Even a modest home is out of reach for first home buyers now

An average first-home buyer couple can no longer comfortably afford the loan repayments on an entry-level house in the nation’s biggest cities, and even units are slipping out of reach in some regions.

Young couples would need to put upwards of 40 per cent of their income towards mortgage repayments if they purchased an entry-level house in most capital cities, and almost 60 per cent in Sydney, shows Domain’s First Home Buyer Report, in collaboration with Commonwealth Bank-backed Unloan.

A first-home buyer couple on the average income would be in mortgage stress if they managed to buy an entry-level house.Credit: Dion Georgopoulos

A Sydney couple, on the average income for 25 to 34 years old, would see 57.2 per cent of their income go to mortgage repayments if they purchased an entry-level house costing $927,250, the modelling shows. However, buyers are not commonly approved for such a loan.

Melbourne buyers would spend 45.4 per cent of income on repayments on an entry-level house – one priced at the 25th price percentile of $678,000.

Thirty per cent of income spent on repayments is considered a benchmark for mortgage stress. But loans would also breach this threshold for entry-level houses in Canberra (48.3 per cent), Brisbane (42.7 per cent), Adelaide (42.1 per cent), Hobart (40.3 per cent) and Perth (31.2 per cent).

Even unit repayments in Sydney (37 per cent), Melbourne (30.1 per cent) and Brisbane (30.3 per cent) pass that threshold.

Domain’s chief of research and economics, Dr Nicola Powell, said the proportion of income needed for entry-priced houses was up 18 percentage points across the combined capital cities over the past five years and 7 percentage points higher for units.

“When you’ve got 57 per cent of dual income needed to cover an entry-priced house in Sydney that is unattainable for a couple on the average income,” Powell said, adding first-home buyers were increasingly turning to apartments as a result.

However, Powell said the time taken to save a 20 per cent deposit had eased marginally in Sydney, Melbourne, and Darwin – off the back of comparatively more subdued price growth, improving wage growth, and better returns on savings in the bank.

Still, a couple would take as long as six years and eight months to pull together a deposit for a Sydney house and four-and-a-half years for a Sydney unit if saving a fifth of their post-tax income every month.

Savings times would be more than five years in Melbourne, Brisbane, Adelaide and Canberra, and upwards of three-and-a-half years for units in those cities. Perth and Darwin had the shortest period, at less than four years for houses and less than two-and-a-half years for units.

“While there has been a slight decrease in the time required to save compared to the previous year ... this decrease primarily applies to Australians who can save a consistent amount ongoingly and have experienced wage growth,” Powell said.

“That might not be the case for many of those looking to buy … and we have seen the landscape for first-home buyers become even more challenging because we’re in a cost of living crisis … and are facing record high rents, which has made it harder to save.”

It comes after new research showed almost a quarter of renting households had an income of at least $140,000, as it becomes increasingly difficult to buy a first home without family help.

First-home buyers face sky-high prices with reduced borrowing capacity. Credit: Dion Georgopoulos

AMP chief economist Shane Oliver said first-time home buyers face a challenging environment and two key hurdles when trying to buy: saving a deposit and meeting the serviceability requirements for a loan. While the savings journey had eased marginally, and likely only for the short term, rising interest rates had reduced the borrowing capacity for first-home buyers. Expected rate cuts from mid-year would do little to improve the outlook.

“We will start to see some relief as rates come down, but that won’t help with the initial challenge of saving a deposit because it can mean lower rates on bank deposits … and it could push up property prices again [as borrowing capacity rises], so it’s a double-edged sword,” he said.

Oliver said increasing the supply of new housing would be key to truly enabling more Australians to buy.

Mortgage broker Anthony Landahl, managing director of Equilibria Finance, said many first-home buyers had to reassess what they could afford as rising interest rates reduced their borrowing capacity last year.

“A lot had to reset their sights … or were saying we’re just going to wait a bit longer and save more, potentially until interest rates come down a little, to help with borrowing capacity,” he said.

Many had spent years saving but still had to turn to the bank of mum and dad for help, with Landahl estimating that about half of his first-home buyer clients in the past year had relied on a cash gift, loan or guarantee from family to purchase.

About 40 to 50 per cent of their income then typically went to their loan repayments, which for some was similar to what they had been paying in rent, Landahl said. Some outliers were approved for loans for which repayments would surpass 50 per cent of their income.