Sydney house buyers 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.
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.
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.
In Melbourne, buyers need to clear $178,300 a year to buy at the median house price of about $1,023,000, requiring a $34,000 increase in earnings from the previous year.
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.
How much income you need to purchase a house and service the loan
| March 2022 | March 2023 | Change | |
| Median house price | $1,594,192 | $1,459,856 | -$134,336 |
| Loan amount (80% LVR) | $1,275,354 | $1,167,885 | -$107,469 |
| Gross annual income required to… | |||
| Have sufficient borrowing power | $204,900 | $255,600 | $50,700 |
| Avoid mortgage stress | $215,100 | $284,000 | $68,900 |
How much income you need to purchase a unit and service the loan
| March 2022 | March 2023 | Change | |
| Median house price | $1,594,192 | $1,459,856 | -$134,336 |
| Loan amount (80% LVR) | $1,275,354 | $1,167,885 | -$107,469 |
| Gross annual income required to… | |||
| Have sufficient borrowing power | $204,900 | $255,600 | $50,700 |
| Avoid mortgage stress | $215,100 | $284,000 | $68,900 |
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.
“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. “But when you think about couples, it’s not as big of a stretch.” A Sydney couple can get away with a slightly lower combined income of $241,800, the modelling shows, due to shared costs which reduce their living expenses and allow them to borrow more.
Mickenbecker said it had become harder for first home buyers to purchase, despite the market downturn. It “defied logic” but was a result of their borrowing capacity falling faster than prices. Even to buy a median-priced Sydney unit at $758,700, a buyer would need to make $137,300 each year, and up to $147,600 if they wanted to keep their repayments to less than 30 per cent of their income.
In Melbourne, where the unit median is about $527,800, buyers would have to earn $102,800.
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 Tuesday, 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.
“[Interest rate rises] have changed a lot of things,” Murphy said. “A lot of first home buyers aren’t in the market at that level, but even those that are coming from a unit or a townhouse are getting help from their parents as well to buy.” Jellis Craig Stonnington partner Michael Armstrong said young professionals were now leading the market for homes priced between $1 million and $2 million in Melbourne, but were getting help from family.
“Those people have been as affected by increased interest rates as the other buyers,” Armstrong said. “But I also think the Bank of Mum and Dad, that intergenerational wealth transfer is very much alive and well.
Source: Canstar & SMH
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