New buyers face rising mortgage stress

RateCity has released interesting data via Domain showing how new mortgage buyers are facing growing rates of mortgage stress, especially across Sydney and Melbourne.

According to RateCity, the median buyer in Sydney needs to earn around $186,500 with a 20% deposit to avoid ‘mortgage stress’ – defined as spending more than 30% of a household’s pre-tax income on the monthly mortgage repayments. The median house is also highly unaffordable in Melbourne ($138,875 income needed) and Canberra ($132,202 income needed), but far more affordable across the other capital cities (between $79,000 and $90,000 income needed):

Mortgage stress and affordability

Households need to have high incomes to avoid mortgage stress in Sydney, Melbourne and Canberra.

However, if the ANZ’s forecasts of property price growth is achieved, then the amount of income required to avoid mortgage stress will increase significantly:

Projected mortgage stress and affordability

The amount of income required to avoid mortgage stress will rise significantly as property prices surge.

That said, while mortgage stress for new buyers will undoubtedly rise as property prices inflate, the news is better for existing mortgage holders.

Average mortgage rates in Australia

Average mortgage rates have collapsed across the spectrum.

Due to the sharp fall in mortgage rates since the COVID pandemic began (see above chart), average share of household income being absorbed by debt repayments (both principal and interest) has fallen to its lowest level since 2003, according to the Bank for International Settlements:

Debt repayments to disposable income

The ratio of debt repayments to income has fallen to an 18-year low.

Thus, it is a story of declining mortgage stress for those already ‘in’ the market and rising mortgage stress for those wanting to get in the market.

As always, rising property values benefit property owners at the expense of would-be buyers.

Unconventional Economist
Latest posts by Unconventional Economist (see all)


  1. I fail to see how they even benefit current owners unless they are willing to sell and move.

    • pfh007.comMEMBER

      That extra equity is warmer than a hot water bottle.

      Keeps the cold winter winds away.

  2. Its a net negative for anyone who has a greater or even equal number of children than properties also (probably most families) if you take the long view( practically no one does )

  3. BoomToBustMEMBER

    The illusion of increasing wealth through capital gains on the back of falling real incomes and bank of mum and dad giving access to FHB’s. The current boom has no support given low/zero immigration, high unemployment (headline figures are useless, they changed the definition), high inflation (yet again they altered the definition and changes the products used to evaluate inflation including removing housing) and high under employment.

    The entire boom is based on hot air and bull$hit. When this bubble pops its going to be the largest catastrophe known in generations.

    • Jumping jack flash

      It is a false economy powered by debt growth aka inflation which I dub the New Economy. It has been that way since they started on the path of interest rate manipulation – something that should never have been done to begin with, and our current and future plight is a direct result of that poor decision.

      Nobody gets richer, but if you’re lucky and maintain your skills and swap jobs every few years to keep up with inflation, you don’t get any poorer.

    • I call the Australian economy the marshmallow economy because it has about that much structure and substance to it. Most people get it with a little bit of explanation

  4. I’d be stressed if I had a mortgage the size that some of these are taking out.

    Sure, the repayments are probably fine at historically low rates. But what if I decide I want to move in a few years and the price has gone down? Or even if it has just stayed put, I’m still going to lose.

    Obviously people aren’t considering these things and are desperate just to get in, but every house boom rolls over.

    I know, I know, nobody cares. Everything will be fine. The govt will just pump it back up again (though I can’t see how).

  5. Jumping jack flash

    We will need to do much better if we’re going to have median prices somewhere around 10 million by 2050.

    Get that CPI ramped up! Get the wage inflation happening! We have a lot of debt to become eligible for!
    Has Scomo and JoshyBoy done enough? I doubt it, but time will tell.

    • Lord DudleyMEMBER

      Too right! This is where Biden and Yellen get it. Spray the new money at workers and infrastructure. Generate some CPI for once. If you’re going to have more asset boom, at least this time wages go up too.

      The risk is negligible. The US is the world’s reserve currency, and will be for a long time yet. There’s no alternative… China is screeching and throwing handfuls of poop at every foreigner in sight, and ze Germans are so utterly terrified of any inflation at all (because they think it caused a Hitler once) that they’ll put up with massive underutilization of resources, high unemployment, and a moribund economy forever. They love it, and anyway, it’s just the PIGS who bear most of the brunt of wasted unused resources and human capital.

      • Jumping jack flash

        I’m so happy that someone gets it!

        Everyone loves inflation.

        Imagine when the minimum wage is 6 figures. There’ll be literally dancing in the streets!
        And what of the banks? The banks will be in the throes of ecstasy when they can sell the people giant wads of their debt!

        Everyone will be happy.
        Sure, a small cup of coffee may reach $100, or whatever it needs to be, but meh, you gotta spend money to make money!
        When I was in Kindy I could buy a meat pie from the school canteen for $0.80c.
        The last meat pie I bought was somewhere around $4.
        Inflation is inevitable.

        And if everyone who matters does it at the same time, who will notice?

    • Lord DudleyMEMBER

      Why would the RBA make rates go up? Money is just numbers in computers. So long as they ignore the exchange rate and “look through” inflation, rates can be whatever they want.

  6. Mike Herman TroutMEMBER

    A 650k 25 year mortgage works out to be around a $3000 mortgage repayment which includes $2000 on the principle and close to a $1000 interest. I think the average punter misses that last part. All fine if prices keep going up….

      • BoomToBustMEMBER

        I know someone who has a $500k loan and cannot afford to repay principle on it, but drive a late model Ford Modeo Titanium for the daily driver and has a financed $120k AMG Mercedes. Seems like a crazy way to live.

    • Jumping jack flash

      All fine if wages start going up.

      The debt takes care of itself. Nobody keeps a house for 25 years, they flip to a greater fool after a few years to “climb the property ladder”. The greater fool takes out whatever the amount of debt is required for the original owner to pay out the loan plus *all* the interest and hopefully some capital gains which go straight into their pocket, or probably used as a deposit for the next mortgage.

      Then rise and repeat, but the important part is the wages, because debt eligibility is a function of wages.

      And this is the part of the puzzle that’s confounded them for the best part of a decade, and the part they’re having a red-hot crack at fixing right at this very moment with trillions of stimulus to [eventually] get wages cranking up.

      • Lord DudleyMEMBER

        Yup, it’s like inflation in the earliest fractions of a second of the big bang. Evens everything out. Take a look at inequality now vs when there was inflation. It’s WAY worse now, because the things that aren’t included in CPI absorb all new money, but wages stagnate, driving inequality.

        To drive down inequality, and thus drive spending by the masses, we NEED inflation.