Almost 50% of income needed for new mortgages: ANZ/CoreLogic

The latest ANZ/CoreLogic Housing Affordability Report has found that mortgage affordability and serviceability have further deteriorated over the March quarter 2024, largely driven by ongoing increases in mortgage rates.

According to the report, the portion of median income needed to service a new loan median dwelling value reached 48.9 per cent nationally as home values hit a new record high in November 2023 with a further cash rate rise in the same month.

This has marked a new record high for the series, sitting well above the previous decade’s average of 34.6 per cent.

Although median income households are not likely to be spending this high proportion of income on servicing mortgages, the report noted that it “reinforces how out of step home values are with current income and interest rate levels”.

More dwellings available at 40% income

Furthermore, with the latest estimate of median annual household income nationally being $100,244 before taxes and assuming 30 per cent of this income is used on mortgage repayments at current average variable rates (around 6.3 per cent), an affordable dwelling purchase would be around $503,000, according to the report.

However, as home values continue to climb, this affordable purchase price is below most actual dwelling values as the median Australian unit price sits around $640,000, while the median house price is around $834,000.

CoreLogic has estimated that only 17.4 per cent of dwelling stock is valued below $503,000.

At current interest rates, allocating 40 per cent of median household income to mortgage repayments would push the dwelling price purchase level to $670,000, with CoreLogic estimating that almost 37 per cent of housing stock has a value of $670,000 or less.

According to the report, this is a far cry from the median income household being able to afford the median dwelling value in Australia, which is $773,000 currently.

Mortgage serviceability state by state

Looking at the states and territories, the mortgage serviceability indicator was the highest across NSW, with 59.9 per cent of median income being required to service a new loan on the median Sydney dwelling value, and 55.4 per cent in regional NSW.

This was followed by Adelaide at 51.8 per cent of median income required, Brisbane (48.3 per cent), Hobart (46 per cent), Melbourne (44.8 per cent), Perth (41.3 per cent), ACT (38.6 per cent), and Darwin (25 per cent).

Outlook on mortgage serviceability

The prospect for the mortgage serviceability indicator to move back into the 30 per cent range any time soon is slim, according to the report.

This is primarily due to the cash rate likely remaining stagnant at 4.35 per cent until late 2024/early 2025 and the ongoing increases in home values despite relatively high-rate settings.

Mortgage rates would need to decline to around 4.7 per cent for serviceability to fall just under 40 per cent of median income, based on the current levels of income and dwelling values (assuming a 20 per cent loan deposit).

‘Property pals’ becoming increasingly popular

In order to circumvent these affordability issues, new research from non-major bank ING Australia found that 46 per cent of Australians believed that purchasing property with a friend will become commonplace if housing conditions persist.

The research was conducted online by market research firm YouGov between 26 and 29 February on a sample of 1,081 Australian adults aged 18 and older.

ING’s research revealed that 47 per cent of Australians who have purchased or are looking to purchase a property with someone who isn’t a partner or spouse said they would consider buying with a friend or becoming “property pals”.

As a proportion of Australia’s population (based on the Australian Bureau of Statistics’ population data), ING found that this would equate to 3.5 million Australians.

[RELATED: Majority of housing markets recorded price increases: CoreLogic]