Home loan affordability on the rise

by AB18 Oct 2013

Home loan affordability is on the rise, with the average Australian household now requiring 28.8% of the family income to service a loan, according to figures from PRDnationwide’s Quarterly Economic and Property Report for Q4, 2013.

PRDnationwide director of property economics and research, Aaron Maskrey, says the current economic climate and easy money policy is conducive to increased market activity.

"With the property market heating up, low interest rates and the major financial institutions relaxing their lending criteria, many Australians are deliberating whether now is the time to step into home ownership," says Maskrey.

"We're seeing improvements in home loan affordability across the country and large increases of new finance commitments to first home buyers compared to previous years."

Queensland and Tasmania led the swing to more affordable home loans, followed by Western Australia and Victoria. However, affordability continues to be highest in the ACT with an index rating of 61 points, followed by the Northern Territory on 47.7. The least affordable state is New South Wales (29.2 points), with South Australia (33.9 points) placed moderately higher on the index.

The Home Loan Affordability Index began its decline back in 2002 and, after a brief levelling period between 2004 and 2006, has generally trended downwards. Continued price growth in the property market without an accompanying rise in salary has ensured the index has been weighed down for years. However, Maskrey believes there is light at the end of the tunnel.

"There are definitely some encouraging signs from a home loan affordability perspective…The average Australian household is required to commit less of the family income to service a loan, which is promoting home ownership as a viable alternative to rental accommodation."

Australian states and territories were measured on the Home Loan Affordability Index, which measures average loan repayments against median wages and tracks these values over time.

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