realestatebusiness logo

Subscribe to our newsletter

Mortgage serviceability pressures mounting

The recent fall in property prices has not been enough to reduce the proportion of income required to service a mortgage but has prompted a rise in first home buyer activity, according to new research.

According to joint research published in Adelaide Bank and the Real Estate Institute of Australia’s latest Housing Affordability Report, the proportion of income required to meet average mortgage repayments increased by 0.9 of a percentage point over the June quarter (0.7 of a percentage point year-on-year) to 32.2 per cent, despite the recent decline in dwelling values.

The research also found that the average loan size increased by 6.0 per cent in the year to June 2018, rising to $409,912.

However, the research revealed that despite a drop in overall lending activity of 3.8 per cent year-on-year, the number of first home buyers (FHBs) increased by 7.3 per cent during the quarter, and rose by 20.6 per cent year-on-year, driven by an increase in FHB activity in Victoria and NSW, which represent 31.7 per cent and 25.5 per cent of the overall share of FHBs in the market.

The findings coincide with a newly released housing affordability report from CoreLogic, which, in contrast to Adelaide Bank and the REIA’s research, reported improvements in housing affordability.


According to CoreLogic’s housing affordability index, which is based on the ratio of dwelling prices to annual household income, housing affordability pressures eased in the June quarter, with the ratio dropping from 6.84 times the average household income in the March quarter to 6.81.

CoreLogic’s research also found that the average time needed to save for a 20 per cent home deposit has also decreased to 9.1 years for overall dwellings, 9.4 years for houses and 8.3 years for units.

Further, when calculating the portion of income required to service a mortgage, CoreLogic’s data reported that the repayment on an 80 per cent LVR (loan-to-value ratio) mortgage required 36.3 per cent of gross household income (37.6 per cent to service a mortgage on a house and 26.9 per cent on a unit).

CoreLogic’s head of research, Tim Lawless, highlighted that repayments on a mortgage are “substantially lower” than 10 years ago (51 per cent).

“This servicing reduction is partly because discounted variable mortgage rates have almost halved over the past 10 years [from 8.85 per cent in June 2008 to 4.50 per cent in June 2018].”

However, despite reporting improvements, CoreLogic claimed that housing affordability is set to “deteriorate” in the longer term.

“Although housing affordability has recently started to improve due to falling prices while incomes inch higher and mortgage rates remain low, the longer-run view has seen housing affordability across the nation deteriorate,” Mr Lawless said.

“While this trend is clearly evident cumulatively across most regions of Australia over the past two decades, the past 10 years has seen worsening housing affordability being fuelled primarily by strong growth in property prices across Sydney, Melbourne, regional NSW and, more recently, Hobart.”

[Related: Saving for a deposit could take more than 9 years]

Mortgage serviceability pressures mounting

Latest News

Discover some of the top news stories impacting the mortgages space in this weekly wrap-up. ...

The financial watchdogs have remained wary of risks to the housing market as cash rate rises flow through to mortgage customers. ...

Australia’s household wealth has reached $14.9 trillion largely due to house price momentum, yet quarterly growth has continued its recent...


Join Australia's most informed brokers

Do you know which lenders are providing brokers and their customers with the best service?

Use this monthly data to make informed decisions about which lenders to use. Simply contribute to the survey and we'll send you the results directly to your inbox - completely free!

What is the maximum proportion of income borrowers should use to service a mortgage?

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.