Affording it?

Like the weather and healthcare funding, housing affordability is a perennial topic of conversation.

It's an almost unanimous view that housing is less affordable than ever and will get worse.

I'm not sure either of these is necessarily true.

Let's have a look

I believe there are three main ways to measure housing affordability, not all of them getting much attention:

1.???? ? Deposit required

2.???? ? Mortgage repayments

3.???? ? Ability to borrow

The topic seems a permanent feature of public, media, and lip-service politicians alike. This clipping is from the Sydney Telegraph in 1963 – 60 years ago!!!

There are the reasons most commonly cited for housing affordability:

1: Deposit Size

This type of headline is so typical:

And even the major banks jump on board. Here is a table from the “ANZ Corelogic Housing Affordability Report 2023”

They are all based on the 20% deposit myth.

Of the many first-home buyers we work with, I could count on two hands how many have a 20% deposit.

Of those that don’t, I could count on one hand how many lenders’ mortgage insurance (the traditional cost of not having 20% deposit).

There are so many breaks for first-home buyers and professionals (including nurses) now that in most cases a 5% deposit is all that is required as a first-home buyer and 10% for existing home buyers or investors.

Some banks do not want you to know this because they do not offer the Government Guarantee schemes, while others do not offer a 10% deposit with LMI waiver for many professions.

For many first-home buyers a 5% deposit is all that is needed, and for existing property owners, most of you have enough equity in our existing properties to not need a deposit at all.

Don’t believe this BS about 20%.

2: Mortgage repayments

We do not need to revisit the interest rate increases over the last 18 months.

One of the implications is it takes a larger share of our income to make the mortgage repayments.

This chart from CBA shows repayments are at approximately 9% of the disposable income of all households.

Close to where we were in 2011 when interest rates came down rapidly as the economy took a hit on the back of commodity prices coming down.

This is expected to go to 10% once the current low fixed rates continue to expire over the coming few months.

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This is an indication of housing affordability, but perhaps a better one is from the ANZ report mentioned above.

This is for new mortgages:

Yes this looks scary. There are a few things that make it less so:

• One problem with these measures is that they use the median property prices (and income) in each city. Most first-home buyers are not going to buy a median house in Sydney for their first home. The current Sydney median house price is $1.35m, and the unit price is $820k. Many first-home buyers wouldn’t (and shouldn't) consider that.
• The positive, especially in a high inflation environment, is that assuming interest rates have topped or close to it, wages are increasing. This is why inflation is so good for debt holders, It is a point I rarely see mentioned.
• If you were to receive an 8% pay rise and your mortgagee repayments remain as is, the % of your income for debt decreases quickly.

3: Borrowing Capacity

This is the biggest hurdle for most home buyers and ironically, it seems not to get a lot of attention.

With higher interest rates and a conservative “buffer” by lenders, we are being hit with a higher hurdle rate i.e. the rate that banks use to determine your loan repayments (including the buffer they build in).

As a double hit, as lenders apply deemed minimum living expenses, they apply to loan applications. These are adjusted every quarter, loosely based on the inflation rate.

This is known as the “household expenditure measure” (HEM).

Although each situation is different, I would say most borrowers borrowing capacities have decreased 35-40% in the last 12 months.

As we know, property prices have been stable / rising, so it is a real hit to what many can do.

It does not matter how much equity is in your home or even how much deposit you have. If you cannot borrow as much, then your affordability decreases.

I am hoping that banks reduce their buffer rates over the next few months, but hope is not a good assumption.

There is a worse solution: do nothing and rent.

Believe me, this will get worse. You are better off lowering your entry price than trying and hoping for things to change. Remember, your first home is not your last.

If you would like to book a time to chat about your finance or anything property, please feel free to book a time that suits you. Just use this link (allows you to choose phone or?video):

https://fin4nurses.me/clientmeet

Disclaimer:

This note is for illustrative purposes only and has been prepared without taking into account your objectives, financial situation or needs.

We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product.

It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances.

For a personalised discussion regarding credit assistance, please contact Tim Boyle on 1300 846 847