Home loan affordability plummeted to a record low in 2021

According to Bluestone’s data, the index dropped to 93.8 in the three months to December 2021, compared to 82 in the December 2020 quarter – a total fall of 14.5 per cent.

Commenting on this sharp annual jump of the index, Bluestone Home Loans consultant economist Dr Andrew Wilson said: “Strong home price growth over 2021 resulted in buyers borrowing more to keep pace with markets and, with subdued incomes growth and flat interest rates, this resulted in a higher proportion of buyer incomes required for loan repayments.”

The December quarter index also climbed 1.2 per cent higher than the 92.6 figure in the November quarter and above the long-term average for seven rolling quarters of 87 per cent.

“Although home loan activity increased sharply again over December following November’s spike in activity, the late-year revival reflects a catch-up from the restrictive impact on housing markets of severe spring coronavirus lockdowns – particularly in Sydney, Melbourne and Canberra,” explained Dr Wilson.

In addition, Dr Wilson noted that soaring prices in 2021 have started to slow down due to stricter lending requirements that put a limit to buyers’ borrowing capacity. As a result, purchasers have been frozen out of the market, which may result in weaker demand and lower price rise in the coming year.

He cited Sydney and Melbourne, which saw a recent decline in home price growth levels due to a slowdown in buyer activity.

Comparatively, Dr Wilson highlighted Brisbane and Adelaide, which are seeing robust buyer activity that is expected to “offset overall home loan declines”.

Still, the consultant economist has predicted national volumes will not be on par with 2021’s record levels.

However, Dr Wilson retains a positive outlook for the property market despite the end of the home loan boom, citing “recovering local economies, the ongoing easing of COVID constraints and concerns, the resumption of high levels of migration, an underlying shortage of housing and continuing low interest rates” as indicators of good things to come.