Mortgage shock: Massive shortfall in wages versus what banks now require

Wages are falling dramatically short of what lenders say is needed to pay off a home, with some parts of Australia hit harder than others.

Median priced houses across every capital are now out of reach for the average wage in those cities. Picture: NCA NewsWire /Brenton Edwards

Average wages are falling tens of thousands of dollars short of what financiers say is needed to comfortably pay for a mid range home without mortgage stress in every Australian capital city now.

Comparison firm Canstar investigated average earnings in every capital versus how much income was needed to afford a home without going into mortgage stress, and found median priced houses were out of reach of average wage levels.

The worst shortfall was a massive -$145,350 in Sydney where the average before tax income of $94,130 fell way short of the $239,480 wage level needed to comfortably afford a median priced $1.23m home there.

Even the capital city with the lowest shortfall, Darwin, had a -$22,665 difference between the average $90,693 before tax income and the $113,358 needed by banks for a mid range $582,415 home.

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Author and Canstar money expert Effie Zahos.

Mortgage stress is defined as when you have to pay 30 per cent or more of your income towards your home loan repayments, said Canstar money expert Effie Zahos.

“Rising property prices are cementing the fact that a single-income earner can’t buy a home on their own wage without incurring significant mortgage stress.”

In Brisbane, average before tax income of $91,556 fell -$58,694 short of affording a median-priced property without mortgage stress, Canstar found, adding that a 20 per cent deposit was now over $154,000 – around the same as the annual income needed to not be in mortgage stress for that property.

In Brisbane, an average wage earner needs almost $59,000 more in income a year to comfortably service a median priced house without mortgage stress. Picture: NCA NewsWire / John Gass

Melbourne had the second highest shortfall of -$81,615, with average income needing to rise to $174,898 to afford a mid range home there, currently priced at over $898,000.

Adelaide’s median price of $694,818 required annual income of $135,205, a figure that the average income there falls short of by -$48,989, while in Hobart the average $82,493 income was -$52,152 short of the $134,645 required to comfortably afford a $691,859 mid range house.

Ms Zahos said “it’s unusual for property prices to increase as interest rates are rising”.

“One would expect that interest rates would need to be cut for property values to rise again but a number of factors such as low supply and surging migration may be propping up prices.”

She warned “it’s aspiring homebuyers who could be caught in mortgage stress straight out of the gate with higher property prices being matched with higher interest rates”.

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In Melbourne, a single average wage falls over $81,000 short of the level needed to buy a median priced house, Picture: NCA NewsWire / David Crosling

Around 300,000 loans were expected to go into mortgage stress levels if the Reserve Bank raises the cash rate by another 0.25 percentage points in its April monetary policy meeting Tuesday.

“Even if there is a pause in April, it is expected the cash rate will be hiked up at least one more time during this cycle, meaning mortgage stress isn’t going away anytime soon,” Ms Zahos said.

“Having two incomes can help ease mortgage stress. Buying a unit instead of a house can reduce the amount of income required to service a debt and shared equity schemes are also an option for buyers wanting to enter the property market. The bank of mum and dad is also a possibility but as interest rates rise this bank is fast closing as the number of parents able to assist has declined.”

A 0.25 per cent cash rate rise Tuesday would add another $82 to monthly repayments for a $500,000 loan over 30 years, Canstar found, increasing repayments in the past year by 54 per cent from $2,103 in April 2022 to $3,236 in April 2023.

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Originally published as Mortgage shock: Massive shortfall in wages versus what banks now require