How much you have to earn to buy (and live comfortably) in Australia's capital cities

How much you have to earn to buy (and live comfortably) in Australia's capital cities

Whether you’re moving to Australia, or are dreaming of greener pastures in another state, you’ll need to calculate your cost of living before buying.  

Australian property hopefuls may feel like soaring house prices are pushing the dream of home ownership outside of their reach. Housing affordability is a particular problem for younger generations. Less than a third (29 per cent) of 25-35-year-olds are homeowners, according to a 2018 Household Income and Labour Dynamics in Australia survey. 

It stands to reason then that most of the wealth is in the hands of older Australians, who are far more likely to own a home. Over 65s’ wealth has grown 61 per cent since the survey started in 2001, while their 20- and 30-something counterparts have seen their wealth grow at 3.2 per cent. 

To state the obvious, the meteoric rises in property prices we’ve seen in the last few years on the east coast of Australia have not been matched by wage increases. As a result, homeowners have to earn a lot more than they did a few years ago to comfortably make repayments. 

Read more...

RateCity crunched the numbers and ranked Australia’s capital cities in ascending order based on how much you have to earn to buy (and avoid mortgage stress).

While many of us measure mortgage stress based on our ability to keep up to date with household bills, the financial definition is spending 30% or more of your pre-tax income on home loan repayments as a rule of thumb.

A smaller deposit would generally push the interest rate higher or attract mortgage insurance. The estimates also do not account for the added financial pressure of coming up with a deposit. 

Compare the following average house prices against average salary in that Australian capital city, and the household income you’ll need to avoid mortgage stress.

8. HOBART

istock_79305201_small5

134 Melville Street, Hobart, TAS, 7000 – $405,000 sold

 Median house price: $409,592 

Monthly repayments: $1,660 

Average household income: $70,356 

Household income needed to avoid mortgage stress: $66,411

7. ADELAIDE

istock_79305201_small5

14 Ely Place, Adelaide, SA, 5000 – $515,000 sold 

Median house price: $519,517 

Monthly repayments: $2,106 

Average household income: $75,504 

Household income needed to avoid mortgage stress: $89,841

6. BRISBANE

istock_79305201_small5

6 Suzanne Street, Wynnum West, QLD, 4178 – $550,000 sold

Median house price: $551,840

Monthly repayments: $2,237 

Average household income: $77,844 

Household income needed to avoid mortgage stress: $89,475 

5. PERTH

istock_79305201_small5

6A Lynton Street, Mount Hawthorn, WA, 6016 – $550,000 sold

Median house price: $554,095 

Monthly repayments: $2,246 

Average household income: $80,289 

Household income needed to avoid mortgage stress:  $89,841

4. DARWIN

istock_79305201_small5

 38 Harney Street, Ludmilla, NT, 0820 – $592,000 sold

Median house price: $593,329 

Monthly repayments: $2,405 

Average household income: $84,500 

Household income needed to avoid mortgage stress: $96,202

3. CANBERRA 

istock_79305201_small5

3 Levelque Street, Harrison, ACT, 2914 – $723,000 sold 

Median house price: $723,980 

Monthly repayments: $2,935 

Average household income: $92,248 

Household income needed to avoid mortgage stress: $117,386

2. MELBOURNE 

istock_79305201_small5

95 Barnett Street, Kensington, VIC, 3031 – $880,000 sold

Median house price: $880,902 

Monthly repayments: $3,571 

Average household income: $78,780 

Household income needed to avoid mortgage stress: $142,829

1. SYDNEY 

istock_79305201_small5

55 Nagle Avenue, Maroubra, NSW, 2035

Median house price: $1,167,516 

Monthly repayments: $4,733 

Average household income: $80,292 

Household income needed to avoid mortgage stress: $189,300

Salary needed to own a median priced house (while avoiding mortgage stress)

Location

Median house price

Deposit needed (20%)

Monthly repayments (4.5% interest)

Annual household income needed to avoid mortgage stress

Sydney

$1,167,516

$233,503

$4,733

$189,300

Melbourne

$880,902

$176,180

$3,571

$142,829

Brisbane

$551,840

$110,368

$2,237

$89,475

Adelaide

$519,517

$103,903

$2,106

$84,234

Perth

$554,095

$110,819

$2,246

$89,841

Canberra

$723,980

$114,796

$2,935

$117,386

Darwin

$593,329

$118,666

$2,405

$96,202

Hobart

$409,592

$81,918

1,660

$66,411

 Note: Average house prices are from Domain State of the Market Report, September 2017. Average income based on ABS average weekly earnings, May 2017.

Where can you afford to live in Australia? 

These figures demonstrate that unfortunately, people on single incomes have little hope of attaining a mid-range property on the east coast of Australia without mortgage stress – unless they are on six figure salaries. 

Couples with one average earner and one low earner or non-earner are unlikely to be able to comfortably repay a loan for an east coast property. 

 

For those looking to buy in the most popular Aussie capital cities, the following is worth keeping in mind: 

Sydney

  • For first home buyers wanting to move to Sydney, an average household income of nearly $200,000 is needed.
  • The average family would not qualify for a loan, as when you compare the average mortgage repayments to an average Sydney income, the repayments would be 70 percent of their income. 

Melbourne

  • For first home buyers wanting to move to Melbourne, an average household income of nearly $150,000 is needed.
  • The average family would not qualify for a loan, as when you compare the average mortgage repayments to an average Melbourne income, the repayments would be 54 percent of their income.

Did you find this helpful? Why not share this news?

Advertisement

RateCity

Money Health Newsletter

Subscribe for news, tips and expert opinions to help you make smarter financial decisions

By signing up, you agree to the ratecity.com.au Privacy & Cookies Policy and Terms of Use, Disclaimer & Privacy Policy

Advertisement

Learn more about home loans

Monthly Repayment

Your current monthly home loan repayment. To accurately calculate how much you could save, an accurate payment figure is required. If you are not certain, check your bank statement.

Remaining loan term

The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.

How long does Bankwest take to approve home loans?

Full approval for a home loan usually involves a property valuation, which, Bankwest suggests, can take “a week or two”. As a result, getting your home loan approved may take longer. However, you may get full approval within this time if you applied for and received conditional approval, sometimes called a pre-approval, from Bankwest before finalising the home you want to buy.  

Another way of speeding up approvals can be by completing, signing, and submitting your home loan application digitally. Essentially, you give the bank or your mortgage broker a copy of your home’s sale contract and then complete the rest of the steps online. Bankwest has claimed this cuts the approval time to less than four days, although this may only happen if your income and credit history can be verified easily, or if your home’s valuation doesn’t take time.

Interest Rate

Your current home loan interest rate. To accurately calculate how much you could save, an accurate interest figure is required. If you are not certain, check your bank statement or log into your mortgage account.

Why should I get an ING home loan pre-approval?

When you apply for an ING home loan pre-approval, you might be required to provide proof of employment and income, savings, as well as details on any on-going debts. The lender could also make a credit enquiry against your name. If you’re pre-approved, you will know how much money ING is willing to lend you. 

Please note, however, that a pre-approval is nothing more than an idea of your ability to borrow funds and is not the final approval. You should receive the home loan approval  only after finalising the property and submitting a formal loan application to the lender, ING. Additionally, a pre-approval does not stay valid indefinitely, since your financial circumstances and the home loan market could change overnight.

 

 

What is mortgage stress?

Mortgage stress is when you don’t have enough income to comfortably meet your monthly mortgage repayments and maintain your lifestyle. Many experts believe that mortgage stress starts when you are spending 30 per cent or more of your pre-tax income on mortgage repayments.

Mortgage stress can lead to people defaulting on their loans which can have serious long term repercussions.

The best way to avoid mortgage stress is to include at least a 2 – 3 per cent buffer in your estimated monthly repayments. If you could still make your monthly repayments comfortably at a rate of up to 8 or 9 per cent then you should be in good position to meet your obligations. If you think that a rate rise would leave you at a risk of defaulting on your loan, consider borrowing less money.

If you do find yourself in mortgage stress, talk to your bank about ways to potentially reduce your mortgage burden. Contacting a financial counsellor can also be a good idea. You can locate a free counselling service in your state by calling the national hotline: 1800 007 007 or visiting www.financialcounsellingaustralia.org.au.

What percentage of income should my mortgage repayments be?

As a general rule, mortgage repayments should be less than 30 per cent of your pre-tax income to avoid falling into mortgage stress. When mortgage repayments exceed this amount it becomes hard to budget for other living expenses and your lifestyle quality may be diminished.

How much debt is too much?

A home loan is considered to be too large when the monthly repayments exceed 30 per cent of your pre-tax income. Anything over this threshold is officially known as ‘mortgage stress’ – and for good reason – it can seriously affect your lifestyle and your actual stress levels.

The best way to avoid mortgage stress is by factoring in a sizeable buffer of at least 2 – 3 per cent. If this then tips you over into the mortgage stress category, then it’s likely you’re taking on too much debt.

If you’re wondering if this kind of buffer is really necessary, consider this: historically, the average interest rate is around 7 per cent, so the chances of your 30 year loan spending half of its time above this rate is entirely plausible – and that’s before you’ve even factored in any of life’s emergencies such as the loss of one income or the arrival of a new family member.

How do I calculate monthly mortgage repayments?

Work out your mortgage repayments using a home loan calculator that takes into account your deposit size, property value and interest rate. This is divided by the loan term you choose (for example, there are 360 months in a 30-year mortgage) to determine the monthly repayments over this time frame.

Over the course of your loan, your monthly repayment amount will be affected by changes to your interest rate, plus any circumstances where you opt to pay interest-only for a period of time, instead of principal and interest.

How can I get ANZ home loan pre-approval?

Shopping for a new home is an exciting experience and getting a pre-approval on the loan may give you the peace of mind that you are looking at properties within your budget. 

At the time of applying for the ANZ Bank home loan pre-approval, you will be required to provide proof of employment and income, along with records of your savings and debts.

An ANZ home loan pre-approval time frame is usually up to three months. However, being pre-approved doesn’t necessarily mean you will get your home loan. Other factors could lead to your home loan application being rejected, even with a prior pre-approval. Some factors include the property evaluation not meeting the bank’s criteria or a change in your financial circumstances.

You can make an application for ANZ home loan pre-approval online or call on 1800100641 Mon-Fri 8.00 am to 8.00 pm (AEST).

How much are repayments on a $250K mortgage?

The exact repayment amount for a $250,000 mortgage will be determined by several factors including your deposit size, interest rate and the type of loan. It is best to use a mortgage calculator to determine your actual repayment size.

For example, the monthly repayments on a $250,000 loan with a 5 per cent interest rate over 30 years will be $1342. For a loan of $300,000 on the same rate and loan term, the monthly repayments will be $1610 and for a $500,000 loan, the monthly repayments will be $2684.

How much money can I borrow for a home loan?

Tip: You can use RateCity how much can I borrow calculator to get a quick answer.

How much money you can borrow for a home loan will depend on a number of factors including your employment status, your income (and your partner’s income if you are taking out a joint loan), the size of your deposit, your living expenses and any other debt you might hold, including credit cards. 

A good place to start is to work out how much you can afford to make in monthly repayments, factoring in a buffer of at least 2 – 3 per cent to allow for interest rate rises along the way. You’ll also need to factor in additional costs that come with purchasing a property such as stamp duty, legal fees, building inspections, strata or council fees.

If you are planning on renting the property, you can factor in the expected rental income to help offset the mortgage, but again it’s prudent to add a significant buffer to allow for rental management fees, maintenance costs and short periods of no rental income when tenants move out. It’s also wise to factor in changes in personal circumstances – the typical home loan lasts for around 30 years and a lot can happen between now and then.

How long should I have my mortgage for?

The standard length of a mortgage is between 25-30 years however they can be as long as 40 years and as few as one. There is a benefit to having a shorter mortgage as the faster you pay off the amount you owe, the less you’ll pay your bank in interest.

Of course, shorter mortgages will require higher monthly payments so plug the numbers into a mortgage calculator to find out how many years you can potentially shave off your budget.

For example monthly repayments on a $500,000 over 25 years with an interest rate of 5% are $2923. On the same loan with the same interest rate over 30 years repayments would be $2684 a month. At first blush, the 30 year mortgage sounds great with significantly lower monthly repayments but remember, stretching your loan out by an extra five years will see you hand over $89,396 in interest repayments to your bank.

Are bad credit home loans dangerous?

Bad credit home loans can be dangerous if the borrower signs up for a loan they’ll struggle to repay. This might occur if the borrower takes out a mortgage at the limit of their financial capacity, especially if they have some combination of a low income, an insecure job and poor savings habits.

Bad credit home loans can also be dangerous if the borrower buys a home in a stagnant or falling market – because if the home has to be sold, they might be left with ‘negative equity’ (where the home is worth less than the mortgage).

That said, bad credit home loans can work out well if the borrower is able to repay the mortgage – for example, if they borrow conservatively, have a decent income, a secure job and good savings habits. Another good sign is if the borrower buys a property in a market that is likely to rise over the long term.