Rising dwelling values and interest rates in the second half of 2023 pushed the share of income needed to service a new home loan to a record high, and a new report says there is little prospect of the mortgage serviceability indicator coming down to more normal levels any time soon.
According to the latest ANZ Corelogic Housing Affordability Report, the share of median income needed to service a new loan on the median dwelling value of $773,000 reached 48.9 per cent in the March quarter – a high for the series, which dates back to 2004.
The average mortgage serviceability indicator for the previous decade was 34.6 per cent.
The mortgage serviceability indicator is highest in New South Wales, at just under 60 per cent in Sydney and 55.4 per cent in regional NSW.
Median income required to service a new home of median value is 51.8 per cent in Adelaide, 48.3 per cent in Brisbane, 46 per cent in Hobart, 44.8 per cent in Melbourne, 41.3 in Perth, 38.6 per cent in the ACT and 25 per cent in Darwin.
Based on gross median annual household income of $100,244, and assuming 30 per cent of this income is used on mortgage payments at current average variable rates, an affordable dwelling purchase would be $503,000.
Compared with this, the median unit price is $640,000 and the median house price is $834,000. Only 17 per cent of dwelling stock is valued below $503,000.
Committing 40 per cent of median household income to mortgage payments would push the dwelling price purchase level of $670,000. Around 37 per cent of dwelling stock has a value of $670,000 or less.
The report said: “There is little prospect of the mortgage serviceability indicator moving back into the 30 per cent range any time soon. This is because the cash rate is not expected to be cut until late 2024 and home values have continued to rise.”
Assuming a 20 per cent home deposit, mortgage interest rates would need to fall to around 4.7 per cent, from above 6 per cent currently, to get serviceability under 40 per cent of median income.
The report estimates that it would take 10.3 years for a median income household to save a 20 per cent deposit, assuming a savings rate of 15 per cent a year. The current savings rate is well below this level.
Looking at the rental market, the report said the share of median income required to service median new rents reached 32.2 per cent in the March quarter, as median rent hit $621 a week.
This was the fifth consecutive quarter in which the median income to rent ratio was above 30 per cent and it was a high for the series.
Rents across the country grew by an average of 8.6 per cent in the 12 months to March.
A household on low income, in the 25th percentile, would need to spend 54.3 per cent of its income on a rental property in the 25th percentile rent value – also a series high.
The report cites Australian Housing and Urban Research Institute research that shows renters with incomes up to $46,000 a year make up around 21 per cent of private renting households but only 13 per cent of rental stock is affordable to them (based on an affordability threshold of 30 per cent of weekly income).