Fresh data has shown that recent cash rate increases have reversed any affordability boosts from softer prices, with income hurdles for would‑be buyers climbing sharply.
Cotality’s May Housing Chart Pack has revealed that higher interest rates are reversing the benefit of recent price falls in Sydney and Melbourne and driving borrowing capacity backwards, particularly in mid‑tier capitals where values are still rising.
Cotality’s analysis has shown how quickly the serviceability bar has moved this year, even for typical family homes.
Aspiring buyers seeking a median‑priced house in Brisbane now need more than $17,000 in additional annual household income compared with January to qualify for a standard mortgage, while an equivalent buyer in Perth faces a similar jump of about $16,500 over the same five‑month period.
Cotality said this was the direct result of higher interest rates feeding through to serviceability tests at the same time as dwelling values continue to edge higher in the mid‑tier capitals.
“Rate hikes have significantly increased the challenges of servicing a mortgage across Australia,” Cotality head of research, Gerard Burg, said.
“In expanding markets like Brisbane and Perth, the compounding effect of rising property values and higher interest rates creates an aggressive income barrier for buyers, even at the lower end of the spectrum.”
Cotality said that the minimum income needed to service a lower‑quartile house had leapt by $14,500 between January and May in both cities.
Price falls, but no relief in Sydney and Melbourne
In contrast, Sydney and Melbourne have recorded modest dwelling value declines in recent months as higher rates and stretched affordability take some heat out of their markets.
Cotality reported that Sydney dwelling values dropped 0.9 per cent in May and 2.1 per cent over the quarter, while Melbourne values fell 0.8 per cent over the month and 2.3 per cent over the quarter.
However, Cotality said higher interest rates had “intensified mortgage serviceability constraints nationwide”, completely offsetting the benefit of price declines in the largest capitals, even as ongoing value growth in the mid‑tier markets pushes required incomes to “unprecedented levels”.
One striking comparison is the gap between Sydney and Melbourne.
According to Cotality, households looking to buy a median house in Sydney now need $70,000 more in annual income than those purchasing an equivalent property in Melbourne.
Units no longer a clear escape valve
The data house also said that buyers shut out of detached houses were pivoting in large numbers towards apartments, particularly in Queensland.
The report said that strong demand had pushed Brisbane’s unit market through a “dramatic” shift in recent months, to the point where there is now only “just over $2,000” difference between the minimum household income required to buy a median unit in Brisbane compared with Sydney.
Cotality said “intense competition” for affordable housing had made Brisbane’s lower‑quartile units the most expensive entry‑level apartments in the country.
Burg said this trend showed how “compressed the affordability landscape” had become as buyers chase whatever stock they can still reach.
“Buyers are redirecting their focus toward apartments, which is rapidly erasing the traditional price gap between Brisbane and Sydney units, and making Brisbane’s entry‑level apartments the most expensive nationwide,” he said.
Price performance in other cities underscores that split.
In May, Brisbane, Adelaide, and Perth all still recorded value gains – 0.9, 0.5, and 1.5 per cent, respectively – and over the quarter, they rose 3.4, 2.8, and 4.8 per cent.
FHBs and rising risk
Despite the deteriorating affordability backdrop, Cotality pointed to signs that policy support was drawing more first‑timers into the market.
It reported that first home buyer (FHB) loans now accounted for 29 per cent of owner‑occupier lending, a touch above the decade average of 27.6 per cent.
Cotality listed the ACT as the strongest first home buyer market, with FHBs making up 37 per cent of owner‑occupier lending, followed by the Northern Territory at 36.6 per cent and Tasmania at 33.4 per cent – all well above their 10‑year averages.
At the other end of the spectrum, Queensland and NSW each sit at 27 per cent.
Cotality also flagged emerging credit‑risk signals.
It said new home‑loan originations considered higher risk had shown a “subtle rise over recent quarters”, hinting that some borrowers were stretching themselves to overcome the new income benchmarks.
[Related: Mortgage demand in ‘significant decline’]
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