Sydney homeowners hit with $22k yearly loan repayment increase

Buying houses at current prices require buyers to get in much more debt than they did only a few years ago, but often a similar income. Picture: Damian Shaw

---

Trying to keep up with Sydney’s soaring home prices is plunging households into staggering debts that dwarf the loans homeowners had a few years ago.

Alarming analysis revealed NSW homeowners are shelling out an average of nearly $22,000 more per year to service their home loans than a decade ago.

It has followed a 63 per cent surge in the average size of mortgages across the state, from $509,000 in 2015 to $828,000 currently, according to the Compare the Market analysis of ABS data.

The rise eclipsed inflation and growth in household incomes over the same period.

Debt burdens were even higher in some of the Sydney suburbs that boomed over the last decade, with new homebuyers in some areas spending upward of $100,000 more each year on repayments than in 2015.

Experts warned this skyrocketing debt, coupled with sluggish wage growth, has made Sydney’s housing market more vulnerable to even the slightest interest rate changes.

This included a widely tipped rate hike in the coming months, with Commonwealth Bank and NAB forecasting a 0.25 per cent rise to the average homeowners’ mortgage rate as early as February.

Nerida Conisbee, chief economist at Ray White Economics, said rising debts had left homeowners more exposed to the whims of monetary policymakers.

“We’ve reached the stage where the Reserve Bank doesn’t need to move the (cash) rate all that much to make a massive difference,” she said.

“Households are now deeply stretched and the smallest hike will get people to stop spending.”

Ms Conisbee said soaring debts levels were not simply the result of rising prices but because of changes in bank lending policies over recent years.

MORE: Sydney home slapped with $300m price tag

A typical Sydney house now costs about $1.6m.

---

MORE: ‘It’s a game’: Reason Aussie dad’s bills are $0

These changes had allowed homeowners to borrow substantially more without an equivalent rise in their incomes.

“The main thing is the term of the loan. It used to be 25 years, now 30 years is the norm and it looks like 40 years is becoming more of an option. This allows households to borrow much more,” Ms Conisbee said.

Families “topping up their loans” – borrowing against the value of their properties to get money for various expenses – had also contributed to rising debt levels, Ms Conisbee added.

“It’s clear that the cost of living has risen dramatically over recent years but expenditure on things like travel has not dropped,” she said.

“People are already stretched. That money has to come from somewhere. A lot of that has to do with people redrawing on their mortgages. There are a lot of people buying stuff against their home.”

MORE: Sad reason Chris Hemsworth’s town is now Australia’s worst

This house in Strathfield recently sold for $3.08m – the suburb has had one of the biggest increases in average debt obligations.

---

Compare the Market property expert Andrew Winter said that, for many Aussies, the struggle is staying in the homes they bought.

“If the cash rate goes up again this year, I think a lot of people are really going to feel it,” he said.

Compare the Market revealed multiple suburbs where new home buyers were paying $90,000-$104,000 more in loan repayments than new buyers would have paid back in 2015.

These suburbs included north shore enclaves such as Willoughby, Cammeray and Greenwich.

There were similar increases in loan sizes and debt servicing costs for new buyers on the upper north shore, including Roseville, St Ives, Pymble, East Killara and Gordon.

Western Sydney suburbs where debt obligations had risen the sharpest, with new buyers paying $40,000-$45,000 more in annual repayments compared to a decade ago, were Rydalmere, Glenwood, Winston Hills, Dundas and Northmead.

Compare the Market’s Andrew Winter said the numbers put Australia’s housing affordability crisis into sharp focus.

---

The data assumed the buyers used a 20 per cent deposit for the purchase and used an average loan rate on a 30-year mortgage.

“The path to homeownership in Australia isn’t easy, and these figures tell us why,” Mr Winter said.

“So often the emphasis is put on raising a deposit but for many the real challenge begins when they start servicing their loan.

“Repayments … aren’t cheap and for many working Australians they just aren’t affordable.

“So, while the government has done some good work helping people into the market by reducing the amount of money they need to save for a deposit, they haven’t really gotten to the heart of the issue.”

Maria and Albert Mahabir recently purchased a unit in the lifestyle complex Oasis at Rhodes. Picture Thomas Lisson

---

Some long-time homeowners say they feel it is an unavoidable situation.

Maria Mahabir recently purchased a new home in a waterfront lifestyle complex in the inner west suburb Rhodes, known as Oasis, realising it was “as good a time” to buy as any.

“If you wait for the market to be good for buying, you will wait forever,” she said.

“We’ve bought multiple houses over the years. It can always feel like a gamble, but in the long run it works out. I think it depends how much money you are prepared to put in.”

Ms Mahabir added that they were thankful to no longer need a mortgage on their home but would be watching interest rate movements closely because they planned to buy more investment properties.

HOW MUCH MORE NEW BUYERS PAY FOR LOANS (COMPARED TO 2015)

Source: Compare the Market analysis of ABS Stats, PropTrack