Dual-salary Aussie households need 25% of monthly income to meet mortgage repayments

author-avatar By on March 18, 2021
Dual-salary Aussie households need 25% of monthly income to meet mortgage repayments

A new report has revealed it takes almost a quarter of the average dual-income household's monthly pay to meet home loan repayments on new loans.

Moody's Investor's Service found Australian housing affordability deteriorated in February, reversing the improved trend seen in the second and third quarter of last year, during peak-COVID. 

On average, two income earners needed 24.6% of their monthly income to make monthly mortgage repayments in February, compared to 23.0% in September, and 22.7% in June and July, when new mortgages were the most affordable in a decade. 


Buying a home or looking to refinance? The table below features home loans with some of the lowest 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
WIN YOUR HOME LOAN INTEREST FREE

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

  • WIN your home loan interest free and save up to $1.1 million. Refinance by 29 October. T&Cs apply.
  • Refinance Only. Fast online application, refinance in minutes, not weeks.
  • No Nano fees, Free 100% offset sub account. Mobile app. Visa debit card & instant payments.
WIN YOUR HOME LOAN INTEREST FREE

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

  • WIN your home loan interest free and save up to $1.1 million. Refinance by 29 October. T&Cs apply.
  • Refinance Only. Fast online application, refinance in minutes, not weeks.
  • 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.^
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

Rates correct as of September 25, 2021. View disclaimer.

Property prices have increased 4.7% over the five months to February, with demand from owner-occupiers and first-home buyers being key drivers of the growth. 

All capital cities saw housing affordability worsen in the five months to February, with Perth the most affordable and Sydney the least. 

However, housing affordability remained better than the ten-year average of 26.1% and well under its peak of 30.7% in April 2011, as the average mortgage interest rate has nearly halved to 3.65% since 2011.

But the worst may be yet to come, with affordability to continue to deteriorate as prices rise this year, according to Moody's analyst Pratik Joshi.  

"Our model shows that housing prices or interest rates would have to increase materially (by 24.9% or 225 basis points respectively) for affordability to deteriorate to its worse level in a decade," Mr Joshi said.

"A 15% increase in housing prices combined with 100 basis point increase in interest rates would have the same impact.”

Westpac has forecast property prices will rise 20% in the next two years, while Commonwealth Bank believes a 16% rise is on the cards. 

Moody's reported that as government schemes like JobKeeper come to an end, household incomes would further fall, worsening housing affordability. 

Where is housing affordability worst? 

Moody's found new buyers in Sydney needed 31.3% of their household income to meet mortgage repayments in February, the worst in the country. 

Melbourne was the next worst, needing 27.1% of household income, followed by Adelaide (20.1%), Brisbane (19.9%), and Perth (16.5%). 

The report found for every 10% change in housing prices, the percentage of income households needed to service their mortgage changed by 2.5 percentage points on average. 

If house prices increased by 10% in Sydney, the amount of household income to meet mortgage repayments would increase by 3.1% percentage points to almost 35% of household income. 

For affordability to be the worst in a decade, house prices would need to increase on average 24.9%, but only 18.3% in Sydney, 20.4% in Melbourne, and a whopping 38.9% in Brisbane.

affcrisis01

Interest rates helping affordability...for now 

The Reserve Bank of Australia (RBA) has stated the cash rate is unlikely to rise before the end of 2024, which is keeping interest rates at record-low levels. 

Moody's reported interest rates would have to rise significantly for affordability to reach a decade-high, which seems unlikely for some time. 

"For housing affordability to deteriorate so that it is worse than at any point in the last 10 years, average mortgage interest rates would have to increase to 5.9% for Australia on average, or 5.3% for Sydney, 5.5% for Melbourne, 7.0% for Brisbane, 9.0% for Perth and 7.1% for Adelaide." 

"If median housing prices increase 15% and average mortgage interest rates increase by 100 basis points, the share of income households need to meet mortgage repayments would increase 6.8 percentage points on average in Australia, 8.6 percentage points in Sydney and 7.4 percentage points in Melbourne." 


Photo by Kon Karampelas on Unsplash

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.

*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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author-avatar
Alex joined Savings.com.au as a finance journalist in 2019. He enjoys covering in-depth economical releases and breaking down how they might affect the everyday punter. He is passionate about providing Australians with the information and tools needed to make them financially stable for their futures.

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