Fascination and debate have long characterised Australia’s property market. From suburban mansions to inner-city apartments, owning a home is a goal for most Aussies. That said, with rising house prices, many people are unsure how much you actually need to make in order to afford a house in Australia.
Let’s look at some key aspects below.
What Kind of House Can I Afford Based on My Salary?
It primarily depends upon factors such as:
- Your Income
- Existing Savings Towards Deposits
- Other Lifestyle Expenses
Most of the lenders consider loan-to-income ratio. The amount that they will be willing to lend – usually five or six times your gross annual income – may differ based upon your financial commitments plus their acceptable lending criteria.
For instance,
- If you earn AUD 80,000 per year, the amount you can borrow could be between AUD 400,000 to AUD 480,000.
- Throw in a 20% deposit, and you could be looking at properties in the ballpark of AUD 500,000 to AUD 600,000.
However, this is where your paying ability comes into question. You may be eligible for a higher amount, but you should not overextend yourself – live within your means.
You shouldn’t spend more than 30-40% of your income on mortgage repayments if you want to avoid financial stress. Upscore’s online mortgage calculator can be used to estimate how expensive a house you can afford in regards to your salary and expenses.
How Can an Australian Afford a Million Dollar Home?
A million-dollar property is not as extravagant anymore, particularly in cities like Sydney and Melbourne, where the median house prices more often than not tip over AUD 1 million.
Owning such property calls for a strategic combination of income, savings on deposit, and financial discipline.
Steps to afford a million-dollar home:
Save a Significant Deposit
Ideally, aim for at least 20% of the property’s value (AUD 200,000). This helps avoid Lender’s Mortgage Insurance (LMI) and reduces your loan amount. If 20% is out of reach, many lenders accept deposits as low as 5-10%, though you’ll need to budget for LMI.
Earn a High Household Income
A million-dollar house requires your household income to be more than AUD 160,000 annually. This keeps your repayments at manageable levels once all the interest rates and other expenses are factored in.
Reduce Debt and Expenses
Lenders calculate your debt-to-income ratio, so it makes sense that paying down the following before applying for a mortgage will be beneficial:
- Credit Cards
- Car Loans
- Other Financial Obligations
Consider Joint Ownership
Pooling resources together with a partner or family member may be the key to borrowing power with a highly valued property.
Research Government Schemes
First Home Owner Grants (FHOG) and stamp duty concessions can relieve the cash burden of a low-down payment home purchase. See what’s available in your state or territory.
Think Long-Term
Choose a property in a growth suburb or one with renovation potential; generally, this will gain capital over time, possibly allowing upgrading or refinancing at a later date.
Plan for Ongoing Costs
In addition to the purchase price, add property taxes, maintenance and utilities for the total cost. These amounts really add up for a large property.
What House Can I Afford on 75k?
Earning AUD 75,000 per year puts you in a good position to enter the real estate market. Your actual buying power will, nonetheless, be made out from your deposit, existing debts, and location of choice.
Estimate Based on Income
Let’s assume:
- Gross Annual Income: AUD 75,000
- Deposit: 10 (AUD 40,000 of a property valued at AUD 400,000)
- Interest Rate: 5%
- Loan Term: 30 years
This would mean you can afford a property that’s worth about AUD 350,000 to AUD 450,000. The monthly repayments will fall in the range of AUD 1,800 to AUD 2,200, depending on the amount and type of loan taken.
Affordable Housing Options
- Regional Properties: These are typically affordable compared to metropolitan cities. In the regional towns of Queensland or Victoria, one can easily get a house for less than AUD 400,000, which would nicely fit on a AUD 75k salary.
- Apartments Over Houses: Apartments that are inner-city are usually cheaper than houses. If living near to your workplace or even other amenities is an issue, then a unit may be more suitable.
- Off-the-Plan Opportunities: Buying off-the-plan can, from time to time, allow you to secure a property at today’s prices, with settlement over a few years. This means possible capital growth in the interim, while you’re saving for extra costs.
- Shared Equity Schemes: Most states have shared equity programs where you partially own the house with either the state government or another party, reducing the upfront mortgage cost and overall repayment.
Budgetary Considerations
Add in the following other costs – you may be looking at adding another AUD 15,000 to AUD 20,000 to the purchase price of a AUD 400,000 property:
- Stamp Duty
- Legal Costs
- Property Inspections
How Does Your Savings Impact Affordability?
Your savings play a critical role in determining how much house you can afford. A larger deposit not only reduces the amount you need to borrow but also lowers your loan-to-value ratio (LVR), which shall unlock better interest rates from the lenders.
A 20% deposit is ideal as it helps you avoid costly Lender’s Mortgage Insurance (LMI). However, even with a smaller deposit, you can explore options like government incentives or shared equity schemes.
Other Factors to Consider When Buying a House in Australia
Interest Rates
Interest rates play a huge role in determining affordability. A higher rate increases monthly repayments, which might limit your borrowing capacity. Check current rates and consider locking in a fixed rate if you prefer stability.
Lifestyle and Financial Goals
Your dream home shouldn’t compromise the following financial goals, so ensure you budget for these alongside mortgage repayments to maintain a balanced lifestyle:
- Travel
- Retirement Savings
- Family expenses
Property Type and Location
Research areas with growth potential. Even if it is your first house, consider the resale value or demand it will produce if your plans change in years to come.
Government Incentives
Benefits such as the First Home Loan Deposit Scheme – even stamp duty exemptions – can make all the difference in terms of upfront costs and viability overall.
Long-Term Financial Planning
Think well beyond the current cost: consider:
- Equity Building
- Refinancing Options
- Property Maintenance
A well-planned purchase can set you up for financial stability in years to come.
Conclusion
Some of the factors determining how much you need to make to afford a house in Australia include your income, deposit, location, and the type of property you’re after.
Although metropolitan city prices may be beyond the reach of many – even reaching the heights of European cities like London or Milan – hope is not lost for regional areas, apartments, and other creative financing.
Take the mystery out by using Upscore’s affordability calculator and Finance Passport to help streamline your mortgage journey and find the best possible loan terms available.
Whether you’re earning AUD 75k or aiming for that million-dollar house, homeownership in Australia can be a dream come true if there is the right strategy and proper preparation.
