By Stephen Johnson, Economics Reporter For Daily Mail Australia
00:01 12 Mar 2024, updated 00:29 12 Mar 2024
The average mortgage payer is now spending almost half their salary on monthly repayments as Australia’s home loan crisis hits a record stress point, a new report has revealed.
Until recently, borrowers were considered to be stretched if they spent 30 per cent of their pre-tax salary servicing a loan.
But new Real Estate Institute of Australia data for December showed the average household was now spending close to 48 per cent of their pay on their mortgage.
President Leanne Pilkington said the Reserve Bank’s 13 interest rates rises in 18 months, taking the cash rate to a 12-year high of 4.35 per cent, had worsened housing affordability.
‘The average household is now spending 47.7 per cent of their income on mortgage repayments,’ she said.
Credit ratings agency Moody’s Ratings noted monthly mortgage repayments had surged by 44 per cent since mid-2022, compared with a 7 per cent increase in the average, full-time salary.
It is expecting more borrowers to fall behind on their mortgage repayments, with someone regarded as being in arrears if they are late by 30 days or more.
‘Australian residential mortgage delinquency rates, which increased through 2023, will continue to rise this year, given that increases in mortgage repayment costs have significantly outpaced income growth,’ it said.
A Reserve Bank of Australia report in December claimed only 20 per cent of variable-rate owner-occupier borrowers were devoting more than 30 per cent of their income to mortgage payments.
But the the RBA’s head of financial stability Andrea Brischetto added: ‘Households with lower incomes are more likely than other borrowers to devote a larger share of their income to servicing their mortgage.
‘Essential expenses also make up a larger share of income for these borrowers.’
RateCity calculated an individual or a couple borrowing the maximum 5.2 times their income would spend 38 per cent of their pre-tax pay on a home loan, which rose to 51 per cent after tax.
That mirrors the Real Estate Institute of Australia’s figure which found borrowers were spending 47.7 per cent of their pay on a mortgage, related to salaries after tax.
Australia’s average new mortgage in January was $615,178, official lending finance data showed.
With a 20 per cent mortgage deposit of $153,794, that would buy a home worth $768,972.
A borrower in this situation, with a 6.24 per cent variable rate, would be spending $3,784 a month on repayments.
An individual or a couple getting a loan would need to earn $118,303 to even qualify for a loan.
Annual mortgage repayments of $45,408 would make up 38 per cent of pay before tax.
The average new loan in New South Wales is $770,914, the Australian Bureau of Statistics data also showed.
That means an individual or a couple would need to earn $148,253 to qualify for a loan, to buy a $963,642 house in outer south-west Sydney in a suburb like Liverpool.
The monthly repayments of $4,742 would add up to $56,904 a year, comprising 38 per cent of pay before tax.
The Reserve Bank also argued wealthy households could afford to spend more than 30 per cent of their income on mortgage repayments and not be in financial stress.
‘By comparison, households with higher incomes devote a smaller share of their income to essential expenses, so they are typically able to service larger mortgage payments relative to their incomes without encountering financial stress,’ Ms Brischetto said.
‘So while this metric is often reported as a measure of mortgage stress, it is important to note that it does not provide a complete picture.’