Insane amount Aussies are spending on their mortgages: ‘Seriously stressed’

Stressed borrowers are spending nearly half of their income on their home loan repayments and there are fears many are getting “dangerously close to breaking point”. The Reserve Bank of Australia (RBA) is expected to hold the cash rate at its 12-year high of 4.35 per cent this week.

Mortgage repayments have skyrocketed by about $1,562 per month on a $600,000 loan since the central bank started hiking rates in May 2022. While the Big Four banks are still forecasting the next move will be a cut, even a 0.25 per cent would do little to ease pressure on stressed borrowers.

Canstar research found couples earning the average combined income of $184,060 who maxed out their borrowing capacity to buy right before the rate hikes, are now spending about 44 per cent of their before-tax income on their repayments. That leaves little leftover to cover insurance costs, household bills, petrol and groceries - all of which have been going up in price.

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Canstar finance expert Steve Mickenbecker said even one rate cut wouldn’t be enough to steer stressed borrowers out of danger, with repayments still estimated to be around 43 per cent of a couple’s income with a 0.25 per cent cut.

“Borrowers who maxed out their borrowing to the highest affordable level just before the Reserve Bank started lifting the cash rate will now be in a seriously stressed position,” Mickenbecker said.

“Lenders' loan assessments allow for an interest rate three percent higher than the actual lending rate to allow for higher future interest rates.

“That’s usually conservative but when rates rise by 4.25 percent in 18 months, way more than the lift in incomes, stressed borrowers are in uncharted treacherous waters.”

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Commonwealth Bank and Westpac are predicting an interest rate cut will come in November, while ANZ and NAB aren’t expecting one until February and May 2025. Mickenbecker said many borrowers would be “living in stress for quite some time”.

But he urged borrowers to speak to their lender about relief support or to the National Debt Helpline for assistance.

Income you need to afford a home in Australia

Aussies wanting to buy a home in Sydney will now need to earn about $278,000 a year to afford the repayments, according to Finder analysis of PropTrack data.

That’s more than double the $130,000 a year income that was needed in 2020 to buy the median-priced home, based on average loan rates.

Melbourne buyers needed an annual income of $172,000, up 74 per cent from 2020, while Brisbane buyers now need an income of $166,000, up 128 per cent.

These increases are far and above the pay rises Aussies are receiving, with Australian Bureau of Statistics data finding national wages had grown by about 12 per cent over the same period.

Finder’s figures assume the buyers use a 20 per cent deposit and avoid mortgage stress, which is when you spend more than a third of your gross income on repayments.

More than 1.6 million Aussies were estimated to be “at risk” of mortgage stress in June, Roy Morgan data found, up from 88,000 from the month prior.

Annual income to afford the average home

• Sydney: $277,856

• Canberra: $187,574

• Melbourne: $171,778

• Hobart: $138,212

• Adelaide: $148,282

• Perth: $134,263

• Darwin: $112,149

• Brisbane: $165,855

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