How much you need to earn to buy a house

Affluent buyers are edging out lower-income households when it comes to new home loan applications, as first home buyers hang back amid cost-of-living pressures.

About 20 per cent of new home loan applications came from households earning between $150,000 and $200,000, according to Commonwealth Bank data covering the six months to December 2024. About 30 per cent of fresh owner-occupier applications came from households earning between $200,000 and $500,000 for the same period.

This compares with the bank’s data from the same period five years ago, which showed less than 20 per cent of new loan applications came from households earning $200,000 to $500,000.

At the same time, about 10 per cent of new owner-occupier applications came from households earning between $100,000 to $125,000, according to Commonwealth Bank data for the half year to December 2024. Five years earlier this figure was closer to 20 per cent.

Only about 1 to 2 per cent of owner-occupied households earn more than $500,000, while the bottom 60 per cent of households earn below $125,000, Barrenjoey analysis shows.

Rising property prices and the challenges of saving for a deposit have made it increasingly difficult for new buyers to enter the market. Barrenjoey head of bank research Jonathan Mott this week pointed out that Australian bank lending to owner-occupiers had fallen since rates began rising in recent years, while lending to investors lifted.

Domain chief of research and economics Dr Nicola Powell said those with higher incomes tended to be the most active right now.

“They’re likely to already be in the property market, so they may be looking to make their upgrade,” she said.

“It’s still very financially challenging for a first home buyer to get onto the property ladder. I think particularly in high-price markets like Sydney,” which she said was financially “a very stretched goal”.

Despite a fall in borrowing capacity of more than 30 per cent, average home loan values and house prices are at record highs, “suggesting a skew to higher-income borrowers”, said Jarden economist Anthony Malouf.

In the six months to December 2024 the average size of a new loan for Commonwealth Bank was $487,000, up 38 per cent from $354,000 in 2020.

The average gross household income is $120,660 according to Grattan Institute analysis.

“This increase in average loan size is underpinned by rising house prices, contrary to borrowing capacity falling as rates increased,” said Morningstar analyst Nathan Zaia.

“So not only do buyers need to borrow more, but they need to service larger loans at a higher interest rate, with the icing on the cake being inflationary pressures across everything from groceries to insurance.”

Commonwealth Bank chief executive Matt Comyn said, during the lender’s recent half-year results presentation, that housing affordability remained of “great concern”, adding it would “no doubt be one of the dominant themes for many years”.

Commonwealth Bank holds the largest market share of residential mortgage lending in the country and provides a barometer for borrowing trends.

Surging inflation and sluggish wage growth have made it harder for first home buyers to enter the market, with a widening gap between earnings and property costs.

Brett Sutton, a mortgage broker at Two Red Shoes, said he had seen a noticeable decline in mortgage applications from lower-income households, with higher-income households increasingly prominent in the property market.

“Their substantial incomes enhance borrowing capacity, allowing them to afford properties in desirable, often higher-priced, urban areas. This trend is particularly evident in city centres and affluent suburbs, where property prices have seen significant appreciation,” he said.

“Moreover, average incomes are no longer sufficient to afford the average house in capital cities.”

A worker paid $150,000 a year could afford to buy a house in just 2.3 per cent of suburbs in Sydney and only 24.3 per cent of suburbs in Melbourne, CoreLogic figures show. They could afford 27.6 per cent of Brisbane suburbs and 31.7 per cent in Perth.

Still, Australia’s hot property market has levelled off recently amid affordability challenges and the potential for a gradual rate-cutting cycle to improve buyer sentiment. The Reserve Bank cut the official cash rate to 4.1 per cent in February – the first cut in more than four years, with market watchers expecting more to come this year.

The falling interest rates could end up being a boon for those who already have property.

“With the cash rate being reduced, and if you already have lots of equity within the housing market, you’re looking to make that next purchase,” Domain’s Powell said. “I think the financial burden is less for a type of buyer like that.”