Homebuyers’ wages fall up to $145k short to buy without mortgage stress

More than 1.2 million mortgage holders are considered at risk of mortgage stress but there’s another group that could experience financial difficulties straight up.

Ten interest rate hikes in a row and rising property prices are hitting homebuyers’ wages hard as they fall up to $145,000 short to afford a house in the nation’s capital cities without suffering from mortgage stress, alarming new research has revealed.

It looked at how much Australians need to earn to afford a house in each capital city with a 20 per cent deposit – but without contributing 30 per cent or more of their after-tax income toward repayments – as it would otherwise tip them into mortgage stress.

The findings revealed Sydneysiders need to earn the most – a whopping $239,480 – to be able to comfortably afford the repayments on a house, based on latest median property value for March.

The median Sydney house price $1.2 million would require a deposit of $246,000 resulting in monthly repayments of $5985.

However, the wage required in Sydney falls a staggering $145,350 short of the average annual before-tax earnings of $94,130 in the harbourside city.

It comes as the Reserve Bank of Australia (RBA) delivered some welcome relief to homeowners as it decided to pause interest rates at 3.6 per cent.

The 10 months of consecutive interest rate rises since May last year has increased variable repayments on homes by tens of thousands of dollars.

Even with the pause, it’s the fastest tightening cycle in Australia on record, with an increase of 3.5 per cent delivered in less than a year.

Wages aren’t keeping up with interest rate hikes and rising house prices. Picture: Supplied

However, the rate pause could still impact homebuyers as may push up house prices even further again.

Melbourne had the second biggest wage gap when it came to being able to afford a property.

It showed residents in Melbourne need to earn $174,898 before tax to avoid mortgage stress based on latest median property value for March, which stands at $898,644.

However, with monthly repayments of $4371, those in Melbourne would fall short by $81,615 in terms of salaries to prevent them falling into mortgage stress.

Canberra homebuyers also needed to earn $183,861 before tax to afford the median valued home of $944,809 – but were $78,686 short in being able to avoid mortgage stress.

Canstar’s editor-at-large and money expert Effie Zahos. Picture: Tim Hunter.

Canstar’s editor-at-large and money expert Effie Zahos said the rapid rise in interests rate had slowed down property prices.

But the latest figures showed they are on the way back up in some areas, with national home values increasing by 0.6 per cent in March with Sydney leading the way, she added.

“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 said.

“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.

“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.

“Roy Morgan reported just last week that in February more than 1.2 million mortgage holders were considered at risk of mortgage stress and if the Reserve Bank raises the cash rate by another 0.25 percentage points in April to 3.85 per cent the number could rise to 1.5 million.

“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.”

Property prices have begun to rise again. Picture: Gaye Gerard/NCA NewsWire

For those who want to buy a house in Perth or Darwin, they need to earn close to $115,000 to avoid mortgage stress – roughly half of what those in Sydney need – but even this still falls short of the average before-tax income in these cities.

In Brisbane, salaries are $58,694 below what they need to be for a homeowner to afford repayments that do not push them into mortgage stress territory, although they are much lower at $3755 compared to Sydney.

For those living in Adelaide, they need to earn $135,205 to be able to comfortably afford the repayments on a house, based on latest median property value for March 2023.

The median Adelaide house price is $694,818 – which would require a deposit of $138,964 – resulting in monthly repayments of $3379.

Buying a house instead of an apartment could help people get on the housing ladder. Picture: Gaye Gerard/NewsCorp- Daily Telegraph

Potential homebuyers will need to consider all their options, advised Ms Zahos.

“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,” she said.

“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.”