Mortgage Stress Preventing Many Young Australians from Entering Market

Based on the median house prices in each capital city and the upfront costs required, RateCity.com.au has calculated the annual income to avoid mortgage stress.

Sally Tindall, RateCity.com.au research director said, “mortgage stress is when 30 per cent or more of your pre-tax income is going towards loan repayments.”

“Everyone has bills to pay, mouths to feed and kids to educate. People are struggling to make ends meet as it is. When your mortgage repayments tip over that 30 per cent mark, it means you’ll struggle to have spare cash to get you through month-on-month.”

According to the Australian Bureau of Statistics, people aged between 21 and 34 on average earn $1076.60 per week, which equates to about $56,000 per year.

In comparison to the RateCity.com.au results, the average Australian within this age group are not able to enter the market without producing mortgage stress.

The Household Income and Labour Dynamics in Australia (HILDA) survey showed home ownership rates among Australians aged 18 to 39 have plunged to 25 per cent, resulting in more restriction to the age group entering the marketing.

“Even for those in this group who manage to buy a home, mortgage debt has risen dramatically,” said Roger Wilkins from the University of Melbourne.

“In 2002, 89 per cent of homeowners in this age range had mortgage debt. By 2014 this had risen to 94 per cent.”

There have been signs of improvement in first homebuyer activity in locations such as NSW, Melbourne, Adelaide, Brisbane and major regional centres like Geelong and Bathurst.

In June, first homebuyers accounted for 18 per cent of all mortgage commitments in Australia, showing to be the best result since October 2012.

Despite lower median house prices, the amount required for a deposit and stamp duty in every capital city is above six figures, which has resulted in barriers to enter the housing market to remain high.

“It’s a massive barrier,” Ms Tindall said. “It’s difficult to come up with five figures let alone six figures, particularly when wages growth has stagnated.

“There is hope on the horizon. We’ve seen property prices cool and there are estimates of a drop from peak to trough of upwards of 15 per cent. That will give a lot of would-be first homebuyers a lot of hope.”

According to ABS reports, in May 2018 the weekly income of residents in Victoria and Queensland were both approximately $1, 500. The weekly income of residents of New South Wales was $1,600.

Research shows young Australians are living with their parents for longer because of the high cost of living along a trend of young people getting themselves into deeper debt.

“Young people are more likely to be in delinquency and multiple cards are over-represented,” a recent ASIC study said.