Home loan interest rates at record lows, house prices at dizzy heights: Is it really harder today?

April 29, 2016 10:57am

Kirby: How to get 20% off home loan rates00:18:01

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They're not advertising it - but the banks are discounting home loans just now ..they're worried about a surge in customers switching their accounts

GETTING onto the property ladder has never been tougher for cash-strapped Gen Y.

But as it turns out the great Australian dream wasn’t exactly smooth sailing for Baby Boomers who paid interest rates more than three times higher than compared to today.

While Gen Y is looking down the barrel of years of servicing a loan and actually saving a deposit, Baby Boomers were faced with higher repayments and greater mortgage stress.

In other words it’s harder for Gen Y to get on the ladder but easier than ever before to service a loan compared to Baby Boomers.

According to Property Update figures analysed by financial comparison site finder.com.au it’s a myth to think Baby Boomers had it so easy.

According to research, the average home loan rates rose to 17 per cent in the late 1980s, where the average loan size for owner occupiers in NSW was around $80,000.

This means the weekly repayment of $285.14 would have swallowed up 45 per cent of the average weekly earnings based on a 30-year loan.

While the interest rate today stands at 5.35 per cent, and the average loan is $416,000, the weekly repayments would be $536, which is around 31 per cent of the average weekly income, according to finder research.

Baby Boomers may have had it tough during when high interest rates hit in the 80s, but they’re on easy street now compared to gen Y.

While it took the average buyer three years to save a deposit in the 1990s, that is tripled today, taking the average person nine years to save the same deposit.

So who really has it harder and are Gen Y just being a bunch of whingers?

According to Mortgage Choice National spokeswoman Jessica Darnbrough, not exactly, and Gen Y have every reason to feel like buying a home is pretty difficult.

She said figures showed it was easier than years past to service a loan but on the flip side getting onto the property ladder has never been more difficult.

“In Sydney with the average house price being around $800,000 and taking in a 20 per cent deposit, plus costs that’s $180,000,” she said.

“That’s an enormous milestone, especially for first home buyers.”

Ms Darnbrough said she was seeing a definite increase in the number of parents or family acting as guarantor and using their own home as collateral.

Getting a deposit to get that mortgage is becoming harder and harder for gen Y.

“But once people are actually on the ladder, servicing the mortgage isn’t as difficult,” she said.

She said their data suggested that Australian borrowers were finding it easier than ever before to service their mortgage on a monthly basis — thanks to the record low interest rates.

“According to data from Mortgage Choice, 37.9 per cent of borrowers in 2016 said they currently contribute more than 30 per cent of their income to their mortgage — putting them in mortgage stress,” she said.

“Not only is this down from 41.7 per cent in 2015, but it is the lowest percentage we have ever seen.”

ABC Bullion chief economist Jordan Eliseo agreed things were tough for Baby Boomers buying property as they were forced to deal with very high interest rates from day one.

However he said they had one huge benefit and while servicing a mortgage for Gen Y may be easier they faced other risks.

“Over the last two decades, they’ve (Baby Boomers) benefited both from the decline in interest rates, and the huge rise in property values,” he told news.com.au

“Gen Y are paying the highest prices on record, and if interest rates rise they will face higher payments and lower prices, a complete reversal of the fortune the prior generation enjoyed.

“The other complicating factor is superannuation.

Gen Y are facing higher housing prices and more auctions than before.

“Today’s generation is forced to put 9.5 per cent of their income into super, which wasn’t the case back in the late ‘80s.

“That is a major factor considering one now needs nine years to save for a deposit compared to just three back in 1989.”

Finder.com.au money expert Bessie Hassan told news.com.au it was no surprise Gen Y were struggling to get on the ladder.

“It would take a Gen Y person more than 16 years of saving at this rate to avoid mortgage lender’s insurance in Sydney,” she said.

“This is based on saving a 20 per cent deposit for a house matching Sydney’s current median price of $995,804.”

Ms Hassan also said figures from the Australian Bureau of Statistics showed that the number of first home buyers had been dropping consistently since September 2012, when it peaked at 19 per cent.

“The latest figures (February 2016) show first home buyers now account for just 13.4 per cent of all home loans financed,” she said.

“This shows that first home buyers are having an increasingly tougher time entering the property market.”

The findings and comments come as Australia has been classified as severely unaffordable in a ranking of markets across the world by ratio of median house price to median income.

The 12th Demographia International Housing Affordability Survey for the last quarter of 2015 found Sydney was the second worst market on the planet, just behind Hong Kong.

The survey also found even places in regional Australia were less affordable than big cities such as New York and London, adding strength to the argument that it’s never been harder to buy and save for property.

Median house prices need to be no more than three times median income for a market to be classified as affordable according to the ranking.

But in Sydney, prices were 12.2 times the median salary, Melbourne 9.7, and the regional NSW city of Tweed Heads was 9.3.