Are you looking to get into the property market and buy your first house? Wondering how much you need to be earning to afford to get your foot in the door?
Our conveyancing solicitors recently stumbled across this great article that crunches some of the numbers when it comes to housing affordability in Australia and the income required to purchase a property.
This is the minimum you need to earn in your city just to pay the mortgage:
SIX figures. It’s the minimum households need to earn in five of the eight capital cities if homebuyers want to avoid mortgage stress and comfortably service a home loan.
But depending on which Australian capital you call home, paying off the mortgage is manageable, or an all-consuming financial burden. And then there’s the rest of life to pay for.
After crunching the numbers on home loan repayments, broker Mortgage Choice calculated the bare minimum a household needs to earn in each capital city in order to fit the bill.
Unsurprisingly Australia’s priciest capital, Sydney, is home to the greatest financial pain. Based on the median house price for the greater metropolitan area ($840,000 according to CoreLogic RP Data) Sydneysiders need to be pulling in at least $154,482 a year before tax. And that figure jumps significantly higher for those buyers househunting within 20kms of the CBD where the median house price skyrockets to about $1 million.
To get into a unit in Sydney, couples would need to pocket a huge $115,000 annually.
In Melbourne, where the median house price is lower at $575,000, the annual household income would have to be more than $104,666 to avoid mortgage stress. For units that combined salary drops to $86,436.
Canberra and Darwin actually clocked higher than the Victorian capital with the necessary household income required to service a home loan sitting at $106,666 and $105,792 for houses.
According to the finance industry, “mortgage stress” usually hits when households are spending more than 30 per cent of their combined earnings on paying off the home loan.
Just this week the Real Estate Institute of Australia and Adelaide Bank put out its latest Housing Affordability Report, in which it showed the proportion of income required to meet loan requirements had increased by 1.4 per cent over the quarter to 31.7 per cent.
“Obviously Sydney is incredibly expensive so it didn’t surprise me to see that people need a household income of $150,000 plus in order to comfortably service a home loan,” Jessica Darnbrough, of Mortgage Choice, said.
“But Sydney’s very lucky in that there are many different industries. It’s a corporate culture, not just driven by one particular industry, which has been the case in areas like Perth and Darwin,” she said.
“It was interesting to see the results of places like Darwin. They might not have seen such stellar growth over the last 12 months, but obviously prior to that they’ve enjoyed some great growth. That’s obviously reflected in the average income needed to service their loans,” she said.
Life gets a whole lot cheaper in Adelaide and Hobart where gross household earnings only need to be $77,241 and $64,827 respectively to manage a home loan comfortably.
The figures are based on loan repayments at a 5.61 per cent interest rate (the average rate of the major lenders) after borrowers put down a 20 per cent deposit.
“The figures really speak for themselves. In the more expensive capital cities, the more you need to earn. But thankfully in those more expensive capital cities’ residents do tend to earn more,” Ms Darnbrough said.
“While I think it probably all works out in the wash, those statistics are actually around comfortable mortgage repayments — not tipping over into mortgage stress. But realistically, if you want to be adding things like children to the household, or buy a car, or if you have other debt like credit cards then you may need to earn even more.”
So how much you need to earn to pay off the home loan?
Sydney:
House: Minimum household income — $154,482 ($840,000 median price)
Unit: Minimum household income — $115,862 ($630,000)
Canberra:
House: Minimum household income — $106,666 ($580,000)
Unit: Minimum household Income — $76,689 ($417,000)
Darwin:
House: Minimum household income — $105,792 ($575,250)
Unit: Minimum household income — $84,597 ($460,000)
Melbourne:
House: Minimum household income — $104,643 ($569,000)
Unit: Minimum household income — $86,436 ($470,000)
Perth:
House: Minimum household income — $101,149 ($550,000)
Unit: Minimum household income — $80,000 ($435,000)
Brisbane:
House: Minimum household income — $89,655 ($487,500)
Unit: Minimum household income — $73,011 ($397,000)
Adelaide:
House: Minimum household income — $77,241 ($420,000)
Unit: Minimum household income — $62,528 ($340,000)
Hobart:
House: Minimum household income — $64,827 ($352,500)
Unit: Minimum household income — $50,574 ($275,000)
*Disclaimer: results worked out using a 5.61 per cent interest rate (average standard variable rate of all the major banks) and calculated assuming buyer has a 20 per cent deposit and were only contributing 30 per cent of their income to mortgage repayments. Salary figures are before tax.
Article written by Kirsten Craze and originally published on realestate.com.au.