The latest surge in housing prices, mainly in Melbourne and Sydney, has partly eroded improvements in housing affordability from cuts to mortgage interest rates.
On average affordability improved nationally in the 12 months to September with homeowners needing to spend a smaller proportion of their income on mortgage repayments, according to analysis by Moody’s Investors Service.
Australian households with two incomes spent 27.4% of their monthly income to meet mortgage repayments as the end of September, down from 28.8% a year ago. However, that improvement in affordability was partly offset by housing prices which jumped by 2.7% on average in September.
Mortgage interest rates on average fell to 5.25% in September from 5.45% a year before, following two 0.25 percentage point cuts to the cash rate by the Reserve Bank of Australia in May and August.
And average weekly household incomes rose 2.1% over the year to May, according to the latest available statistics.
Sydney is still the least affordable city in Australia, with 36.3% of household income needed on average to make monthly mortgage repayments.
However, the nation’s largest city has had the biggest improvement in affordability with the proportion of monthly income needed to meet repayments falling by 2.2 percentage points compared to the previous year. The reason is a slowing of housing price growth, reductions in mortgage costs, and income growth of about 4%, according to the Moody’s analysis.
In Melbourne, affordability also improved due to slower housing price rises (+1.7%) over the year and relatively strong income growth (+3.5%).
Households in the city spent an average of 29.9% of monthly income on mortgage repayments, compared with 31% a year earlier.