Borrowing capacity crash: The toll of interest rate rises on SA buyers revealed

Nine consecutive interest rate rises have left South Australian buyers with an average of $160,000 less to spend on a home than in April last year. See the 29 suburbs you can buy on a budget.

Nine consecutive interest rate rises have left South Australian buyers with an average of $160,000 less to spend on a home than they did in April last year.

Analysis by Canstar and The Advertiser has revealed buyers on an average gross income of $83,000 – South Australia’s average income is a comparable $84,400 – can now only afford to stretch to a $465,000 home. Before rates started climbing, they could afford to spend up to $625,000.

SCROLL DOWN TO SEE THE FULL LIST OF SUB-$465,000 SUBURBS

According to PropTrack data there are just 29 suburbs in metropolitan Adelaide and the Hills with a median house price under $465,000, and 111 where buyers can purchase a unit.

In contrast, a single-income family earning about the average national wage can no longer get a loan for a median-priced house in any Melbourne suburbs.

The cash rate from has risen from its record low 0.1 per cent last April to 3.35 per cent, with nine consecutive rises the steepest whack to borrowers’ hip pockets in Australian history. According to the Canstar figures, buyers with an annual gross income of $116,200 have taken a $240,000 knock, able to buy up to $697,500 now compared with $937,500 before the rate hikes started.

The research is based on a 20 per cent deposit over 30 years and allowing for a 3 per cent interest rate buffer.

Choel Flores with his wife Angiela and their two children, Caleb, 11, and Caitlyn, 8, have recently purchased in Seaton. Picture: Dean Martin

Canstar Group executive, financial services, Steve Mickenbecker said the impact of interest rate increases was more severe on recent borrowers who bought near the top of a boom market.

“But interest rates don’t discriminate on the basis of income when it comes to diminution of borrowing power, with borrowers at all income levels now finding that they can no longer afford the loan size they expected,” he said.

“Buyers’ expectations will be dropping at all levels across the income board. The compromise for many will have to come in terms of location or housing style, standard or size.

“So buyers will potentially be chasing each other down the price ladder rung by rung, with an uncomfortable likelihood that at the bottom end, first home buyers and low income earners will find themselves crowded out again.”

Ray White chief economist Nerida Conisbee said there would “almost certainly” be another rate rise and “maybe two”.

“What’s likely is people will get rid of the things they don’t really need that are costing them money, like cars, boats, holiday homes and then things like investment properties,” she said.

Starting off with no worries about interest rate rises

Choel Flores with his wife Angiela and their two children, Caleb, 11, and Caitlyn, 8, outside their home in Seaton. Picture: Dean Martin

While many Australians dread the first Tuesday of every month when the Reserve Bank hands down its decision on whether to change the official cash rate, some savvy SA buyers have a found a way to avoid rate rise pain.

Architect Choel Flores has recently bought a home with his wife in Seaton, and said had he not bought through HomeStart he would be concerned about future interest rate rises.

Under the lender’s repayment safeguard, instead of the Flores’s repayments being linked to interest rates, their initial repayment is determined based on what they can afford, with the only change being an adjustment for inflation once every 12 months.

Rather than their repayments going up with each interest rate rise, they will simply take longer to pay off their loan.

“Every time there’s a rate increase I check the website and its repayment calculator, and mine don’t go up, so a rate rise won’t really affect our budget at all, which is nice – it just means we will take longer to pay off our loan, which works for us,” Mr Flores said.

“If we weren’t with HomeStart, I would be feeling very, very anxious every day. It’s a big relief.”

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