Mortgages are more affordable now than nearly 30 years ago

Those who think otherwise "haven't studied the numbers properly", according to PIPA

By Abel Riototar

04 May 2018

Mortgages are more affordable now than they were in 1990, according to recent analysis by the Property Investment Professionals of Australia (PIPA). Yet there are those who still argue that there’s a lack of property affordability.

“Many commentators use just two indicators to measure housing affordability – income and house prices,” PIPA chairman Peter Koulizos said. Koulizos sees them as good measures to predict how expensive a house is, but he believes it’s also important to considering mortgage repayments in order to analyse affordability.

To come up with its analysis, PIPA examined the average size of a home loan, the standard variable rate, principal and interest loan payments, and the annual average wage from 1990 to present day.

Income and repayments

The analysis shows that in 2018, one needs 40% of the average annual salary to make mortgage repayments. In 1990, a person needed 48% of the annual salary.

“Home loans are as affordable now as they were in 2010 and actually more affordable than 28 years ago,” Koulizos said. He saw that interest rates played a major role in driving affordability and the current low rate environment keeps property prices accessible.

The initial deposit challenge

When home loan interest rates were 17% in 1995, an average person would need to spend 35% of his or her annual income to pay the mortgage. Koulizos attributes the improvement in affordability from 1990 mainly to the markedly lower interest rates in 1995. He found that most potential first buyers seem to be stumped by the initial deposit.

Koulizos has little doubt that saving for a deposit can be tough. He recognises that many first timers use innovative strategies such as “reinvesting and buying in more affordable locations, as well as buying with family and friends to get a foot on the real estate ladder”.

He suggests that buyers need to ensure they rely on qualified property investment professionals for expert advice and the best possible finance deals. He also called on buyers to “shop around and use a reputable mortgage broker and professional property investment advisor."

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