Housing affordability: How a change to mortgages could benefit buyers into the tune of $20k

First-home buyer for real estate weekend yarn

Sharna Hackett is looking to buy her first home in Melbourne. Picture: Wayne Taylor.

Prospective first-home buyer Sharna Hackett jokes that having a bit more money in her kitty might allow her to purchase a residence with “an actual kitchen bench”.

In 2023, Ms Hackett moved back to Melbourne after securing her dream job as a video manager in the visual effects industry, following years of working overseas in the creative sector.

Aged in her 40s, she is now hoping to buy a two-bedroom apartment not too far from her inner suburbs’ workplace after spending “quite a few years” saving up a deposit.

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Ms Hackett said that if mortgage serviceability buffers were cut – potentially expanding her home loan by tens of thousands of dollars – she might be able to buy in a pricier suburb than the ones she has been looking at, such as Fitzroy North or Westgarth.

“It might mean that I could be a little bit more open to things that are a little bit nicer or, you know, an actual kitchen bench,” she said.

Ms Hackett doesn’t see herself ever being able to afford a house unless she could flip an apartment for quite a bit more than she paid for it.

Houses in hundreds of Melbourne suburbs are unaffordable for households on a median wage. Picture: NCA NewsWire/Andrew Henshaw.

New data analysed by property sales and research firm Oliver Hume shows there are more than 400 suburbs where the typical household’s wage isn’t enough to buy there.

There are just 36 areas where the local wage would be enough to buy a house with, mostly in Melbourne’s outer ring including Wyndham Vale, Mickleham and Cranbourne South.

But a Senate Inquiry recommendation to change the rules around how banks lend us money could change the situation in dozens of suburbs — and boost first-home buyer budgets by more than $20,000.

Oliver Hume’s figures show that a 1 per cent reduction to the nation’s 3 per cent serviceability buffer for home loans would be enough to put 60 Melbourne suburbs on the affordable list, based on local incomes.

The buffer is set by the Australian Prudential Regulation Authority and used by banks to stress-test mortgages to ensure a buyer could cope if their interest rate was 3 percentage points higher — which saved many households from disaster as interest rates surged from 2022 to 2023.

Sharna Hackett is looking to buy an apartment in Melbourne but doesn’t think she’s likely to ever own a house. Picture: Wayne Taylor.

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Melbourne-based Smart Lending director and senior loan writer Melissa Gielnik said that for every half a percentage point cut from mortgage serviceability buffers, about $20,000 would be returned to a home loan – but this would vary based on factors like home prices.

Ms Gielnik said that she would like to see Australia’s mortgage serviceability buffer reduced to a 2 per cent figure.

“Especially because (interest) rates are on decreasing, we’ve ridden the wave of the up, now we’re coming down,” she said.

“So being on the downward slide, I kind of feel like they could lessen it.”

For some first-home buyers, saving up enough to buy a property can be a challenge, but Smart Lending director and senior loan writer Melissa Gielnik says first homes are often “stepping stones” to build equity before moving onto a larger abode or one closer to the city.

And Ms Hackett said that if mortgage serviceability thresholds were decreased, a new deluge of buyers would likely enter the market.

“My only concern would be, what tends to happen when things become more affordable is prices seem to go up because more people are looking at the same stock,” Ms Hackett said.

“I’m not necessarily sure that it would make a significant difference, because then I would just be competing with more people.”

With the rising cost of living, many home buyers would welcome the extra funds that a mortgage serviceability buffer reduction would bring.

Buyer’s agency Cohen Handler Victoria’s business director Zac Jacobs said that for some people, cutting the mortgage serviceability buffer would allow them to look at properties and suburbs they wouldn’t otherwise consider due to financial constraints.

“I guess our fear always is, does that level the playing field for all first-time buyers and then negate it at the same time?” Mr Jacobs said.

“Because now they can afford by spend between $20,000 more, everyone can afford to spend $20,000 more, the prices go up $20,000. That’s the issue I would say.”

He added that the having an additional $10,000 to $20,000 could help cover a buyer’s advocate’s fees too.

“It could help them (a buyer) engage someone professional to help them find the right property, negotiate the property off market, for example, so don’t have to compete at auction,” he said.

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