Australia: Households Struggle With Mortgage Debt

Australians are spending more of their income on their mortgages than at any time in the last 17 years.

35 percent of the median family income in Australia is now needed to meet mortgage repayments.

Decreasing home affordability in Australia has resulted from a series of interest rate rises in 2006 combined with a rising property market. The official interest rate in Australia – set by the Reserve Bank of Australia – is currently 6.25 percent, somewhat higher than the UK’s official rate of 5.25 percent – set by the Bank of England.

In a statement similar to many we have heard in the UK in recent years Graham Joyce, Real Estate Institute of Australia President, said:

“With the erosion of home loan affordability, it is not surprising that home ownership amongst 25 – 34 year olds has fallen, and that first home buyers only represent 17.7 percent of total homebuyers financed, well below the ten-year average of almost 22 percent.”

Denise Bofill, General Manager of Consumer Products said:

“A generation has grown up thinking that a property purchase may be out of reach – home loan affordability statistics seems to support this perception. However this generation may start to realise that soon, renting may also be out of their reach.”

The Market Situation

Australia

Borrowers now need 35.2% of family income to meet average loan repayments, the highest proportion required in almost 17 years. Home loan affordability deteriorated by 3.9% over the quarter and by 8.0% over the year.

New South Wales

New South Wales remains Australia’s least affordable location, with 37.2% of family income required to meet average loan repayments. Affordability declined by 2.2% over the quarter and by 1.9% over the year.

Victoria

Victorians required 34.3% of family income to meet average loan repayments in the December quarter. Home loan affordability deteriorated by 5.3% over the quarter by 10.8% over the year. This is the lowest level of affordability since March 1990.

Queensland

Queenslanders required 36.3% of family income to meet average loan repayments in the December quarter. Home loan affordability deteriorated 3.9% over the quarter and 7.0% over the year.

South Australia

In South Australia, 31.9% of family income is required to meet loan repayments. Home loan affordability deteriorated by 6.5% over the quarter and by 10.8% over the year. This is the worst result for South Australia since September 1990.

Western Australia

The most significant decline in home loan affordability over the year occurred in Western Australia, down 18.5%, reflecting the major increase in house prices in that state. There was a decline over the quarter of 5.0%. 33.8% of family income is now required to meet average loan repayments. Home loan affordability is now at its lowest point since March 1980.

Tasmania

Home loan affordability improved over the quarter 1.8%, but deteriorated over the year by 7.3%. 32.7% of family income is required to meet average loan repayments.

Northern Territory

Home loan affordability deteriorated 4.3% over the quarter and 13.4% over the year, with 21.5% of family income required to meet average loan repayments.

Australian Capital Territory

Home loan affordability is best in the ACT, attributable primarily to median family income being greater than all other localities. 19.8% of family income is required to meet average loan repayments. Home loan affordability deteriorated by 3.8% over the quarter, but improved by 0.3% over the year.