First home buyers are complaining properties are too expensive and others are saying house price growth is unsustainable, so it probably comes as no surprise that news.com.au suggests the true cost of buying a house in Australia is more than $1.2 million.
Before you get to concerned , it’s important to put things into perspective.
Despite the high price tag of the average home, both the HIA-CommBank and REIA-Adelaide Bank affordability indexes suggest that housing affordability levels are the best they have been in around 10 years.
Even the Reserve Bank on a number of occasions stated that it is not worried about the level of Australian house prices. In fact they they confirmed this only a few weeks ago in their State of the Housing Market Report
So here’s what the news.com.au article had to say:
While buyers may think they have bagged a bargain at the current national median house price of $565,000, when you factor in repayments it could end up costing you almost double that.
Across a 30 year loan, with a ten per cent deposit, and an average 7 per cent interest rate across the length of the home loan, the true cost of buying a median value house is an incredible $1,245,060.
Even with a 20 per cent deposit ($113,000 for a median valued $565,000 house), and no lender’s mortgage insurance payments, repayments will top $1.08 million over 30 years.[sam id=36 codes=’true’]
The staggering number has been driven higher by Sydney and Melbourne, the nation’s two most expensive house markets, where a 30-year loan for a median house will wind up costing buyers a massive $1.685 million and $1.344 million respectively.
Online mortgage and interest rate comparison website finder.com.au compiled the figures for NewsLtd and found when buying a median valued house with a ten per cent deposit in almost any of the nations capital cities homebuyers would shell out more than $1 million across the full-term of their loan.
Only Adelaide and Hobart dodged a seven-figured mortgage.
Even those buying units will struggle to dodge a massive mortgage, with the finder.com.au figures revealing a 10 per cent deposit on the national median valued unit, $470,000 will cost buyers $1,030,951 by the end of a thirty year loan.
Sydney and Melbourne both topped the million-dollar mark for unit mortgages, with end of loan repayments topping $1.207 million and $1.052 million respectively when purchasing with a 10 per cent deposit.
You could end up paying a lot more than you expect for your home
Finder.com.au spokeswoman and money expert, Michelle Hutchison, said the figures showed the challenge faced by prospective buyers.
“The cost of buying a home is becoming an even bigger challenge for Australians, where house payments could potentially be as high as $1.6 million over the loan term for a median Sydney house. But don’t be intimidated by high property prices, if you can afford to get into the property market it’s worth comparing home loans and taking advantage of competitive rates, which can save you thousands of dollars.”
She said that just 0.25 percentage points on a loan could shave about $29,000 from a $500,000 loan over thirty years.
“In 30 years time your property should increase in value to cover that cost,”
RP Data analyst Cameron Kusher said median valued homes were most likely being bought by those upsizing, and that a majority of Australian’s buying a house in the coming years would face a full-term mortgage of more than $1 million.
“It is also important to keep in mind that mortgage rates are at historic low levels, at some point in the future they will rise, which will in turn result in mortgagees having to pay-off additional interest which would add to the ultimate amounts they pay over the term of the mortgage,
The ultimate cost of paying off a home is most likely a disincentive for some people to purchase.
On the other hand, astute mortgagees are using the low mortgage rate environment to pay extra off their loan in order to reduce the overall term over which they will be repaying the mortgage.”
Mr Kusher also noted very few homebuyers would stay in a house for thirty years, with the average Melbourne homeowner owning houses for the nations longest period, 11.4 years – well short of a full-term loan.
Market expert and buyers advocate Catherine Cashmore said the figures reflected a growing problem with affordability.
Ms Cashmore said when considering housing affordability very few considered the total cost of home ownership.
“You are paying a million dollars for your house and just hoping it will double and triple in value, and that only works when there’s a good base of buyers at the bottom. When you are borrowing that amount of money you risk getting to the end of your working life and you still need to pay the mortgage.”
A unit can end up costing you a lot more than you think.
Source: News Limited
Subscribe & don’t miss a single episode of Michael Yardney’s podcast
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
Need help listening to Michael Yardney’s podcast from your phone or tablet?
We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.
Prefer to subscribe via email?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.