The surprising reality of what home your salary will get you

PropTrack data shows home prices across the country hit a new record high in April, despite higher interest rates slashing how much buyers can borrow compared to two years ago.

Mortgage Choice broker Leanne Johnstone said the purchasing power of couples and families on average wages had been cut by as much as $250,000 since May 2022, and by about $200,000 for individuals. 

“Since interest rates have increased 13 times in the past few years, it has dramatically impacted people’s borrowing capacity,” Ms Johnstone told realestate.com.au. 

“I would say people’s borrowing capacity has been reduced by somewhere around 35% to 40% compared to two years ago.”  

It comes as Australia’s median home value reached a new record high in April, rising 6.6% year-on-year to $774,000, according to the latest PropTrack Home Price Index. 

A typical borrower's purchasing power has been reduced due to higher interest rates. Picture: Getty

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Exclusive analysis by Ms Johnstone showed couples on average salaries with no children had the greatest purchasing power, followed by families and individual buyers. 

Australia’s average annual salary for a full-time worker reached $98,217 in November last year, according to the Australian Bureau of Statistics. 

Based on a range of assumptions, Ms Johnstone said a couple each earning the average annual salary for a combined household income of $196,435, who have saved a $150,000 deposit, could potentially secure a loan to buy a home worth up to $950,000.  

Lenders mortgage insurance (LMI) - which borrowers need when getting a loan worth more than 80% of a property’s value - and other upfront costs are factored into the deposit.

How far the average salary could stretch

However, a family earning the same combined household income and deposit could likely only secure a loan to buy a home worth up to about $850,000, Ms Johnstone said.

Monthly living expenses were the key reason behind the difference in purchasing power between couples and family buyers, driven especially by childcare and school fees, she said.  

Meantime, a single buyer on an average annual salary may be able to secure a loan for a home worth $510,000, assuming a deposit size of $100,000.

Slim pickings for buyers in Australia's most expensive states

Buyer’s agent and Real Estate Buyers Agents Association of Australia (REBAA) president Melinda Jennison said couples and families could buy a range of homes within their budgets across the country.  

But she said the size and housing type varied greatly depending on where buyers were looking.  

“For example, the median house price in Greater Sydney at the moment is $1.4 million, so if you’re a family looking in that area then you are going to be pushed further out away from the CBD,” she said.

“Even in Sydney, the median unit value is about $839,000, so family buyers are shopping with a budget that gets you an average unit and that’s not the type of properties that families are typically attracted to. 

“People are having to make decisions about compromising on where they live or the type of home they live in, and so they may choose a smaller dwelling closer in or go for a larger home further out.”  

Home prices in April 2024 (houses and units combined)

Ms Jennison said couples and families could find houses closer to city centres in more affordable markets such as Brisbane, Adelaide and Perth.

Despite many singles having a smaller budget to work with, Harcourts Group Australia chief executive Adrian Knowles said individuals could still purchase a variety of homes across the country for $510,000 and under.

But he said the types of homes and their proximity to city centres varied, depending on which city that buyers were looking at.  

Australia’s median home value reached a new record high of $774,000 in April. Picture: Getty

Mr Knowles said apartments and townhouses within 10km of Brisbane’s CBD still fell within that price range.  

However, individual buyers would have to look further out from the CBDs in more expensive markets such as Sydney to find homes within the budget assumed in this analysis, he said.  

Mr Knowles said buyers could find similar value to Brisbane in the other smaller capital cities such as Adelaide and Perth.  

“Adelaide is the pick of the country for me,” he said.  

“There are new technology hubs coming to Adelaide and it has really high liveability based on average prices and local infrastructure.”  

Both Ms Jennison and Mr Knowles were included in a panel of property experts for the 2024 realestate.com.au Hot 100, identifying a range of suburbs across the country with strong investment prospects over the short- to medium-term.

Tricks and pitfalls of borrowing power

There are a range of other factors to consider when getting ready to secure a home loan, Ms Johnstone said.

Existing homeowners looking to upgrade or downsize may have bigger home deposits saved due to the existing equity in their homes, while first-home buyers may be eligible for a range of federal, state and territory government schemes and concessions. 

A credit card can impact how much you can borrow for a home loan. Picture: Getty

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Ms Johnstone said borrowers should be mindful of the impact credit cards and HECS-HELP student loan debts can have on home loan applications.  

For example, a single credit card with a spending limit of $5,000 typically reduces borrowing capacity by as much as $25,000, she said.

“Home buyers should speak to a mortgage broker sooner rather than later because they can help you work out any government benefits that you might be eligible for, as well as your borrowing power and the different options between lenders," she said.