Paying off a mortgage has become easier in most capital cities

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Trent Wiltshire   |   May 3 2019

Paying off a new mortgage on an entry-level home has become easier in most Australian cities due to falling property prices and low interest rates.

Using a mortgage serviceability measure, Domain has calculated that a typical household buying an entry-level property can avoid mortgage stress (paying more than 30 per cent of income on a mortgage) in all capital cities.

Despite lower mortgage serviceability, low-income earners are still bearing the brunt of Australia’s housing affordability problem, with many struggling to afford rent, particularly in our capital cities. And due to high prices and rents, housing affordability remains one of the top concerns among Australians.

Most measures of affordability show that it’s harder to buy a house

Property prices have skyrocketed

Combined capital city median house prices have increased by 40 per cent since 2010, and unit prices have increased by 30 per cent. In Sydney and Melbourne, house prices have increased by even more.

Prices have been growing faster than wages

Wages have not kept up with escalating property prices. The property price-to-income ratio for Australia increased from about three (meaning the typical dwelling cost three times average household income) to five over the past 20 years. For NSW and Victoria, the ratio increased from about 3.5 in 2000 to 5.5 in 2019 (but had fallen back from over six in 2017). Housing costs as a share of income are higher in Australia than in most comparable countries.

The time taken to save a deposit has increased

The time first-home buyers need to save a deposit has risen significantly due to weak income growth and risingproperty prices. According to Domain’s 2019 First Home Buyers Report, the time taken to save a deposit for an entry level house in Sydney is more than six years, and three and a half years in Perth. The time to save a deposit has increased substantially over the past decade.

Many households struggle to pay rent

Renters also face affordability challenges. About half of low-income renters are in “rental stress” (meaning rent accounts for more than 30 per cent of household income). At a national level, rents have grown in line with wages, but much faster than inflation, as has Domain’s measure of asking rents.

Mortgage serviceability paints a better picture for buyers

Calculating mortgage serviceability is another way to consider housing affordability as most first-home buyers take out a mortgage to buy a home. We calculate mortgage serviceability for a hypothetical first-home buyer as the initial mortgage repayments on an entry-level property (a house or unit at the 25th price percentile) for a buyer with a 20 per cent deposit, expressed as a percentage of household income (see the Appendix for more detail).

This mortgage serviceability measure takes into account interest rates, which impact mortgage repayments and so are an important element of affordability. Housing affordability looks better when considering mortgage serviceability, as low interest rates have offset higher property prices (but are also a contributor to higher prices).

A household is generally considered to be in “mortgage stress” when mortgage repayments are greater than 30 per cent of income, with this measure particularly relevant for lower-income households.

On the mortgage serviceability Domain has calculated, an average household buying an entry-level property can avoid mortgage stress in all capital cities. However, low-income households and those looking to buy a more expensive house (particularly in Sydney and Melbourne) are likely to find themselves facing mortgage stress.

Paying off a mortgage has become easier in most cities

Sydney is Australia’s most unaffordable city according to the mortgage serviceability measure, as it is on most measures of housing affordability. The mortgage burden for a first-time house buyer peaked in mid-2017 at 31 per cent due to rising house prices, but has now fallen back to where it was in 2015 and is a bit above the average of the 2000-2019 period (see graph). For an entry-level unit, affordability has also improved since peaking in 2015. As further property price falls and lower interest rates are likely, mortgage affordability may continue to improve in 2019.


Wiltshire, T. (2019, May 03). Paying off a mortgage has become easier in most capital cities. Retrieved from

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