The eighth Reserve Bank hike has seen Australians’ borrowing capacity plunge, making it tougher for those on average income to enter the property market.
RBA’s latest 0.25% hike took the cash rate to a 10-year high of 3.1%, with the eight successive OCR increases adding $91 to monthly repayments on the average $600,000 mortgage, meaning typical borrowers would have to pay $934 more than they did in April.
As a result of the hikes, the amount banks will lend prospective buyers has significantly dropped. A full-time worker on an average salary of $92,030 can now borrow $138,900 less than they could in April before the rate hikes began – that’s more than a 20% drop, news.com.au reported.
RateCity analysis found that from the $684,100 a single professional with no children or other loans could borrow in April, the latest hike has slashed that to $545,200 – and that’s assuming they have minimal expenses.
That means a unit in an Australian capital city with a median price of $618,375 would be more than $70,000 out of reach for the average buyer. And with the median price for a house at a whopping $869,604, the only capital city within reach for the average worker was Perth, where the median price for a house was $585,989 last month.
RateCity based its analysis on the average variable rate with a big four bank lifting to 5.01% in December, up from 2.24% in April, before rates were hiked.
Sally Tindall, RateCity research director, said a typical borrower often referred to a couple or young family with more than one income, giving them some hope of escaping the rental churn.
“This mostly impacts people who are planning to borrow every last cent they possibly can from the bank, or almost every last cent they possibly can,” Tindall told news.com.au. “Banks have told me previously that, of people getting loans, about 8% are borrowing at capacity. We don’t know how many people are borrowing at near-capacity. One rate hike might not rattle people’s household budgets, but now eight has really sliced people’s budgets to the point that they can no longer buy property.”
For a couple with a combined income of $138,045, with one spouse on the average full-time wage and the other working part-time for $46,015, their borrowing capacity has plunged by 22%, from $878,400 in April to $684,700 after the most recent rate hike.
This couple who could have purchased a $1.09 million house in April with a 20% deposit could now only borrow for an $855,875 home.
Tindall said the decline in borrowing capacity has a “knock-on effect” on house prices that was already being felt. National house prices fell for the seventh consecutive month in November.
Not only are people being priced out of homeownership, but the rental market is also becoming strained.
“You still need a place to live, you need a roof over your head,” Tindall told news.com.au. “The demand (for rentals) is still there and on the rise… The rental problem is felt acutely in certain areas, definitely some more than others, and there is no quick fix. In the meantime, there is a lot of people struggling for a place to live because they just can’t afford it.”
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