unaffordable-home-loan
  • Economist said, "recent strong house price growth has resulted in buyers having to borrow more and, with subdued income growth and flat interest rates, this has resulted in a higher proportion of income required for loan repayments.”
  • The Index has now risen above the long-term average for the first time since 2016 and indicates the clear prospect of continuing easing housing price growth and declining home loans.
  • Lending for investors has continued its strong revival of the past year, rising by 1.5% over August despite lockdowns

Home loan affordability for Australians is the worst it’s been in five years due to the continuing surge in housing prices, according to Bluestone Home Loans.

The Home Loan Affordability Index, released today (October 22), measures the proportion of the average income required for the average home loan repayment.

The higher the index number, the higher the proportion of average income required for the average home loan and the lower affordability.

Home Loan Affordability Index August Quarter 2021

Bluestone-affordability-index
Source: Bluestone Home Loan’s Home Loan Affordability Index

The Index has now risen above the long-term average for the first time since 2016 and indicates the clear prospect of continuing easing housing price growth and declining home loans.

Bluestone Home Loans consultant economist Dr Andrew Wilson said, “recent strong house price growth has resulted in buyers having to borrow more and, with subdued income growth and flat interest rates, this has resulted in a higher proportion of income required for loan repayments.”

Borrowers outside Sydney and Melbourne

Home loan affordability in New South Wales has declined at the fastest rate of all the states.

The Index is up 20.1% year on year, reflecting the recent boomtime house price growth of the Sydney housing market.

Greater Sydney 

Dr Wilson said, “the national average of home loan affordability is masking significant differences between states.

“While, NSW and Victoria have recorded the lowest home loan affordability of all the states as a result of recent sharp home price growth in Sydney and Melbourne, every other state is tracking below the national average.”

With APRA’s recent decision to impose tighter lending restrictions, home borrowers outside Sydney and Melbourne will be penalised, said Dr Wilson.

­­­Short-term surge

Homebuyers have been sidelined due to falling affordability with owner-occupier home loans down by 4.2% over August, with first home buyer loans down by 3%, according to the Australian Bureau of Statistics (ABS).

Although the fall of home loan activity was influenced by lockdowns in the eastern states, it has now fallen over three consecutive months to the lowest level for the year so far.

Dr Wilson said, “price growth rates have halved over the past three months and housing loans have also declined over each of the past three months.

Dr-Andrew-Wilson
Dr Andrew is a leading independent property market economist. Image – Twitter

“With lockdowns now ending, a surge in buyer and seller activity can be expected over the shorter-term as markets catch up with the lost opportunities of the past three months. This may result in higher loan numbers despite recent APRA restrictions.”

Continuing strong prices growth may also act to increase APRA’s lending restrictions, the prospect of which may motivate borrowers to bring forward buying decisions, said Dr Wilson.

Growing investor activity

The Index shows lending for investors has continued its strong revival of the past year, rising by 1.5% over August despite lockdowns.

The value of investor lending over August was the highest since April 2015 and the second-highest on record.

Dr Wilson said, “the investor market share of total residential lending remains below the long term average, indicating the likelihood of continued growth from this sector.

“The latest APRA restrictions are unlikely to slow down investors that rely on different income models from owner-occupiers, particularly reflective of rental income. With tight home rental markets generally placing upward pressure on rents, this will provide increased income for investors, offsetting the new lending restrictions.”

Investors are likely to be motivated to act sooner rather than later by the likely prospect of APRA introducing tighter lending conditions in the future, said Dr Wilson.

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