Perth the most affordable capital, construction flat despite Homebuilder

author-avatar By on August 26, 2020
Perth the most affordable capital, construction flat despite Homebuilder

Photo by George Bakos on Unsplash

Today, research revealed Perth has the highest affordability out of the capitals, while construction activity was down in the June quarter despite HomeBuilder.

The Housing Industry Association's (HIA) housing affordability index for the capital cities increased by 5.6%, led by Perth, accelerating 7.1% on the quarter.

Sydney's affordability also increased by 6.1%, and HIA's chief economist Tim Reardon says Australian housing costs are at their most serviceable since 1999, when loan interest and other expenses are taken into account.

“Repaying a mortgage is no longer the constraint it was over the past two decades," he said.

“The combination of lower interest rates, slow house price growth and relatively steady wage growth over the past three years have driven this improvement in affordability.

Wage growth turned negative in June for the first time in 20 years, while real wage growth was just 0.2% in May.

HIA's housing affordability index is a calculation based on a mixture of qualifying income and mortgage costs and whether they are more or less than 30% of income.

Building a home? The table below features construction home loans with some of the lowest variable interest rates on the market for owner-occupiers.

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval
VariableMore details
GET A DISCOUNTED GREEN RATE

Green Construction Home Loan (Interest Only)

  • Interest Only during construction
  • No monthly, annual or ongoing fees
  • Get Australia’s lowest rate construction loan when you go green
GET A DISCOUNTED GREEN RATE

Green Construction Home Loan (Interest Only)

  • Interest Only during construction
  • No monthly, annual or ongoing fees
  • Get Australia’s lowest rate construction loan when you go green
VariableMore details
FREE REDRAW FACILITY

Basic Home Loan (Principal and Interest) (LVR 70%-80%)

FREE REDRAW FACILITY
VariableMore details
AN EASY ONLINE APPLICATION

Yard Investment Loan (Principal and Interest) (LVR < 80%)

  • No application fee
  • Unlimited additional repayments
  • Unlimited free redraws
AN EASY ONLINE APPLICATION

Yard Investment Loan (Principal and Interest) (LVR < 80%)

  • No application fee
  • Unlimited additional repayments
  • Unlimited free redraws
VariableMore details

Construction Home Loan (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • No ongoing fees
  • Unlimited extra repayments

Construction Home Loan (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • No ongoing fees
  • Unlimited extra repayments
VariableMore details

Rocket Repay Home Loan (Interest Only)

VariableMore details

Standard Variable Home Loan (Interest Only)

VariableMore details

Standard Variable Home Loan (Interest Only)

VariableMore details

Standard Variable Rate Home Loan (Principal & Interest)

VariableMore details
FAST TURNAROUND TIMES AND FLEXIBLE LOAN OPTIONS

Basic Investment Loan (Principal and Interest) (LVR < 60%)

FAST TURNAROUND TIMES AND FLEXIBLE LOAN OPTIONS

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. Rates correct as of October 17, 2021. View disclaimer.

Mr Reardon said it takes just 1.2 average incomes to service a mortgage on a median-priced dwelling in Australia's capitals.

“This is a rapid improvement from just three years ago when it required more than 1.4 times the average income to service the same mortgage," he said.

Meanwhile, today's Australian Bureau of Statistics data reveals construction activity was flat in the June quarter, down 0.7%.

Westpac's senior economist Andrew Hanlan said this was an "upside surprise".

"Westpac [predicted] -3.4% and the market median at -7.0%," he said.

"By state, gains were in WA, +2.9%, and NT, +25.6%, presumably led higher by mining infrastructure. NSW also advanced, up by 1.4%."

Residential building also slowed, down to its lowest value level since the June 2014 quarter, declining 12.1% in a year, according to HIA senior economist Geordan Murray.

“The decline in home building activity can only partially be attributed to the COVID-19 disruption," he said.

"Most of the building work done during the June quarter was ongoing work on homes that were under construction at the onset of the shut-down."

This is despite the Government HomeBuilder announcement in June, which one construction software company last week said was a boon for small construction businesses.

However, Mr Murray did say that HomeBuilder stemmed "rapid deterioration" in the residential construction sector.

"The HomeBuilder program created an incentive sufficient for homebuyers to return to the market," he said.

"In most markets, the lift in sales throughout June and July has made up for the drop in of sales during the lockdown ... but businesses are still preparing for the challenges that lie ahead."

hiaafford

First home buyers struggling with red-tape 'squeeze'

While capital cities improved their affordability over the June quarter, according to the HIA, first home buyers are still feeling the squeeze.

HIA's Mr Reardon says the biggest challenge for first home buyers is not servicing a mortgage, but obtaining a mortgage in the first place.

“A raft of restrictions imposed by [financial regulators] APRA and ASIC since the 2007 Global Financial Crisis has seen the number of home loans issued with a 10% deposit fall from 21% of all loans to just 7%," he said.

This is despite the Government introducing the First Home Loan Deposit Scheme, which provides guarantees for first home buyers, who can then enter the market with a 5% deposit without paying lenders mortgage insurance.

However, risk in the market could be mounting - 95% loans make up just 5% of the market, yet account for 8% of all mortgages in deferral.

Despite this, Mr Reardon echoed Reserve Bank Governor Philip Lowe's statement made earlier in the month, saying the "pendulum has swung too far".

“The additional red tape imposed in recent years means that banks are increasingly lending to those that already own a home," Mr Reardon said.

“Improving access to finance helped pull the economy out of the 1990s' recession and it can do the same for the COVID-19 recession."

Throughout the 1990s recession, the Reserve Bank cash rate was as high as 17.5%, while an average one-year term deposit yielded up to 14.9% in interest per annum, while credit growth declined by up to 1.8% in April 1992.

The median home price across the eight capital cities was also $121,260 in 1992, which adjusted for CPI inflation is a little over $235,000 today - in March 2020 the median was $690,200, making a 20% deposit cost just over $138,000.

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.

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval
VariableMore details
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
VariableMore details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
VariableMore details
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments
VariableMore details
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
VariableMore details
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^

Rates correct as of October 17, 2021. View disclaimer.


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): Great Southern Bank, 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.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

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.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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author-avatar
Harrison is Savings.com.au's Assistant Editor. Prior to joining Savings in January 2020, he worked for some of Australia's largest comparison sites and media organisations. With a keen interest in the economy, housing policy, and personal finance, Harrison is passionate about breaking down complex financial topics for the everyday consumer.

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