Melbourne’s property market bottomed in early 2023 and a number of month-on-month increases in median property prices under its beltso you might be wondering whether now is the best time to purchase a house.
Thanks to steep interest rate rises, the rising cost of living, and tightened borrowing across the country, an individual earning the average salary in Victoria would have to put the majority of their income towards mortgage repayments to afford an average-priced house.
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So, what income do you need in order to comfortably afford a house in Melbourne or across Victoria?
Affording a house in Melbourne
At $766,912, Melbourne has one of the highest median house prices in Australia, behind only Sydney and Canberra.
In order to afford a median-priced house in Melbourne, you would need to pay $846 in mortgage repayments every week.
This is calculated on a 30-year mortgage at the current Australian standard variable rate of 5.87% after a 20% deposit has been deducted.
Meanwhile, the median weekly earnings for Melbournians is $1,300, based on the median salary from the Australian Bureau of Statistics.
This means that 65.08% of an average person’s pre-tax income in Melbourne would be going to mortgage repayments if they were to buy an average house.
But as we know, an individual spending any more than 30% of their weekly earnings on home loan repayments is considered to be under “mortgage stress.”
So you’d have to make a minimum of $2,820 per week, which is $1,520 more than the median salary, in fact over double, to comfortably afford a median-priced house in Melbourne.
This works out to be a taxable income of $146,640 per year versus the $67,600 city median.
| City | Median property value | Deposit (20%) | Weekly repayment | Median weekly before-tax income | Before-tax income to avoid mortgage stress | Difference |
|---|---|---|---|---|---|---|
| Sydney | $1,082,129 | $216,426 | $1,190 | $1,300 | $3,970 | -$2,670 |
| Melbourne | $766,912 | $153,382 | $846 | $1,300 | $2,820 | -$1,520 |
| Brisbane | $735,394 | $147,078 | $812 | $1,250 | $2,750 | -$1,500 |
| Adelaide | $671,755 | $134,351 | $743 | $1,149 | $2,500 | -$1,351 |
| Perth | $598,074 | $119,614 | $662 | $1,305 | $2,210 | -$905 |
| Hobart | $655,984 | $131,196 | $726 | $1,100 | $2,420 | -$1,320 |
| Darwin | $488,363 | $97,672 | $543 | $1,400 | $1,820 | -$420 |
| Canberra | $839,507 | $167,901 | $926 | $1,518 | $3,090 | -$1,572 |
Affording a house in Victoria
Those wanting to buy a house in regional Victoria will need to pay significantly less in mortgage repayments compared to those buying in Melbourne.
In regional Victoria, the average price of dwellings is $559,973, making it $206,939 less than the city average.
This means that the estimated weekly repayments for a median-priced house in regional Victoria, based on the same calculations, would work out to be around $621.
And the median salary for those living in regional Victoria is only slightly lower, at $1,140 per week, versus $1,300 in Melbourne.
That means, for the average individual to afford an average house in regional Victoria, they need to put 54.47% of their income towards their mortgage repayment – while this is less than in Melbourne, it is still far over the 30% mortgage stress barrier.
In order to avoid mortgage stress, an individual looking to buy in regional Victoria would have to be making a taxable income of $2,070 per week – nearly double the regional median salary.
What does this mean?
Essentially, if you’re looking to sustainably afford a median-priced house in Melbourne or in regional Victoria, you’d have to be making significantly above the median salary or have a partner who also earns a good income.
And at a time when interest rates could increase further still, you want to earn more again to avoid being too close to mortgage stress.
New research from Roy Morgan shows a record high of 1.5 million (29.2%) mortgage holders were ‘At Risk’ of ‘mortgage stress’ in the three months to July 2023.
This period encompassed two interest rate increases of 0.25% taking official interest rates to 4.1% in June.
The figures for July represent a new record high and surpass the previous record high number reached in the three months to May 2008 of 1.46 million.
But, though it wouldn’t be ideal, it also wouldn’t be unusual for you to consider putting more than 30% of your income towards mortgage repayments.
It will pay off in the long run as long as you buy an A-grade home or an investment-grade property in Melbourne rather than buying cheap secondary properties.
