- Wages increased 2.7 per cent between March 2022 and December 2022.
- Monthly mortgage repayments increased 42.2 per cent over the same time frame.
- Monthly repayments on a $500,000 mortgage have grown $1051.
The gap between the cost of paying a mortgage and household incomes continues to widen, as rapidly rising interest rates soar well above wages growth.
Home owners had a 42.2 per cent increase in monthly mortgage repayments for a $500,000 loan between March and December, while the wage price index grew just 2.7 per cent over the same period, Canstar modelling shows.
The widening gap between income growth and mortgage repayment increases, was worsening the financial position of Australian households, said Canstar editor-at-large Effie Zahos.
“We have seen some uptick in wages and some industries are doing extremely well, but across the board when you look at the wage price index, there was an uptick of 2.7 per cent,” Zahos said. “When it comes to rate hikes, wages are not keeping up.
“It doesn’t put home owners in a good position when you look at the proportion of their income required to service a debt.”
Separate figures released by Moody’s Investor Services on Wednesday showed that on average Australian households with two income earners would need to put 30.9 per cent of their income towards repayments on new home loans in February, up from 26.4 per cent in May 2022.
The affordability of new and existing loans is projected to worsen. Credit:Justin McManus
New borrowers in Sydney needed to put 40.7 per cent of their income towards repayments, and those in Melbourne lost 34.5 per cent of their income to repayments.
Zahos said 10 consecutive rate hikes had lifted mortgage repayments on a $500,000 loan by more than $1000 per month. This was roughly the same amount of money households spent on utilities and groceries.
“That’s probably all your household bills you’re paying again,” Zahos said. “Imagine paying all that twice? Because that’s what you’re doing now.
“That means households have to earn more or spend less. That equates to an extra 29 hours [of waged work] per month to make up that shortfall in repayments.”
Zahos said the rate hikes were also bad news for those looking to buy, noting a single income earner on the average net wage of $71,000 could no longer afford a $500,000 loan.
“They would be paying 52 per cent of their income to service that loan,” she said.
Moody’s expected housing affordability to remain poor in 2023. While incomes were likely to rise, given the current level of low unemployment, the rate of income growth would remain low compared to the pace of rate hikes and inflation.
Red Maple Finance director and mortgage broker Nariman Amalsadiwala said his clients in Melbourne’s western suburbs were suffering as rate rises continued to bite.
“If you’re an average household doing your budget how do you find that extra $1000 to $2000 per month?” he said. “People will be eating up their savings. Some … are going to be in a bit of stress.
“We might even see some investors selling investment properties if they just can’t take it.”
Amalsadiwala said his clients hoped rate rises would soon stop or pause, as Reserve Bank governor Philip Lowe has indicated they may.
“People are taking it as it comes, but obviously, they’re not happy about the whole thing,” Amalsadiwala said.
“The question always comes, ‘how many more [rises are to come] and when are going to see interest rates drop?’”
ANZ senior economist Felicity Emmett said the rate rises had worsened affordability for both aspiring and existing home owners.
“The amount that [buyers] can borrow has been significantly reduced,” she said. “It will see some people priced out of the market.
Some borrowers were already doing it pretty tough as their mortgage repayments climbed.
Emmett expected rate hikes could slow or pause soon, due to a sharp decline in economic activity.
“The idea of higher interest rates is that it slows demand and we are starting to see that impact,” she said. “We saw overall household consumption growth slow quite sharply in the last quarter.
“That’s one of the reasons why governor Lowe might be able to pause the rate hike cycles in the coming months.”
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