Mortgage repayment pressures ease nationwide

The latest joint Housing Affordability Report from ANZ and CoreLogic has found that the proportion of gross income required to meet mortgage repayments on a new 80 per cent LVR loan fell to 36.1 per cent as at 31 December 2018, the lowest level since the December quarter of 2016.

Households were dedicating an average of 37.4 per cent of their gross household income to service an 80 per cent LVR mortgage on a house and 33.4 per cent for a unit.

According to the research, repayment pressures peaked in March 2008, when households with a new home loan were dedicating 54.2 per cent of their income to service their mortgage, which the report indicated partly reflected the sharp fall in interest rates from an average of 8.7 per cent in March 2008 to 4.7 per cent in December 2018.

The report also noted the contribution of falling home values to an improvement in affordability, with the national dwelling value to income ratio falling to 6.7 as at December 2018, down from 6.8 in the previous quarter and 7.0 in December 2017.

CoreLogic’s home value index revealed that national dwelling values fell by 2.3 per cent over the December quarter and 4.6 per cent in the year ending 31 December 2018.

Moreover, the housing affordability study found that the number of years taken to save for a 20 per cent home deposit also declined over the December quarter of 2018, falling to 8.9 years, down from 9.1 years in the previous quarter and 9.3 years in the December quarter of 2017.  

Reflecting on the research, ANZ’s homeowners lead, Kate Gibson, said the improvement in housing affordability would provide first home buyers (FHBs) with an opportunity to break into the property market.

“Buying a home is an aspiration for many Australians, and for the first time, we’re seeing suburbs and towns in every state where it is more affordable to buy than rent,” she said.

“This shift, combined with record low interest rates, is driving more first home buyers to look at entering the market.”

However, according to research from Adelaide Bank and the Real Estate Institute of Australia (REIA), FHBs have not responded to the improvement in housing affordability.

Adelaide Bank and REIA’s own study found that in the three months ending 31 March 2019, FHB activity dropped by 19.7 per cent over the quarter and 11.6 per cent year-on-year.

Darren Kasehagen, head of third-party banking at Bendigo and Adelaide Bank, said he expects FHBs to face further competition in the housing market as demand spikes off the back of the federal election outcome, APRA’s proposed changes to mortgage serviceability guidelines, and the Reserve Bank’s cut to the official cash rate.

“What is fairly certain is that a combination of factors now makes it likely that people wishing to enter the property market for the first time will be facing a pickup in competition from other buyers – particularly in the East Coast residential housing market – as restrictions on lenders are further eased and interest rates remain at historic lows,” he said.

“Property buyers who have been sitting on the fence will now begin to crystallize their thinking and can be expected to act more decisively – and no doubt more swiftly.”

CoreLogic’s head of research, Cameron Kusher, also noted that while property prices have fallen after a long period of increases, he expects home value growth to pick up in 2020, which may increase housing affordability pressures.

“We predict that price falls will settle later this year, followed by modest price growth starting from 2020,” Mr Kusher said.

[Related: Pace of property price slump slows to 12-month low]