Non-bank lender Bluestone Home Loans has released its Home Loan Affordability Index for the January quarter, revealing more and more Australians are unable to buy a house.
At a national level, the ability of Australians to afford a home loan continues to worsen with affordability declining by 16.3%. The January 2022 quarter results came in at 96.6% compared to 93.8% in the December 2021 quarter.
The decline in affordability is the result of buyers needing to borrow more to keep up with booming house prices.
All states reported declining affordability with ACT leading the pack at 3.3%, South Australia up 2.6% and Victoria 2.5%.
Responding to Bluestone Home Loans’ latest report, the general manager of major broker aggregator Finsure Simon Bednar (pictured below) said there were a number of factors contributing to Australians struggling to enter the property market.
“The prolonged period of low interest rates has given people an opportunity to increase their buying power through increasing their ability to borrow more money and service higher debt,” said Bednar.
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He said the limited supply of suitable housing options within close range of good work opportunities, essential services, and transport added to the crisis.
“The decline in housing affordability is related to COVID and the impact it has had on the economy. Restrictions have meant it was difficult for borrowers to access the property market and wage growth was negligible due to the pandemic.”
External pressures, such as building material shortages and recent natural disasters, had also affected the building industry. This lifted retail prices for consumers and filtered through to a decline in new builds in urban growth corridors which accommodate new home buyers.
“It now seems highly likely the RBA will hike the cash rate this year which will be a shock to thousands of mortgage holders who have never experienced a cash rise. Increasing interest rates will reduce and curb borrower lending capacity and will impact the housing sentiment,” Bednar said.
He predicted an increase in interest rates in 2022 would result in a correction in housing prices in 2023 and into 2024, with the impact on borrowing capacity reducing housing sentiment.
Bluestone Home Loans consultant economist Dr Andrew Wilson (pictured top) said the easing of house price growth and declining home loan activity was above average across Australia.
“Boomtime house price growth over 2021 and into 2022 has resulted in buyers borrowing more to keep pace with markets and, with subdued incomes growth and flat interest rates, this resulted in a higher proportion of buyer incomes required for loan repayments,” Wilson said.
Lending conditions applied by financial institutions meant a limited borrowing capacity, which affected buyers and resulted in reduced demand and lower price growth.
Wilson said lower price growth would act to stabilise the decline in underlying home lending activity.
“Flattening price growth in the previous high-flying Sydney and Melbourne housing markets reflect significant declines in affordability over the past year, restraining the capacity of buyers to bid up prices,” he said.
