As of March 2022, the share of household income needed to pay off new mortgages stood at 41.4% nationally, well above the decade-long average of 36.5%.
In Sydney, the required share was 51.3 per cent, according to the ANZ CoreLogic Housing Affordability report. And if that landlord had bought a detached house in Sydney instead of an apartment, they were devoting 64.4% of their income to their new mortgage.
According to a 2012 RBA survey, the share of family income spent on mortgage repayments rose by 20% to just over 30% between 1982 and 2012.
“The game has changed,” Moloney said.
Concerns of the first home buyer
Australian digital marketing founder Rafa Canto is feeling the highest mortgage repayments. The 38-year-old bought a four-bedroom home in Smiths Lake, NSW in November 2021 to enjoy a different lifestyle.
He was so pleased with the move at the time that he talked to Domain about how he enjoyed regional life.
While he has no regrets about his decision to buy the $ 750,000 property, he is now concerned about the possible fall in the value of his home and the rising interest rates that make it difficult for him to refinance and renovate.
“These are two things that concern us,” Canto said. “One is the price of the property that could be maintained [the same] while in recent years it has increased significantly. Therefore, the amount we could get with the refinancing would be less.
“The other thing is we’re not too sure about refinancing because we were able to set a good rate … but if we refinance, will we get a worse deal with that fixed rate?”
Mr. Canto and his partner plan to spend an hour on the weekend doing their shopping and finding areas that can be reduced, including Netflix subscriptions and other discretionary purchases.
The pandemic creates two different groups of borrowers
Moloney said the pandemic had created two cohorts of new homeowners, with whom they bought before COVID-19 by paying lower prices for housing and, in general, taking out loans with higher interest rates than the current ones.
“Many of these borrowers maintained the same amortization levels throughout the pandemic, even though interest rates fell,” Moloney said. That’s why the average variable-rate borrower is now almost two years ahead of his mortgage, according to April RBA numbers.
“They’re actually pretty well positioned to withstand these rate hikes because it takes them back to where they were before the pandemic,” Moloney said.
It’s a different story for those who bought during the pandemic, and in particular in late 2021, as they would still have borrowed at the top of the market after the national values of the houses increased by 24.5 percent, or $ 191,505 during 2021.
“They applied for loans at ultra, ultra low rates, and they may have been looking at Reserve Bank communications that said they did not anticipate raising rates until 2024,” Maloney said.
Borrowers could also be confident that they could get a salary increase and, when interest rates inevitably rise, they would be able to manage their mortgage just as easily.
“What is happening is that rates are rising faster than expected for this cohort. They have these monstrous loans, with no capital accumulated yet, potentially combined with falling house prices because as prices rise. rates, expect this to put downward pressure on house prices.
“They will boost their service buffers much sooner than they thought.”
CoreLogic head of research Tim Lawless said borrowers should expect more interest rate hikes and, when possible, try to set aside some extra money.
“I don’t want to sound condescending because I know some [borrowers] they are already in some difficulty, “he said, noting that rising inflation is already pushing some family budgets to the limit.
“But it would probably make a more conservative budget and budget for larger-than-expected interest rate hikes,” Lawless said.
But when it comes to property value, many recent buyers are likely to be unharmed just by the amount of time they plan to spend living on their new property, Lawless added.
“They will probably go through this period of recession and then benefit from the gradual upswing.”
“It’s almost impossible to time the market, especially if you’re buying for the owner’s occupation, you’re buying when your budget allows. You can certainly look back and say, ‘I bought at the top of the market,’ but give it a go.” 10 years or so and you’ll probably have a lot of capital accumulated on your property. “