Affordability Mortgage Repayments Australian Property Market Australian Housing Affordability Household Debt
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