Perth the most affordable capital, construction flat despite Homebuilder

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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

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

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
Variable
More details
UNLIMITED EXTRA REPAYMENTS
  • Interest Only during construction
  • No monthly, annual or ongoing fees
  • Get Australia’s lowest rate construction loan when you go green
UNLIMITED EXTRA REPAYMENTS

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

  • Interest Only during construction
  • No monthly, annual or ongoing fees
  • Get Australia’s lowest rate construction loan when you go green
Variable
More details
100% FULL OFFSET ACCOUNT
  • Interest Only during construction
  • No monthly, annual or ongoing fees
  • Get Australia’s lowest rate construction loan when you go green
100% FULL OFFSET ACCOUNT

Offset Package Home Loan (Principal and Interest) (LVR < 60%)

  • Interest Only during construction
  • No monthly, annual or ongoing fees
  • Get Australia’s lowest rate construction loan when you go green
Variable
More details
100% FULL OFFSET ACCOUNT
  • Interest Only during construction
  • No monthly, annual or ongoing fees
  • Get Australia’s lowest rate construction loan when you go green
100% FULL OFFSET ACCOUNT

Offset Package Home Loan (Principal and Interest) (LVR 60%-70%)

  • Interest Only during construction
  • No monthly, annual or ongoing fees
  • Get Australia’s lowest rate construction loan when you go green
Variable
More details
100% FULL OFFSET ACCOUNT
  • Interest Only during construction
  • No monthly, annual or ongoing fees
  • Get Australia’s lowest rate construction loan when you go green
100% FULL OFFSET ACCOUNT

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

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

Tailored Investment Loan Fixed (Principal and Interest) 1 Year

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

Fixed Rate Investment Loan (Principal and Interest) 1 Year (LVR > 80%)

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

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 be 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. *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. Rates correct as of August 15, 2022. 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

Variable
More details
  • Min 30% deposit
  • No monthly or ongoing fees, add 0.10% for offset
  • Unlimited redraws

Variable Home Loan (LVR < 70%)

  • Min 30% deposit
  • No monthly or ongoing fees, add 0.10% for offset
  • Unlimited redraws
Variable
More details
REFINANCE ONLY
  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
REFINANCE ONLY

Variable Rate Home Loan – Refinance Only

  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
Variable
More details
AN EASY DIGITAL APPLICATION
  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
AN EASY DIGITAL APPLICATION

Neat Variable Home Loan (Principal and Interest) (LVR < 60%)

  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
Variable
More details
NO ONGOING FEES
  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
NO ONGOING FEES

Yard PAYG Home Loan (Principal and Interest) LVR ≤ 80%

  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster

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 be 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. *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. Rates correct as of August 15, 2022. 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. 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. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.

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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 strives to deliver and edit news and guides that are engaging, thought-provoking, and simple to read.

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