What income do first home buyers need to buy in Melbourne?

Home ownership is becoming a distant dream for a growing number of young buyers as price growth increasingly outstrips savings.

Over the past year, first-home buyers looking to purchase a property in Melbourne have had to put aside an extra $100 to $200 a week for a deposit as house prices have jumped by about 10 per cent – far outstripping wages growth.

According to the Australian Bureau of Statistics, the average home loan taken by first-home buyers in Victoria is $335,000. But adding a 20 per cent deposit means those who want to buy a property priced at $418,750 need a pre-tax income of about $1746 a week* to fund the mortgage, according to Domain Group’s senior economist, Andrew Wilson.

According to the Australian Bureau of Statistics, the average Victorian full-time weekly earnings is $1455.

“The difficulty for first-home buyers is the deposit – and with prices rising in Melbourne, it means they have to save extra every week just to keep up with prices growth,” Dr Wilson said.

With Melbourne prices rising at about 10 per cent per annum, first-home buyers who are buying properties worth $450,000 need nearly an extra $200 a week compared to a year ago, he said. “Their incomes are only growing by about 2 per cent a year at the moment.”

So where can people earning average incomes afford enter the property market?

With a weekly income of $1200, a first-home buyer may be able to afford an unit in Sunshine or a house in Melton South.

First-timers eyeing an apartment in Northcote or Oakleigh will need a weekly income of about $1800. More realistically, first-timers looking in this price range would be more likely to purchase with a partner.

An average couple with a dual income still have dozens of suburbs to choose from.

Nigel O’Neil, chief executive at Hocking Stuart, has seen more unmarried couples now teaming up at an earlier stage of their relationship to buy a home in order to get a foot on the property ladder.

“As long as there is a clear exit strategy for both parties if the relationship doesn’t work out, then that can work out fine,” he said.

More young buyers are also leaning on their baby-boomer parents for support.

John Symond, said he had seen one in four first home buyers being helped by their mum and dad.

Most first-timers would be borrowing about 90 per cent of the purchase price, he said, and in some cases, up to 95 per cent if they had a very stable job and can prove they had genuine savings.

The serviceability of the loan would be about 25 to 30 per cent of the borrower’s income.

Meanwhile, Meg Bonighton, general manager of home lending at the National Australia Bank, said first timers should ideally save 20 per cent as most lenders would charge a Lender’s Mortgage Insurance for a lesser deposit.

With more investors been drawn into the market because of historic-low interest rates and a shortage of stock, Mr Symond said first-home buyers were the “biggest losers” in the market.

“Right now, first-home buyers have got huge headwinds: they’ve got investors vying for the property they want to buy and losing out most of the time, and they’ve got increase in prices, where their deposit isn’t big enough so they can’t get in,” he said.

“And you’ve got a lot of foreign investors buying new houses, and they’re outbidding everybody.”

Despite the hurdles, Mr Symond said more first-home buyers were now investing before they bought a home to live in, in order to get a foot in the door.

*Figures are based on median houses prices provided by Domain. Calculations assumed a 20 per cent deposit, a 5.5 per cent interest rate on principal and interest repayments over 30 years. The purchase price excludes stamp duty and first home owners grant and assumes the weekly repayment needs to be 25 per cent of borrower’s income.

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