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Australian home loans at lowest affordability since 2016: Bluestone

The latest index by the non-bank has suggested that home loans are at their most unaffordable for the first time in five years. 

Bluestone Home Loans has released its Home Loan Affordability Index for the August quarter, with the analysis suggesting that home loans have become their least affordable since 2016. 

The Bluestone Home Loans Affordability Index is a measurement of the proportion of the average income required for the average home loan repayment, the non-bank lender deriving this information from Australian Bureau of Statistics (ABS) and Reserve Bank of Australia (RBA) data. 

The higher the index number, the higher the proportion of average income is required for the average home loan, which in turn reflects greater unaffordability.

According to Bluestone Home Loans, the figure for average affordability since May 2007 has been 86.9. 

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However, according to this latest index, affordability currently sits at 90.8 – the first instance where affordability has passed the average in five years.  

Speaking of the figures, Bluestone Home Loans consultant economist Dr Andrew Wilson said that recent strong house price growth has resulted in buyers having to borrow more and, with the combination of muted income growth and flat interest rates, this has required a higher proportion of income for loan repayments.

“Stricter lending conditions place a ceiling on borrowing capacity for buyers which results in reduced demand and lower prices growth,” he added. 

According to the same index, home loan affordability has, on average, declined year-on-year by 14.4 per cent, with NSW and Victoria facing an above-average decrease at 20.1 per cent and 14.4 per cent respectively. 

The Northern Territory and South Australia have seen the least change to affordability with a year-on-year average decrease of 2.8 per cent and 5.7 per cent. 

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Decreasing owner-occupiers, increasing investors

The same report has also highlighted ABS data that suggests owner-occupier home loans have decreased by 4.2 per cent over the month of August, reaching their lowest monthly level since November 2020. 

The average loan value approved has also decreased, falling by 2.5 per cent over August. 

First home buyer loans also saw a decline of 3 per cent, their lowest since July 2020, and an average value decrease of 2 per cent.  

However, investor lending has increased over the same period by 1.5 per cent, reflecting the 10th consecutive month that it has increased. 

This figure is also said to reflect its highest value since April 2015 and the second highest on record. 

But, according to Dr Wilson, investor market share of total residential lending remains below the long-term average, “indicating the likelihood of continued growth from this sector”. 

“Investors will continue to be attracted to ongoing strong price growth in most markets,” he added. 

The latest Australian Prudential Regulation Authority (APRA) restrictions are unlikely to slow down investors that rely on different income models from owner-occupiers – particularly reflective of rental income. 

“With tight home rental markets generally placing upward pressure on rents, this will provide increased income for investors, offsetting the new lending restrictions.

“Investors are likely to be motivated to act sooner rather than later by the likely prospect of APRA introducing tighter lending conditions in the near-future.”

This latest index by Bluestone shares a similar outlook to Westpac’s most recent dwelling forecast, which noted that, due to the increasing prices through capital cities and regional markets, housing affordability is rapidly deteriorating. 

The major bank’s report also noted that it believes there are signs that investor behaviour will shift during the last months of 2021 as investors become less sensitive to “deteriorating affordability”, before being followed by an increase of activity due to affordability drivers. 

According to Westpac, the effectiveness of APRA’s macroprudential measures on investors will be an important factor. 

[Related: Westpac revises house price forecast for 2021]

Australian home loans at lowest affordability since 2016: Bluestone
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Sam Nichols

Sam Nichols is a journalist at The Adviser and Mortgage Business. His reporting has featured in a range of outlets including ABC News, SBS' The Feed, and VICE.

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