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What salary do you need for a $500,000 mortgage?
72 Plays1 day ago
Think home ownership is out of reach on an average income? In this episode of Buying Your First Home, we break down real borrowing capacities for incomes from $45K to $300K—and show you where you can afford to buy in today’s market. From rentvesting tips to government schemes and credit hacks, discover how to boost your borrowing power and make that first home a reality, no matter your salary.
Stop guessing about your buying power! Get a FREE personalised home buying assessment with Hunter Galloway. Call 1300 088 065 or visit huntergalloway.com.au
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Transcript
Jess's Dilemma: Saving vs. Home Ownership
00:00:00
Speaker
Meet Jess, an ICU nurse. She's got 80,000 saved after five years of brutal 12 hour shifts. Meanwhile, Prism's median house price just hit 977,000. She's on an salary.
00:00:13
Speaker
that means her entire year's work equals to nine percent of the median house price On the surface, it looks like a dream of buying home is just that, a dream. But don't worry, this isn't a story of defeat. It's a story of how anyone, no matter what the salary, can buy a home.
00:00:26
Speaker
Today, I'm pulling back the curtain on exactly how you can do it. I'm going to break down exactly how much borrowing power you can have at different income levels, and more importantly, where you can afford to buy, even in today's market.
00:00:37
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Because here's the truth. It's not just about what you earn. It's about knowing where to look.
Podcast Introduction: Navigating Home Buying
00:00:41
Speaker
And I'm here to help you find it. Welcome to the Buying Your First Home podcast, your personal guide through the Australian housing market. Here we tackle the big questions and the small details that come up when buying your first home.
00:00:54
Speaker
From financial prep to finding the right neighbourhood, we're here to ensure that you've got all the knowledge at your
Loan Approval: Factors and Stress Tests
00:00:59
Speaker
fingertips. So let's take the first step towards unlocking the door to your new home.
00:01:08
Speaker
In 2025, banks are taking a much more cautious approach when determining how much you can borrow. Rather than basing their decisions solely on your current mortgage rates, lenders stress test your ability to repay the loan by applying a 3% interest rate increase.
00:01:22
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For instance, if the rates today are around 6%, the bank is calculating your ability to pay back that loan at 9%. Now, that was great in a rising interest rate market because potentially if the rate's going to go up, it's obviously, you know, you want to be able to afford it. But in the current market where the rate's going to come down, it's not really reflective of what's going to happen.
00:01:39
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Not only that, your borrowing capacity is tightly linked to your debt to income ratio. This is something that happens in the background, but lenders will typically assess or give you a loan up to five to six times your income. So really roughly, if you're earning $100,000, you can expect to borrow around $500,000 to $600,000 within the bank's DTI benchmarks.
00:01:56
Speaker
But if you're too heavily indebted, if you've got personal loans, credit cards, then it can reduce your maximum debt to income and how much you can borrow. And that's the other crazy thing. Ongoing debt that you have, whether it's student loans like HECS or HELP debt, credit cards, they all cut into your borrowing capacity.
00:02:10
Speaker
With HECS in particular, once your income passes that repayment threshold of around $48,000, a percentage is automatically deducted from your servicing to go towards your HECS debt.
Understanding Borrowing Power and Calculators
00:02:19
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Now the bank's regular has flagged some changes here, but it's not yet happening. So I'm basing this as at the bank's assessment today.
00:02:25
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Now for payment buffers and your credit cards weren't enough, banks also factor in your living expenses. These are used either using the housing expenditure measure, HEM, or they'll actually look at statements and look at what you're spending on food, electricity, utilities, private health, all that fun stuff.
00:02:39
Speaker
And the more you spend on this stuff, the less money is left over to pay for your loan and the less money you can potentially borrow. So for a bank to work out how much you borrow, they're going to combine the impact of the 3% stress test, your debt to income limits, ongoing debt repayments and required living expenses to work out your overall borrowing capacity.
00:02:55
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So as you can see, there's a lot more to it than just looking at salary and understanding these factors can be better prepared for a loan this year. But let's start with income. Let's break down what different incomes can get you in today's market. I'm using real numbers using one of the big four banks borrowing repayment calculators. This the one the brokers use, not their online ones.
00:03:10
Speaker
And to be clear, your borrowing capacity can vary from lender to lender, but these gonna give you a clear snapshot of what's possible. Let's start off with a retail worker earning about $45,000 year. a single retail worker a year can typically borrow around it's a mostop but it's something The good news is if you've got two retail workers, so it's you and your partner looking at buying a home together, or maybe you and a friend living together with a combined income of $90,000, you're borrowing capacity almost doubles to $415,000. Let's assume you're a nurse earning $88,000. You know, there's a lot of overtime and shift allowances and stuff you get. But for the purpose of this, let's assume it's a base salary, you could be borrowing around $444,000. That's obviously going to open up a lot more options than a retail worker.
00:03:50
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For a lawyer or professional earning $125,000, this would give you a borrowing capacity of up to $620,000. The high income obviously is your higher loan. And with all these figures, we're assuming that there's no hex, no credit cards, and very minimal living expenses.
00:04:04
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For high income earners with a combined income of $250,000, So if you're in a dual incomes household, pulling $250,000 together, one partner might be on $100,000, the other's on $150,000, you could qualify for loan of about $1.3 million. So as you can see, it's not quite a linear thing with these capacities, but the strong combined incomes can give you more options in competitive market. If you're a top tier professional, like a surgeon earning $300,000, you'd have a borrowing capacity on your own about $1.4 million.
00:04:29
Speaker
You might be surprised by these numbers. Well, if you think these numbers seem a little low to you, yeah, you're right. Between 2021 and today, borrowing power in Australia has taken a huge hit. You might be saying these numbers don't quite add up. But back in the pandemic era, when the mortgage rates were at rock bottom, Australia's could borrow massive amounts.
00:04:44
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Fast forward today of the last two, three years, the ah RBA's hiked rates 13 times, dropped them once, pushed the cash rate from near zero to over 4% and forced the banks to increase their stress test to a 3% buffer. It was previously 2.5% before.
00:04:56
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What does that mean in real terms? One analyst has suggested that the income you'd need to afford a mortgage comfortably has increased by 37% over the last two years. In practical terms, this means if you could borrow, say, a million dollars back then a couple of years ago, right now you might only have to borrow $700,000 $780,000. That's a reduction 20% 30% or more in your borrowing capacity.
00:05:13
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that's a reduction of twenty to thirty percent or more in your borrowing capacity And in the meantime, property prices have increased, so it's a double whammy really. So if you haven't updated your borrowing calculations since the ultra-lower rates in 2021, you might be in for a little bit of a surprise when you see the numbers today.
Affordable Housing Strategies in Major Cities
00:05:28
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But it's not to say that you can't still buy in the current market. All right, so this is the part you've been waiting for. Based on the borrowing capacity numbers we went through, what kind of home can you actually afford on that salary? Well, it's at the scene, Australian house prices are completely different depending on where you look on the map. Sydney's median house price is sitting at jaw-dropping $1.5 million. dollars Melbourne's around $900,000 and Brisbane is higher at $975,000. Those median house prices are way out of reach for most low to middle income owners.
00:05:54
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But there is hope. The median price is just an average of the home sold in the city or suburb. Every city and every suburb will have properties that are below the median, which means they're much more affordable than what you think.
00:06:04
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And these properties aren't necessarily rundown or fixed uppers. They could just be smaller, a little bit older with a smaller yard. Just think of entry level. Your first home doesn't need to be a forever home. It can just be a stepping stone. For $45,000 income earners, what can you afford with a $220,000 loan?
00:06:18
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Let's be honest, buying a property on a $45,000 salary in Australia in the major cities is going to be pretty tough. With borrowing capacity of 220 and a 20% deposit, that means you could buy a home up to $275,000. But does that actually get you? Well, here's bit of reality check.
00:06:32
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Brisbane offers some realistic opportunities for buyers in this market, particularly if you're looking at studio apartments. There's a studio apartment, 502 108 Market Street, that sold for $240,000. It was square meters, so it's pretty tiny, but it's obviously in the heart of the city and you get access to a lot of the local amenities. There's another studio apartment, 108 Market Street, that sold for $240,000.
00:06:51
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It's slightly smaller, but it's on the 21st floor, so it's got a bit of a view. Now, it's not to say inner city living is going to for everyone, but it just goes to show it is possible if you look hard enough. Melbourne also has limited options under $275,000, typically small apartments or service units.
00:07:04
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ah to A two-bedroom apartment at 139 Lonsdale Street sold for $280,000. I know it's slightly over, but it offers some great yield and it's pretty close to Chinatown and the universities. And if you're in Sydney, i hate to say it, there's not really a lot.
00:07:16
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um You're probably going to look further that out of town or maybe look at some of the regional centers for what you can get at that price point. I'm sure you realize it already, but if you're solid buyer earning $45,000, purchasing in a major city is going to be pretty tricky.
Maximizing Buying Power on Low Incomes
00:07:27
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But it's not impossible. Here's some ways you can improve your chances. Firstly, you can look at teaming up. You can combine your income with a partner, a sibling, or a friend to increase your borrowing capacity. Two incomes $45,000 plus that 20% deposit could mean you could look at properties up to $550,000.
00:07:41
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You can even look at rent vesting and buy an investment property rather than a home to live in. You can look at saving strategically using schemes like the First Home Super Saver Scheme to help increase your deposit and give you more of a chance to increase the buying potential and be open to compromise. Smaller units or properties way further out might give you a bit more options.
00:07:57
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Two retail workers $90,000. What can for $450,000 $500,000? what can you buy for four hundred and fifty to five hundred thousand dollars Alright, let's get to the point. In today's market, a budget of $450,000 to $500,000 isn't going to get you mansion in the suburbs like it once did. But it can be that foot into the door of home ownership. Here's what's possible in Australia's three largest cities.
00:08:13
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Brisbane, townhouse and units. In Brisbane, $500,000 opens doors to a lot of modern townhouses and units in outer suburbs with strong growth potential. I'm talking Logan City, suburbs like Woodridge or Kingston.
00:08:24
Speaker
You can snag a three-bedroom townhouse for $395,000 to $450,000. You're about 25 to 30Ks the city, but potentially has a pretty good rental yield and is pretty close to the schools. Springwood, there's units sold here for $460,000.
00:08:36
Speaker
With prices rising, there's a lot of demand there. Or look in Kippering, for $450,000 you can get a two bedroom unit with a pretty good rental yield. Melbourne's outer suburbs and Asian units offer a pretty good entry point. You've got Craigieburn, 30k's north with a three bedroom townhouse here for $420,000 to $460,000. Point Cook, 25km southwest, you get a two bedroom for about $440,000.
00:08:55
Speaker
Or Roxburgh Park, all the two bedroom townhouses occasionally come up for under $400,000. Sydney's brutal market makes it a lot tougher, but it doesn't mean it's not possible. Blacktown, about 30Ks west, has some basic two-bedroom units for about $450,000.
00:09:08
Speaker
Liverpool offers older two-bedroom units for townhouses for around $480,000. And the reality is if you want a standalone house, you may need to look at that rent-versing strategy in further regional New South Wales while living in the city. The strategies in this price point are looking at overlooked suburbs.
00:09:21
Speaker
Suburbs like Logan in Brisbane or Craggyburn in Melbourne. Blacktown and Sydney offer some good growth potentials while getting in under the median house price. And try and compromise smartly. Prioritize suburbs with new new infrastructure for those train lines or properties that need renovations. You might have to get your hands dirty to get something a bit cheaper than everyone else.
00:09:37
Speaker
For high income earners, what does $750,000 you in only about as a lawyer, your power, you've got a deposit is up to around going to give you some options looking around the city.
00:09:49
Speaker
In Sydney, you'd be looking at townhouses in Western Sydney, like Roos Hill. These might be a bit above $700,000, but still possible. You can look in Hurstville, some of those older two-bedroom apartments that range from sort of 680 to 740. Or if you want to go further out, you can look at Mount Druitt, 40Ks West.
00:10:04
Speaker
Occasionally, three-bedroom house for 7 or 750 that needs a bit of work there. Melbourne's outer suburbs offer some lifestyle without sacrificing too much. You can get freestanding homes in Craggyburn, 26 k's north, full bedroom houses on 600 square meter blocks, sell for 730 to 760.
00:10:18
Speaker
Pretty family friendly and you've access to the train. You've got Brunswick East if you're looking for units, about 710 to 740. And you're only about 15 minutes away from the city. And Brisbane has some really good buys. You can look at Oxley, just check out for floods and that sort of thing for the mid 700s. They're about 20 minutes north of CBD. You can look at townhouses near infrastructure like Logan Central.
00:10:37
Speaker
And you can look at areas for Olympic growth, like potentially the Gabba, depending on what happens on the stadium, which is still going through. But still, you're in a city, you've got good access to town, which is always nice. If you're earning $250,000 combined or $300,000 solo, it's going to give you a bit more capacity.
00:10:50
Speaker
You're looking at homes between $1.3 to $1.4 million. So here's what's possible. Melbourne, you might be looking at townhouses in Carlton. They're around $1.3 million. dollars Footscray, you can look for a four-bedroom place throughout $1.35 million or Mornington if you're looking further out. Brisbane, you might be able to jag a house in Indrapilly, sort of an older style for $1.4-ish.
00:11:08
Speaker
Wollongabba, you can get a townhouse for there. Or look at Redland Bay if you're wanting waterfront for $1.3 million. The unfortunate thing in Brisbane is in a lot of inner city suburbs, if want to be within 10 kilometers of the city, around a million dollars is almost the opening price. It's kind of the minimum you're going pay for a house in those areas. So do more research, see what you need.
00:11:25
Speaker
If that budget isn't working, then you have to look at the sister suburb strategy where you look at the next one along, a house that have the same fundamentals or is close to the city. I've got a whole other video on that um or look further out.
00:11:36
Speaker
So there clearly are options. It might not be the ideal ones that you want as your first home depending your budget, but it is possible depending where
Tips for Boosting Borrowing Capacity
00:11:42
Speaker
you look. But if you've got the savings and you're just short on borrowing capacity, how do you improve your borrowing power? Well, the good news is your borrowing power isn't fixed. With the right strategy, you can stretch it a little bit further and unlock opportunities that you didn't think it was possible.
00:11:53
Speaker
Whether you're earning 45,000 300,000, these tips can help you out. Firstly, the deposit advantage. You don't need to be limited to just your savings. Use some of the government schemes that are available to help turbocharge your savings to have more money. The first home super saver scheme.
00:12:05
Speaker
This is fantastic if you're looking at buying in a year plus away. You could save up to $15,000 a year pre-tax and withdraw up to $50,000 from your super towards your deposit. You need to make specific contributions to the first home super saver scheme. You can't just access your super fund. So you need to start now if you're looking at buying a place the next few years.
00:12:23
Speaker
There's also the 5% deposit path with schemes like the home guarantee scheme and LMI waivers if you're a nurse, for example, means you can buy with just a 5% deposit minimum to help you get into the property quicker. So on a $540,000 property, you only need $27,000 down instead of the usual $108,000. There's also credit makeover. If you've got credit cards you're not using, have a chat to a broker and see if closing them can increase your capacity.
00:12:46
Speaker
You can look at your HEX, potentially if you're only are a little bit on your HEX, it could be worth looking at closing that to help increase your capacity. Things like Novator's leases absolutely shred your borrowing capacity. So if you're thinking about getting an electric car because of all the tax advantages, chat to you broker first because that can potentially reduce your borrowing capacity by hundreds of thousands of dollars.
00:13:03
Speaker
The other thing you can do, which might not be the nicest thing to do, but it's possible, is increasing your income. If you're a shift worker, you can take on extra shift penalties, do overtime, or look at getting a second job.
00:13:13
Speaker
If you're working your primary job, say 30 hours a week, and you get a second job, some banks will want you to hold that second job for at least six months to accept the income just to make sure it's manageable. So keep that in mind. You can't just go out, apply for a second job, apply for the late next day.
00:13:26
Speaker
um They generally want you to have held it for a little bit just to make sure you're not yeah burning the candle at both ends. Also keep in mind there's different approaches do that. You can look at that rent-vesting strategy. So potentially if you're living in Sydney and you can only afford a $300,000 home, then it's a perfect opportunity to look an investment property, maybe regionally, as you can afford or keep saving until you can get into the market.
00:13:44
Speaker
Borrowing capacity can get complicated depending on situation, it's not set in stone. There's things you can do to improve it and increase that number a lot.
Hunter Galloway: Mortgage Broker Services
00:13:52
Speaker
Working with a good broker can help you with that. At Hunter Galloway, we're mortgage brokers. We help home buyers across Australia.
00:13:58
Speaker
If you want a free assessment, if you're confused by the ongoing calculators, if you're not sure how much you potentially can afford, hit us up on our website. We can do a free assessment. Go to huntergalloway.com.au. And until next time, I'll see you later.