Out-of-cycle rate hikes hurting housing affordability, says report

by Julia Corderoy05 Feb 2016
Out-of-cycle mortgage rate hikes have pushed housing affordability to its worst position in over three years, a new report has detailed.

According to the Housing Industry Association (HIA) Affordability Report, housing affordability deteriorated by 6.4% during the December 2015 quarter. 

HIA senior economist Shane Garrett says this is a direct result of the many out-of-cycle variable rate hikes by the major banks towards the end of 2015. 

“The unilateral increase in the major banks’ variable mortgage rates which came despite the absence of any change in the official cash rate has delivered a significant blow to housing affordability,” Garett said.

“Combined with double-digit dwelling price growth in cities like Sydney and Melbourne, the shock jump in interest rates has pushed home affordability to its least favourable position in over three years.”

Canberra saw the most unfavourable change in affordability, according to the report, suffering an 11.4% decline in affordability. Affordability worsened by 10.5% in Melbourne and by 3.3% in Sydney.

Darwin was the only one of the eight capital cities to see improved affordability during the quarter. Just two of the seven regional markets covered by the report saw more favourable affordability during the December 2015 quarter.

“The affordability challenge has been compounded by the slow pace of earnings growth which means that the buying power of households has not kept pace with dwelling prices,” Garrett said.

“The increase in mortgage interest rates during November was an unpleasant surprise for homeowners, and housing affordability will be damaged even further if this tactic is repeated.”