Housing affordability decreases for owners and renters alike

Affording a house in Australia is only getting harder with the latest research from Moody’s Investors Service indicating a rise in the percentage of income going to mortgage repayments.

Australian households are now spending an average of 29.3% of their monthly income on monthly repayments as of October 30th 2015, up from 28.2% last year.

“The current low mortgage interest rates have failed to offset the impact of rising house prices over the past year, and the implementation of interest rate hikes this month will further increase delinquency and default risks for mortgage loans,” said Natsumi Matsuda, an analyst from Moody’s Investors.

Homeowners in Sydney are facing the brunt of the increase, paying well above the average with 39.2% of income going to repayments this year, the highest amount since 2001. Melbourne and Adelaide similarly faced increases in the percentage of income spent but remained well below Sydney. Brisbane and Perth bucked the trend and saw improvements with affordability increasing in both cities.

“Mortgage holders have been hit hard by rising interest rates in the last year and unfortunately there doesn’t appear to be an end in sight. For large mortgage holders the risk of defaulting on home loans is now very real,” said Sally Tindall, Money Editor at RateCity.   

“At the same time, mortgage holders in a good financial position are using this window before possible further rate rises to pay off as much debt as they can,” Ms Tindall continued, “but it is the low income earners who will most likely experience the greatest negative impact before we see next year’s report.” 

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For renters the story is very much the same, if not worse, with some low income households spending over half the total available income on rent costs according to the National Shelter’s Rental Affordability Index. Sydney unsurprisingly ranks as the least affordable city for renters according to the index and calls for improvement to the government affordable housing scheme have increased as a result.

“The index has found that in Greater Sydney an average household is required to spend 28% of its income to cover rent but this skyrockets to as high as 65% of income for low income households,” said Amelia Christie, Manager of Research and Advocacy at the Combined Pensions and Superannuants Association of NSW.

Pensioners are amongst the worst effected with a single pensioner who receives the maximum rate of rent assistance per week paying the average Greater Sydney weekly rent being left on average with $38.20 per week to spend on electricity, food, transport and health costs.

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