Australian housing the most affordable in a decade

author-avatar By on October 27, 2020
Australian housing the most affordable in a decade

Photo by Natalie Su on Unsplash

Housing was the most or near the most affordable in a decade in September, according to Moody's.

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.

Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.

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. 


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

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Alex joined Savings.com.au in 2019. He is passionate about providing Australians with the information and tools needed to make them financially stable for their futures.

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