Australian housing the most affordable in a decade

Australian households with two income earners needed 23.0% of monthly income to meet mortgage repayments on new loans in September 2020, down from 25.1% a year earlier. 

Moody's said the fallout from COVID, record low interest rates, and government support schemes like JobKeeper had all contributed to the rise in affordability.

"Australian housing prices declined an average 1.5% over the five months to September 2020 because of the economic fallout from the coronavirus, though prices still rose 3.2% over the year to September," Moody's said.

"The Reserve Bank of Australia (RBA) lowered the official cash rate to a record low 0.25% in March to combat the economic downturn triggered by the pandemic, driving mortgage interest rates down.

"Government assistance payments have supported household incomes since the coronavirus pandemic.

"Before the pandemic, average household incomes were increasing, rising 5.4% over the year to May." 

Buying a home or looking to refinance? The table below features home loans with some of the lowest variable interest rates on the market for owner occupiers.

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Lender	Home Loan	Interest Rate	Comparison Rate*	Monthly Repayment	Repayment type	Rate Type	Offset	Redraw	Ongoing Fees	Upfront Fees	Max LVR	Lump Sum Repayment	Extra Repayments	Split Loan Option	Tags	Features	Link	Compare	Promoted Product	Disclosure
loans.com.au	loans.com.au Variable Home Loan P&I <90%	5.54% p.a.	5.58% p.a.	$2,852	Principal & Interest	Variable			$0	$530	90%				Owner Occupier Variable Principal & Interest 10% Min Deposit Redraw Extra Repayments More details	Available for purchase or refinance, min 10% deposit needed to qualify. No application, ongoing monthly or annual fees. Quick and easy online application process.	More details	Compare	Promoted	Disclosure
Unloan	Unloan Variable Rate Home Loan LVR < 80%	5.49% p.a.	5.40% p.a.	$2,836	Principal & Interest	Variable			$0	$0	80%				Built and funded by CommBank Owner Occupier Variable Principal & Interest 20% Min Deposit Redraw More details	No application or ongoing fees. Annual rate discount Unlimited redraws & additional repayments. LVR <80% A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.	More details	Compare	Promoted	Disclosure
Ubank (part of NAB)	Ubank (part of NAB) Flex variable home loan - 100% offset	5.64% p.a.	5.89% p.a.	$2,883	Principal & Interest	Variable			$250	$250	60%				100% offset Owner Occupier Variable Principal & Interest 40% Min Deposit Offset Redraw More details	Easy application. Fast approval. 100% offset. Unlimited additional repayments free of charge. Redraw available - Access additional payments.	More details	Compare	Promoted	Disclosure
Macquarie Bank	Macquarie Bank Offset Home Loan (Owner Occupier, Principal and Interest, max LVR 60%)	5.64% p.a.	5.89% p.a.	$2,883	Principal & Interest	Variable			$248	$350	60%				Owner Occupier Variable Principal & Interest 40% Min Deposit Offset Redraw More details	Check your eligibility in as little as one minute	More details	Compare		Disclosure

In Sydney, new borrowers needed 29.9% of household income to meet mortgage repayments in September, compared with 30.9% a year earlier and 32.7% on average over the last 10 years.

However, Sydney remained the least affordable city for housing in Australia.

In Perth, new borrowers needed 15.0% of household income to meet mortgage repayments in September 2020, the lowest in a decade and down from 17.4% a year earlier.

Perth was the most affordable capital city for housing in Australia.

Moody's said it expected the trend of rising affordability to continue into 2021.

"We expect interest rates to remain low for the foreseeable future," it said. 

"Housing prices will likely see some downward pressure as the result of the macroeconomic weakness, albeit the impact may be muted due to the low interest rates.

"Conversely, household incomes will come under pressure in coming months as government income support measures such as JobKeeper and Jobseeker end, but we do not expect this to outweigh the impact of low mortgage interest rates and housing price movements." 

RBA rate cut to further improve affordability? 

The RBA is widely tipped to cut the cash rate by 15 basis points to a new record low on Melbourne Cup Day. 

Whether this cut is passed onto home loan rates remains to be seen, with lenders' margins already tightly squeezed, and several lenders offering sub 2% mortgages. 

In a speech earlier in the month, RBA Governor Phillip Lowe said the central bank's analysis had revealed a cut would be more effective now than in previous months when most states were experiencing lockdowns. 

"When the pandemic was at its worst and there were severe restrictions on activity we judged that there was little to be gained from further monetary easing," Dr Lowe said.

"The solutions to the problems the country faced lay elsewhere.

"As the economy opens up, though, it is reasonable to expect that further monetary easing would get more traction than was the case earlier."

Dr Lowe again ruled out negative interest rates and said the cash rate was unlikely to be raised before 2023. 

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