Borrowers taking on tens of thousands of dollars in extra debt as home prices soar

However, crippling affordability constraints have kept a lid on lending in some of the largest markets, with average home loan sizes stagnating or going backwards in the more expensive states.

PropTrack senior economist Eleanor Creagh said while loan sizes have cooled in some locations in recent months, on the whole, new borrowers are taking on near-record levels of housing debt nationally.

“This reflects the need for larger loan sizes after strong growth in property prices across Australia in recent years,” Ms Creagh said.

"Home prices have remained resilient to the higher interest rate environment, with national prices hitting a new record high in March."

New data from the Australian Bureau of Statistics shows borrowing activity bounced back in February following two consecutive months of declines.

Over the past 12 months, the average new mortgage size for an owner occupier borrower has risen by 2.3% nationally - or $13,402 - to $598,624, despite four interest rate rises over that time.

But in Queensland, average new home loans have surged by more than 9% over the year - or $47,500 - to reach $561,625 in February, just shy of the all time high recorded in December.

The average new home loan in Queensland has risen by almost $50,000 in a year. Picture: Getty

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Brisbane-based real estate agent and Re/Max Results principal Hayley Van de Ven said strong home price growth in Brisbane and many parts of Queensland were key to the state's bigger mortgages. 

“Home prices in Queensland have risen substantially in the past year, so it’s really no surprise that people have to borrow more,” she said.  

“Demand on the ground here is still very high and at price points we haven't traditionally seen.” 

According to the latest PropTrack Home Price Index, Brisbane home prices have surged 12.9% over the past year, reaching to $801,000 in March. Across the rest of Queensland, home prices have risen 10.18% to $647,000.  

Homebuyers in Western Australia are also taking on tens of thousands of dollars worth of additional home loan debt compared to a year ago, with the average mortgage rising $21,170 to $506,000.

Currently the strongest property market in the country, home prices in Perth have shot up 18.6% to $660,000 over the year to March. 

The average home loan also grew by $14,158 in South Australia to just over $500,000.  

In Adelaide, the average loan increased by $14,158 during the 12 months to February. Picture: Getty

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Adelaide-based real estate agent and Harris Real Estate managing director Phil Harris said tight supply was continuing to put pressure on prices across the capital city.  

“The reality is that across most of Australia – Adelaide in particular – there's not enough homes for the number of people who want to buy," he said.

Home prices in Adelaide grew 13.5% year-on-year to $723,000 in March, while the rest of SA saw prices climb 12.81%. 

Where mortgages have shrunk  

Mortgage sizes haven't risen everywhere though, with reduced serviceability limiting growth in the more expensive capital cities.

With higher interest rates weighing heavily on borrowing power, Ms Creagh said conditions are skewed in favour of upgraders and downsizers who have seen the equity in their homes rise in line with property prices, while conditions remain tough for those looking to break in for the first time.

"Those already in the market have enjoyed strong price gains and are using the opportunity to sell and potentially upgrade or downsize, with listings activity up so far this year."

"First-home buyers face the difficult conundrum of having to take on larger home loans to keep up with rising property prices, at the same time higher interest rates have reduced borrowing capacity.

PropTrack senior economist Eleanor Creagh said the need for larger loan sizes in some states reflected strong growth in property prices.

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"Without additional help from sources like government schemes or the Bank of Mum and Dad, this is especially hard in the more expensive states."

"Still, those who are able to are moving ahead with property purchasing goals despite affordability challenges, with the tough situation in rental markets likely incentivising some first-home buyers to purchase their own home sooner than they otherwise would have."

In Victoria, the average home loan has shrunk by $14,882 to $603,000 over the year to February.  

Mortgage sizes also went backwards in NSW, inching down by an average $4,725 over the year to $721,600, despite property prices rising 8.1% in Sydney and 3.4% in the regions.

Ms Creagh said borrowing capacities had fallen by around 30% for a typical borrower since the RBA first began raising interest rates in May 2022. 

Average new mortgage sizes have fallen in Victoria over the past 12 months. Picture: Getty

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“This means that as mortgage interest rates have risen, the amount would be buyers can borrow has radically reduced,” she said.  

“In markets where affordability is most strained, average loan sizes have fallen slightly over the past year, likely reflecting those affordability constraints."

In Tasmania, where home prices have underperformed the rest of the market, the average mortgage size fell by $13,718 over the year to $437,000.  

“In Tasmania, price falls have persisted over the past year, this is likely another factor that has weighed on average loan sizes," Ms Creagh said.

First-home buyers feel the pinch 

Mortgage Choice broker Shannon Hassett said the combination of rising property prices and reduced serviceability was making it harder for first-home buyers to enter the market.  

“It’s less about whether first-home buyers can afford the homes, it’s more about how much they have saved for their deposits because often their deposits don’t stretch that much," Ms Hassett said.

The average mortgage in NSW decreased by $4,725 to about $721,600 over the year to February. Picture: Getty

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And while existing homeowners have benefited from increased equity, Ms Hassett said there was a catch for homeowners looking to sell in certain markets such as Perth at the moment.  

“People may be getting a better price for their property, but it depends on if they are buying in the same market,” she said.  

“Many people do want to sell their place and upgrade, but they don’t have anywhere to move to due to low stock, so they’re not putting their homes on the market, which is not helping stock levels.” 

Originally published at https://www.realestate.com.au/news/borrowers-taking-on-tens-of-thousands-of-dollars-in-extra-debt-as-home-prices-soar/