Are Aussies spending more on mortgages today than they were in the 1990s?

Affordability is a hot topic in Australian property at the moment, and it’s easy to assume we are spending a lot more on our mortgages today than we were several decades ago. Median property values have certainly increased, so the size of mortgages has gone up. But how do interest rates compare with those in the 1990s, and what percentage of our incomes are we putting towards paying off our home loans?

You might be surprised at what we have to tell you.

Mortgage values have increased

If you aren’t aware that median property values have skyrocketed in recent years, well, you’ve probably been living overseas or somewhere with no Internet connection!

According to the Australian Bureau of Statistics (ABS), the average Australian mortgage in 1975 was $17,400. By 2015, the average home loan size was $382,400, and of course with inflation it’s only natural that prices have risen. If you want to purchase a house in the inner city of Sydney in the current market, you’re looking at median values of over $1 million.Mortgages have certainly gone up since the 1990s, but are we really paying more for homes now?

But interest rates are lower

While this increase indicates that mortgages have increased – and in total value, they certainly have – it is deceptive to look only at rising property values.

After all, median house values do not take into account variations in interest rates over time, as Jamie Alcock, Associate Professor at the University of Sydney, pointed out in a Domain article on 28 March. He highlighted that mortgage interest rates were at record highs of 17 per cent in 1990, whereas today they are less than 4 per cent.

Many lenders recently increased their interest rates; however, they are still far off the figures from a couple of decades ago. Even though they are increasing at the moment, interest rates are still considerably lower today than they used to be.

Ratio of median house prices to median incomes is also lower

The ratio of the median house price to median salary is a good indicator of property affordability. According to Demographia’s 2017 Housing Affordability Survey, a home in Sydney currently costs 12.2 times the median salary,

Professor Alcock argues in his article in Domain that mortgages were actually less affordable in the 1990s due to the fact average incomes were much lower and the ratio of median house prices to median salaries was significantly greater.

Property values have undoubtedly increased in the last couple of decades. However, Australians today aren’t facing the massive interest rates that we were in the 1990s, or the same gap between median house prices and median incomes. Essentially, there is still light at the end of the tunnel for Australian property seekers!