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Home loan borrowers enjoying better conditions - for now

Home loan borrowers enjoying better conditions - for now
Date of Publication: Monday, 25 November 2013 17:09

Home loan borrowers are enjoying better conditions than in past decades, despite the fact they are borrowing much more, experts have said.

 

The size of the average Australian mortgage has grown by over four times since 1990, according to analysts Canstar, rising from a humble $69,100 to over $300,000 this year.

 

And given that the average wage is only 2.5 times greater now than 23 years ago, it may seem that conditions for homeowners have deteriorated massively.

 

But this may not be the case. Interest rates have also tumbled over the same period, Canstar adds.

 

The latest sequence of cuts by the Reserve Bank since November 2011 has helped to drive the average standard variable home loan rate down below 6%.

 

Consequently, mortgage repayments now constitute just 36% of income, compared to 42% before, making these larger loans more affordable on a monthly basis.

 

AMP chief economist, Shane Oliver, said the lower cost of servicing loans had make a clear difference, but emphasised that the figures were still potentially deceptive.

 

"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," he said.

 

Mitchell Watson, research manager at Canstar, warned that affordability was dependent on lower rates, and that an interest rate rise could upset the balance if Aussies went overboard with their lending.

 

"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," he said.

 

"There are people now overextending themselves and they may be vulnerable once interest rates do start to head north," he added.

 

James Booker
Which4U

 

If you enjoyed this article, check out the latest articles on our Finance Blog.

Monday, 25 November 2013 17:09
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