Revealed – the worst year on record for home loan affordability

National prices show no signs of slowing down

Revealed – the worst year on record for home loan affordability


By Micah Guiao

Affordability for home loans has never been this steep, with a record calendar year plummet of 14.5%, according to the Bluestone Home Loan Affordability Index.

The index measures the proportion of the average income needed for the average home loan repayment. A higher index number indicates a higher proportion of the average income required for the average home loan.

The December result is 1.2 points higher compared to the November quarter of 92.6%, also up from the long-term average of 87%. The Affordability Index has now tracked above the long-term average over seven rolling quarters to December 2021. Although the index eased over October following six consecutive rises, this reflected the transient impact of COVID-19 restrictions.

Dr. Andrew Wilson, consultant economist at Bluestone Home Loans, said affordability had fallen as a result of booming house prices and an increasing average loan size required for each buyer while wage growth stagnates.

“Strong home price growth over 2021 resulted in buyers borrowing more to keep pace with markets and, with subdued income growth and flat interest rates, this resulted in a higher proportion of buyer incomes required for loan repayments,” Wilson said. “Although home loan activity increased sharply again over December following November’s spike in activity, the late year revival reflects a catch-up from the restrictive impact on housing markets of severe spring coronavirus lockdowns – particularly in Sydney, Melbourne and Canberra.”

Victoria and New South Wales experienced the steepest falls to date, with annual declines of 18.5% and 17.4%.

Only Brisbane and Adelaide continue to report robust homebuyer activity.

“Last year’s runaway increase in prices is already moderating as stricter lending conditions from financial institutions place a ceiling on borrowing capacity,” Wilson said. “This has the effect of sidelining buyers, resulting in reduced demand and lower price growth in the year ahead.”

Meanwhile, Wilson expects owner-occupier and first homebuyer loan activity to likely be lower over 2022, but the rise in investor activity – which also remains below its usual average – will act to offset overall lending declines. Regardless, Wilson still believes in a positive outlook for 2022 as the economy picks itself up from the pandemic.

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