The National Centre for Social and economic Modelling for News Corp Australia has revealed the home market is almost as unaffordable as at its peak prior to the GFC.

Interest rates, widely tipped to increase by 75 basis points before the end of the year, only need to increase by 66 basis points to create the new high.

The model also showed that current mortgage repayments in Sydney, Melbourne and Darwin are, on average, equivalent to amounts at the pre-GFC high.

Oh the face of it this seems strange. Surely the current low interest rates would act as a throttle to high mortgage repayments?

Unfortunately things aren’t that simple.

Low interest rates attract people to the borrowing market. In turn this drives up house prices. This means that while mortgage holders may be enjoying low interest rates the principal outstanding on their loan is a lot higher. And thus they are in the same financial predicament as if interest rates were higher, but houses cheaper.

Ben Phillips of NATSEM. Photo:

Ben Phillips of NATSEM. Photo:

Principal research fellow at NATSEM, Ben Phillips told, “Really it comes down to how big a deposit you can put together. If you can easily pull together a decent deposit then low interest rates will help housing affordability. But if you don’t have much of a deposit then what you’re going to find is the low interest rates are pushing up the house prices so much that you’re going to struggle to get into the market.”

“And of course,” he continued, “low interest rates just make it that much harder to save that deposit.”

Median monthly mortgage repayments are currently $2565 per month; compared to $2750 just prior to the GFC.

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