Debbie Shankar - 23 Oct, 2015

Why Have Australian Home Loan Sizes Increased?

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The latest research indicates that the size of the average Australian home loan is growing. This, say experts, is attributed to a number of factors, such as an increase in property prices and falling home loan interest rates.

According to the Australian Bureau of Statistics (ABS), the average size of home loans in Australia has increased by more than $40,000 to $364,000. This being the highest figure ever recorded and a 10% increase on July 2014 data.

Which States Have Recorded the Highest Rises in Home Loan Size?

In February of 2014, the average Australian loan size was $319,000. This was a 6.4% growth when compared to figures collected 24 months earlier. Of all Australian states, New South Wales recorded the highest loan size with the average size of home loans in this state increasing by 10% to $358,800.
While the national average for home loan size was $319,200, other states recorded varying figures. The Northern Territory recorded $346,800, the Australian Capital Territory $329,700, and Victoria $316,500. Western Australia recorded $310,600, Queensland $292,800, while South Australia recorded $256,800, and Tasmania $212,400.

Since July 2014, New South Wales and Victoria have recorded the greatest increase in home loan size. New South Wales recorded a 15% rise, whereas Victoria recorded a 10% rise. In comparison, the Northern Territory, Queensland, Tasmania and Western Australia recorded the lowest home loan size increases of 3% or below.

In relation to first home buyer loans, four Australian states recorded a growth in home loan size. These states being New South Wales, Victoria, Western Australia and the Australian Capital Territory.

Real estate experts are suggesting that property market competitiveness and home price increases could be a deterrence for first home buyers who are looking to enter the market. Therefore, the number of first home buyers looking to buy a home has waned.

At present, first home buyer loans in New South Wales were averaging $402,100. This was a 9% rise on 2014 figures. However, at the other end of the buying scale, Tasmania recorded a 15% drop in the average first home buyer loan with the average loan size being between $221,000 and $187,000.

Why Have the Sizes of Australian Home Loans Increased?

Apart from lower interest rates encouraging more home buyers to take on larger debt responsibility and greater financial risk, home prices have also skyrocketed in Australia. This means that Australians are having to pay more to buy a home.

In relation to lower interest rates, the Reserve Bank of Australia (RBA) has been fighting a number of issues as it struggles to balance the Australian economy. Soaring housing prices and a cooling mining sector, along with a rising unemployment rate mean that predicted national growth has been lower than expected. As a result the RBA have been reducing the official cash rate in an effort to encourage consumer and business spending, and to create economic equilibrium.

Looking back, in June 2012, the RBA dropped the official cash rate to 3.50%, which at the time was the lowest rate recorded since November 2009. Since then, the official cash rate has continued to drop. Today the official cash rate sits at 2.0%, the lowest that Australia has ever seen.

Given that the official cash rate seems to be continually falling and has been for a number of years, many financial experts are beginning to fear that Australian home loan holders may have become accustomed to lower interest rates. This has led to a number of financial experts questioning whether these home buyers have been lulled into a false sense of financial security.

On the home price front, property data collected by the International Monetary Fund suggests that Australian housing is the fifth most overpriced in all countries in the organization for Economic Co-operation and Development when compared to rents. According to CoreLogic RPData, Canada leads the way for the most overpriced housing in the world, and is closely followed by New Zealand, Norway and Belgium.

Home prices in Australian capital cities, which house almost two-thirds of the nation’s population, are said to have risen by more than 26% since January 2009. Many property experts suggest that these price increases are attributed to the fact that Australia dodged the housing price crash that many other nations have experienced over the past decade. This, in turn, has allowed Australian home buyers to retain their confidence when buying homes to either live-in or as an investment.

According to many financial experts this is a concern as Australian household income is not keeping pace with home price rises. This means that Australian household debt is continuing to rise.

According to the RBA, the average household debt in Australia sits around 150% of the average annual income, and has done since 2006. Economists suggest that the current Australian household debt equals 130% of Gross Domestic Product (GDP), whereas the average in the advanced world is 78%.

The rise in Australian household debt is attributed to rising home costs and is now higher than at any other time in our history. Bank lending as a portion of the GDP is estimated to be more than double the share of the previous peak that occurred during the 1890s land boom. This leaves many people asking, ” What happened to the good old days?”

Want to know more about home loans? Then contact eChoice and find the right home loan for YOU today.

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