Surprise number of families locked out of their own suburb
Big promises on housing were at the centre of both major parties’ announcements at the official federal election campaign launches.
Among the highlights was Labor pledged to build 100,000 new homes and extend a government-guaranteed 5 per cent deposit scheme to all first home buyers.
The Coalition promised to make interest payments on the first $650,000 of a mortgage tax-deductible for up to five years, for eligible first home buyers purchasing new builds.
Amid this flurry of policies, it’s important we don’t forget another Coalition promise from earlier this month – lowering the 3 per cent mortgage serviceability “buffer”.
Promising to help would-be homebuyers without access to the “bank of mum and dad”, the policy aims to make loans easier to get amid high interest rates and house prices.
According to an exclusive analysis by real estate services group Oliver Hume, lowering the buffer by even just one per cent would put no less than 58 additional suburbs on the affordable list nationally, based on local incomes.
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Dutton Vs Albanese? Who will win the housing policy battle when Australia votes on May 3? Picture: Matt Roberts/ ABC/ Pool/NewsWire
That number would rise to 196 additional suburbs across SA, QLD, NSW and VIC, should be buffer drop to a low 1 per cent.
Oliver Hume chief economist Matt Bell said he believed lowering the serviceability buffer was “good housing policy”.
“We’ve got a housing affordability problem that is 20 years in the making,” Mr Bell said. “The real solution is the supply of more housing, but it’s hard to do and it takes time, so while this isn’t going to be a massive needle mover, that’s nota good reason not to do it. We should be pulling every lever we can.”
Mr Bell said the current rate of 3 per cent was penalising low to middle income households, with first home buyers particularly impacted.
“They’re literally saving to the point of when they hit that point that they’ve saved enough for a deposit, they go back to their lender and say; ‘we want to buy’,” he said.
“(Changes) will address an inequality that raising the buffer has exacerbated.”
Here is what lowering the serviceability buffer would mean for your state.
NEW SOUTH WALES
The Coalition’s proposal to relax mortgage lending rules would “barely move the needle” for Sydney buyers, while potentially exposing new borrowers to a string of risks.
Research by Oliver Hume revealed that if the buffer dropped by 0.5 or 1 per cent, this would only open up borrowers on an average income to one more suburb in Sydney, Menangle Park.
Even with a buffer of just 1 per cent, only an additional eight suburbs would be deemed affordable.
On average, a drop in the serviceability buffer from 3 percentage points to the previous buffer of 2.5 could see a person’s borrowing capacity increase by an estimated $20,000.
That’s on an interest rate of 6 per cent rate for an average Australian income earner on around $103,000. With a 2 per cent buffer it would increase by $40,000.
Canstar’s director of data insights Sally Tindall says reducing the buffer could come with big risks. Picture: Tim Hunter.
Canstar’s director of data insights Sally Tindall said there were huge risks involved in reducing the buffer rate for buyers in New South Wales.
“In the scheme of buying a house it ($20,000 extra) isn’t very much, it’s a small drop in a very big ocean,” she said.
“That buffer is crucial to make sure people aren’t taking on debts they can’t repay … for a lot of people who bought property when interest rates were at record lows, they really struggled when 13 rate hikes came and were stuck with big debts compared to their income, fuelled by ultra low rates and a moderate serviceability buffer.
“We don’t know what the future holds and making sure people borrow within their means is important so they don’t have super size debts that don’t hang over their heads for decades.”
QUEENSLAND
Relaxing home lending rules could make up to 75 extra Greater Brisbane suburbs affordable for househunters previously priced out of the market.
According to Oliver Hume, lowering the mortgage serviceability rate by half a per cent would make an extra 14 suburbs affordable for buying a house.
The number jumps to 26 if the buffer was relaxed to a rate of 2 per cent, and a 75 at 1 per cent.
If the serviceability buffer was lowered to 2.5 per cent, homehunters in Eatons Hill and Pine Mountain could borrow an extra $35,000 towards buying a house, the research found.
Prospective buyers could borrow about $27,000 more to buy a house in Greenbank, Mango Hill, Narangba, and Jimboomba.
Oliver Hume chief economist Matt Bell believes lowering the serviceability buffer is good housing policy.
University of Sydney associate professor Stella Huangfu said lowering the mortgage serviceability buffer would only increase first-home buyers’ borrowing capacity temporarily.
“This additional borrowing power could drive up housing demand, which, in turn, would likely push house prices higher,” she said aid.
“The end result would be minimal benefit for first-home buyers since the increased borrowing capacity would mostly be offset by rising prices.”
SOUTH AUSTRALIA
Relaxing home lending rules in Adelaide could provide an additional 50 affordable suburbs for househunters on a budget.
Data by Oliver Hume reveals changing the test for a person’s borrowing capacity by half a per cent would make an extra five suburbs affordable for buying a house.
The number jumps to an extra 14 suburbs if the buffer was relaxed to a rate of 2 per cent, and 50 at 1 per cent.
If the serviceability buffer was lowered to 2 per cent, homehunters in Evanston Park, Willaston, Blakeview, Craigmore, Munno Para West, Brahma Lodge, Burton, Salisbury, Salisbury Park, Christies Down and Hackham West could borrow an extra $41,582 towards buying a house, the research found.
Prospective buyers in Birdwood, meanwhile, could borrow an additional $43,942.
Reducing the buffer could make this SA home more affordable for buyers. The property at 65 Park Terrace, Blakeview is on the market with a price guide of $799,000 to $859,000.
VICTORIA
In Melbourne, hundreds of suburbs are now so unaffordable even the families living in them couldn’t afford to buy a house there today.
Data by Oliver Hume shows there are 407 suburbs where the typical family could not afford to buy a house today.
The research shows that a couple with a $100,000 combined income today would be able to buy a house in just 16 suburbs, ranging from Melton in the west to Broadmeadows in the north. And even then, they would have to settle for a property in the bottom 25 per cent of the market.
Reducing the buffer could see more first homebuyers compete successfully at auction. Picture: NewsWire / Damian Shaw
But if the buffer was reduced to 2.5 per cent, the level set in 2021, they would have access to an additional nine suburbs.
Dropping the safety net to 2 per cent, the figure first set by APRA in 2014, would boost a $100,000 household’s prospects to 37 suburbs — boosting their available funds by close to $40,000 and getting them back into suburbs including Frankston and Doveton.
