The rapid increase in house prices in Australia has compelled many homeowners and homebuyers to allot a bigger share of their income to service their mortgages over the past year.

Bluestone’s latest report showed that home loan affordability continued to worsen over the December quarter, with the affordability index rising across all states.

Of all states, Western Australia and Northern Territory ended 2021 with the lowest index reading, which translates to buyers spending the smallest proportion of their income on home loans.

New South Wales and Victoria reported the steepest declines in affordability over the year, with the former rising as the most unaffordable for home loan borrowers.

Bluestone consultant economist Dr Andrew Wilson said the surge in house prices over the latter part of 2021 led to the sharp decline in home loan affordability.

“Price increases have stabilised recently, particularly in Sydney and Melbourne with rising affordability barriers increasingly sidelining buyers in those markets,” he said.

“Lower price growth will act to stabilise the decline in underlying home lending activity that has emerged over 2021.”

Owner-occupiers taking the lion’s share

Despite the worsening affordability, all buyer groups manifested stronger home loan activity, with owner-occupiers leading the charge.

Over the December quarter, owner-occupier lending increased by 5.7%, boosting their market share above the long-term average of 52.9% to 56.7%.

Investor lending also increased over the quarter and reached its 14th consecutive monthly growth in December.

Over the quarter, the value of investor lending increased by 2.4%, but the segment’s share in the overall home loans market went down from the long-term average of 32.7% to 28.1%.

Meanwhile, the last quarter of 2021 was a good period for first-home buyers, with their segment posting a gain of 5.3% in home loan values.

During the quarter, the market share of first-home buyers increased, now at 15.2%, which is above the long-term average of 14.3%.

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