Even though Aussie mortgage sizes may have quadrupled in the past few decades, experts say today’s borrowers are enjoying far better economic conditions.
New research by financial ratings firm Canstar found the national average mortgage size is 4.5 times higher than it was in 1990 – $305,000 compared to $69,100 – but current lower interest rates and increased wages have made housing more affordable.
The data showed the average wage for a male in 1990 was $28,407 compared to $70,569 – about 2.5 times higher – but repayments as a proportion of income were then 42 per cent, compared to the current 36 per cent.
And the average standard variable rate in 1990 was 17 per cent compared to just 5.95 per cent now.
Canstar’s research manager Mitchell Watson said the changed conditions have made mortgage conditions better now when comparing the average mortgage size and repayments as a proportion of income.
“Back then loan amounts were much lower, housing prices were lower as well but interest rates were extremely high compared to now,” he said.
“It did place further stresses on the household income than it did at this point in time.
“Housing prices now are a lot higher and we are paying a lot more a month on our average monthly repayments but it is still within an acceptable threshold of on or around that 30 per cent mark of take-home income.”
The cash rate dropped to a historic low of 2.5 per cent in August and it is not expected to drop again when the Reserve Bank of Australia board meets next month.
AMP chief economist Shane Oliver said comparing mortgage affordability now to the 90s was difficult to do because of different variables.
“House prices have gone up so you have to borrow a bigger proportion of your income than you had to in 1990 but that’s largely due to the collapse in interest rates,” he said.
“Even though people have to borrow more the cost of borrowing is actually much lower so in that sense the high debt burden doesn’t look as bad as it might seem.
“The flip side though is wages aren’t rising as fast as they were in the old days of high inflation like in the 1990s.”
1300homeloan director John Kolenda said economic conditions now made mortgages the most affordable they had been in decades.
“The interest rates are at some of the lowest rates they’ve been in over 30 years and yes mortgages are higher but salaries are also higher,” he said.
“It’s all in favour of stimulating the economy and giving these consumers greater confidence that things aren’t as bad as what’s been portrayed over the last few years.”
But Mr Watson warned Australian to not overextend themselves by borrowing too much in the low-rates environment.
“There are people now overextending themselves and they may be vulnerable once interest rates do start to head north which is anticipated if not next year but the year after,” he said.
Original article published at www.news.com.au by Sophie Elsworth, News Limited Network 25/11/2013