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First home buyers in Sydney need almost $200K income to avoid mortgage stress


Alex Ritchie

Alex Ritchie

( 4 min read )

Research by comparison site RateCity has revealed the true extent of the housing affordability crisis and concern about the debt levels being carried by those who have recently purchased a home in Australia’s most expensive real estate markets.

What is mortgage stress?

Mortgage stress is spending 30 per cent or more of your pre-tax income on home loan repayments.

SYDNEY

  • Sydneysiders need to earn more than $191,068 to meet the mortgage repayments on an average-priced house to avoid mortgage stress.
  • The average family would not qualify for a loan for a house in Sydney as the mortgage repayments would constitute 55 per cent of their income.
  • Sydneysiders need to earn more than $122,900 to meet the mortgage repayments on an average-priced apartment to avoid mortgage stress.
  • The average family could potentially get a loan for an apartment in Sydney but they would be in immediate mortgage stress, spending 36 per cent of their income on mortgage repayments.

MELBOURNE

  • In Melbourne, families need to earn more than $140,366 to meet the mortgage repayments on an average-priced house to avoid mortgage stress.
  • The average family may not qualify for a loan for a house in Melbourne as the mortgage repayments would constitute 44 per cent of their income.
  • However, for first home buyers in the market for an apartment the news is much better. On an average income you can easily afford to buy an apartment and live mortgage stress free spending 24 per cent of your income on mortgage repayments. A family only needs to earn $76,992 to avoid mortgage stress. 

“It’s incredible that first home buyers would need to earn close to $200K to avoid mortgage stress in Sydney. Unless you are on an executive salary buying your first home in Sydney is virtually impossible,” said RateCity money editor Sally Tindall.

“These figures illustrate how dire the situation has become in Sydney for a generation of first home buyers.

“Earning over $100,000 used to be considered wealthy, but in Sydney’s real estate market you can’t even afford a basic unit without going into mortgage stress.

“Buying a house in Melbourne is also tough for first home buyers. However, apartment prices are still reasonable and affordable for those looking to break into the market.

“The real test will come when interest rates begin to rise. For those who have managed to get a foot on the property ladder, the impact of several rate hikes could be devastating,” she said. 

Tips for getting into the property market 

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  1. Start small. Don’t buy your dream home first up. If you can’t afford an apartment in the place you want to live, consider an investment property.
  1. Take the time to save a decent deposit. It might take longer but you’ll be financially more attractive to a lender if you’ve got a decent amount of equity to put forward
  1. Give yourself a generous buffer. Rates will rise – it’s all a matter of when – so factor in a buffer of at least 2, if not 3 per cent.
  1. Make extra repayments as early as you can. It’s one of the best ways to protect yourself in case of future financial pressures.

HOUSES

Capital city Annual income needed to avoid mortgage stress
Sydney $191,068
Melbourne $140,366
Canberra $177,275
Darwin $108,096
Perth $90,115
Brisbane $88,535
Adelaide $85,118
Hobart $65,589

APARTMENTS

Capital city Annual income needed to avoid mortgage stress
Sydney  $122,900
Melbourne  $76,992
Canberra $65,363
Perth $61,260
Brisbane $60,846
Darwin $57,054
Adelaide $50,644
Hobart $50,402

Calculations are made based on a owner-occupier paying principal an interest over 30 years with a 20% deposit on a discounted variable rate with one of the major banks. 

Average house prices and apartment prices are from Domain State of the Market Report, June 2017.

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