WE all know that when the Reserve Bank of Australia raises the cash rate, mortgage rates usually rapidly follow. And when rates went to 4.35% earlier this month, the outcome was no different. The full hike was shunted on to customers.
Banks still compete for the most desirable customers: those with good jobs who can put down big deposits. But even they are going to be paying more than 6%. To get a rate beginning with a 5, you’re going to need a 20% deposit, pay principal and interest and live in the house yourself.
It’s a long way from the April 2022 record low of 2.41% and it may be some time before we ever see that kind of low again, with inflation still a feature of our lives.
Of course, if you’re buying for the first time, 20% of the purchase price is more a dream than reality. That’s $100K on a $500K property, and you’ll need to pay at least that for a family home in most parts of the city.
In fact, for many first-home buyers – those who do not qualify for the first home guarantee in particular – they’re likely to be looking at a swingeing 7% if they want to borrow 95%. And it doesn’t get easier for upgraders from units. Property experts say that prices just haven’t tracked for units, so coughing up the 20% deposit would still pose a serious problem.
PropTrack’s latest Affordability Index showed that revealed a household with average income would need to save a fifth of their income for more than five-and-a-half years to achieve a 20% deposit on a home priced at the median.
“Mortgages are much more expensive and, as a result, the amount people are able to borrow has fallen,” PropTrack senior economist Angus Moore said.
“That means buyers can’t afford to borrow as much as they used to and, therefore, far fewer homes are within their budgets.”
And getting the loan is not even the start of your troubles. There’s paying it off. The average household will pay one-third of what they earn on the mortgage for the median house.
The worst hit are ‘mortgage prisoners’ – those who had a fixed-interest mortgage a few years ago at the low rates on offer then, but now face a massive hike.
Traditionally, lenders have wanted a buffer of 3% to have security that borrowers can manage a rate hike but recently they’ve been lending to good refinancers with that buffer dropped to 1%.