How much of a pay rise you’d need to buy a house

Home buyers would need to earn up to $90,000 more than they did early last year to afford to buy a median-priced house as rising interest rates slash buyer budgets.

A Sydney home buyer needed an annual gross income of $270,000 in November to be approved to buy a house priced at the median value of almost $1.4 million, modelling from Canstar shows.

That is $89,000 more than was needed in April 2022 when values were marginally higher, but the cash rate was at a record low of 0.1 per cent.

House hunters in Melbourne would need an annual income of $181,000, an increase of $49,000, to afford to buy at the city’s median house value, at almost $944,000 on CoreLogic data.

Buyers in Brisbane and Perth would have needed respective pay increases of $50,000 and $46,000 to reach incomes of $169,000 and $136,000.

In practice, the bulk of buyers have to compromise on the location, size and quality of the homes they are purchasing as their borrowing power plummets.

However, the modelling – which assumes a 30-year loan term, a 20 per cent deposit, and accounts for expenses and a 3 per cent interest rate buffer – shows the difficulty of keeping up with price rises and rate rises. It illustrates why many first timers are turning to the bank of mum and dad and government support schemes.

Even apartment buyers would need an extra $46,000 to maintain sufficient borrowing power for a median priced Sydney unit, and more than $30,000 for apartments in Melbourne, Brisbane and Perth.

The sizeable sums needed to secure and service a loan are the result of 13 cash rate rises since May 2022, which have significantly slashed buyer borrowing power and increased mortgage costs.

Buyers and home owners were given a reprieve on Tuesday, when the Reserve Bank board decided to leave the cash rate on hold at 12-year high of 4.35 per cent, at its last meeting of the year.

Canstar group executive of financial services Steve Mickenbecker said affordability had worsened for both buyers and existing borrowers, as repayments soared.

“Back in April 2022 all [first home buyers] worried about was getting a deposit together … if you could afford a deposit you could afford mortgage repayments … now it’s still [hard] to get a deposit, but also to service a mortgage. It’s a double whammy,” he said.

“Now there is no way the couple on the average income can afford [the Sydney median] any more, their income would need to have gone up $90,000 … and [singles] in most cities now can’t even afford a unit.”

He noted a couple would require a slightly lower combined income, due some shared expenses.

Initial monthly repayments on a median priced house have jumped by more than 60 per cent to $7611 in Sydney, $4741 in Brisbane and $5075 in Perth, and by 55.6 per cent in Melbourne to $5140.

Jarden chief economist Carlos Cacho said higher income earners and those with family assistance were driving the property market, as they were less affected by changes to borrowing power.

“We’re seeing bigger deposits, whether from downsizers using more cash or first home buyers with big lick of money from the bank of mum and dad or grandparents who have sold a house … and a bigger deposit means you’re less impacted by rates,” Cacho said.

A recent survey of 282 mortgage brokers by Jarden found about 15 per cent of borrowers were purchasing with family assistance. Two thirds of those were receiving a cash loan or gift with an average value of $70,000 and 5 per cent received more than $200,000.

Cacho estimated about three quarters of first home buyers now had some form of family help, from a guarantee or money to help with a deposit to an outright home purchase by parents keen to keep their children nearby.

While family assistance was helping more Australians into the market it was creating a growing class divide.

“Owning a property, particularly in the bigger capital cities, is shifting from something that’s achievable if you work and save hard, to something that’s out of reach unless you have a family that can support you.“