The reality of Australia’s mortgage market
An average home loan now close to $400,000 may sound impressive in some parts of the country. However, mention that figure to someone from Melbourne or Sydney, and they probably won’t believe you.
That’s because, as you might expect, how much people owe on their homes tends to vary wildly depending on where they live in the country and when they bought.
Here’s how the average mortgage breaks down state-by-state as at March 2018, according to the ABS:
- New South Wales: $445,500
- Victoria: $400,200
- Queensland: $341,700
- South Australia: $311,300
- Western Australia: $343,900
- Tasmania: $252,100
- Northern Territory: $309,400
- Australian Capital Territory: $383,000
The benefits of getting in early
Interestingly, the average mortgage has fallen slightly since its peak in December 2017 of $393,300, declining in every state and territory except for Queensland. The Sunshine State defied the downwards trend by recording a jump in the average mortgage from $333,600 to $341,700 between December 2017 and March 2018.
But despite this small fall in the average mortgage size over the first three months of 2018, one trend is clear: the earlier you entered the market, the smaller the mortgage is likely to be.
For instance, the average mortgage in 2008 was just $243,600, or $144,500 less than it is today. In March 1998 it was $114,700, and in March 1988 it was just $55,300.
Putting the average mortgage repayment in perspective
The average Australian mortgage may have risen dramatically over the years, but it still only accounts for around 70% of the average house price. In March 2018, that stood at $553,693, according to CoreLogic.
What is significant though is that the cost of servicing a loan has fallen sharply, especially in the last decade. In March 2008, the official interest rate stood at 7.25% and the average advertised standard variable rate at 9.35%, according to the RBA. In March 2018, the official interest rate was just 1.5% and the average advertised standard variable rate was 5.25%.
Taking this into account, servicing the average loan over 25 years at the average standard variable rate in March 2008 would have cost $2,113 a month. Servicing the average loan at the average standard variable rate over 25 years in March 2018 cost $2,336 a month – a rise of around 10.5%. At the same time between March 2008 and March 2018 average weekly earnings rose from $46,040.80 to $61,968.40, or 34.6%.
When viewed this way, the cost of the average loan repayment has actually fallen over the past decade.
Using a mortgage calculator to calculate what you can afford
If you’re looking to buy property, it’s important to remember that interest rates probably won’t always be this low, so you should always use a mortgage calculator to work out what your repayments will be, and factor in a buffer in case they rise.
If you want certainty in your repayments for some time, you could also consider a fixed rate or split rate loan. These allow you to protect yourself against potential rate rises by fixing all, or part, of your interest rate over a period of time.
Finally, the safest way to avoid rising rates is to pay off your home loan sooner. To help with this, consider using an offset account or redraw facility so that any savings you have – and even your day-to-day money – contribute towards reducing the term of your loan.