Affordable Urban Living: Top Cities to Buy a Home on an Average Salary

Buying a house near the city is still within reach for Australians on average salaries, if they’re willing to make some compromises. Remarkably, this dream can become a reality with just a five percent deposit.

While purchasing a house in a mid-range suburb in Sydney may be out of reach for someone earning a full-time salary of $90,917, the scenario is far more favorable in Brisbane and Melbourne. Here, it’s still possible to own a home with a backyard close to the city without resorting to apartment living.

Banks are currently open to lending with debt-to-income ratios exceeding six, which the Australian Prudential Regulation Authority considers the stress barrier. This flexibility provides an opportunity for more individuals to step into the property market.

Consequently, an average wage earner has the potential to secure a $545,000 loan to fund the purchase of a $680,000 property.

Supported by Labor, the federal government’s Home Guarantee Scheme offers first-time buyers on a similar budget the chance to buy with a mere five percent deposit of $34,000. This is a significant reduction from the standard twenty percent deposit of $136,000 typically required to sidestep mortgage insurance costs.

That’s if they manage to successfully apply for one of 35,000 places available for first-home buyers from July 1, 2022.

Buyers though would need to factor in a June interest rate rise – the first since November 2010 – that would see their monthly mortgage repayments rise by at least $100. 

Hemmant, 10km east of Brisbane’s city centre has a median house price of $800,342, based on CoreLogic data.

But a smaller two-bedroom house is on the market for $599,000.

Zillmere, 13km north of Brisbane’s CBD, has a mid-point house price of $750,790.

This suburb, however, has a house on the market for $575,000, which is now under offer.

Both houses were priced well below greater Brisbane’s median house price of $856,731, following a 32.1 per cent increase in the year to March.

They are also within the $700,000 threshold of the federal government’s Home Guarantee Scheme, where a first-home buyer in Brisbane can get into the property market with a five per cent deposit.

The taxpayers would underwrite the rest of the 20 per cent mortgage deposit. 

That means a first-home buyer of a $600,000 home in these parts of Brisbane can get in with a five per cent deposit of just $30,000 instead of having to save up $120,000 for the usual 20 per cent deposit. 

Up to the $700,000 Home Guarantee Scheme threshold in Brisbane, a first-home buyer can qualify with a five per cent deposit of $35,000 instead of the traditional 20 per cent deposit of $140,000.  

In Melbourne, potential buyers have to go further out to afford a house within their borrowing limit.

Broadmeadows, 22km north of the city centre, has a median house price of $632,907.

A three-bedroom house, however, is on the market with a price guide of $500,000 to $550,000. 

St Albans, 16km north-west of Melbourne’s CBD, has a median house price of $724,966.

But a three-bedroom house is on the market for $620,000 to $680,000.

Both houses are priced well below greater Melbourne’s median house price of $999,037, following an annual increase of 11.9 per cent.

They are also well within the $800,000 cap of the Home Guarantee Scheme for first-home buyers in Melbourne.

Victorian first-home buyers at this threshold can qualify with a five per cent deposit of just $40,000 instead of saving up $160,000 for a 20 per cent deposit.  

Sydney buyers wanting a house on an average salary need to head 60km south-west of the city beyond Campbelltown to get anything vaguely within their budget.

At Airds, the median house price is $722,897 – about half Sydney’s mid-point of $1.403million following an annual increase of 20.6 per cent.

But a three-bedroom house is on the market for $645,000 to $695,000. 

This puts it well within the $900,000 Home Guarantee Scheme cap for Sydney first-home buyers.

At this limit, a first-home buyer can save up for a five per cent deposit of $45,000 instead of having $180,000 for a 20 per cent deposit. 

All new borrowers, taking on a variable mortgage, need to be aware the Reserve Bank of Australia is widely expected to raise the cash rate in June, which would mark the first increase since November 2010. 

Westpac chief economist Bill Evans is now expecting a 0.4 percentage point – or 40 basis point – increase from the RBA in June, after the May 21 election.

‘We accept that there is a risk that the board would be concerned about such a large move at the beginning of the cycle with implications for confidence,’ he said.

‘A possibility might be for a more cautious 25 basis point lift in June to be followed by the 40 basis point move in July.

‘However, we anticipate that market and media expectations will shift towards a 40 basis point move over the next six weeks and the anticipated shock to confidence will be contained.’

On a $545,000 mortgage for an average-income earner, this would see see monthly mortgage repayments rise by $113 from $2,095 to $2,208 should the banks pass on a 40 basis point RBA rate rise in full.

That is based on a typical variable rate rising from 2.29 per cent to 2.69 per cent.

Westpac is expecting headline inflation in the March quarter to surge by 4.9 per cent –  the fastest annual pace since 2008. 

Even before Russia invaded Ukraine, Australia’s consumer price index in the December quarter grew at an annual pace of 3.5 per cent – a level higher than the RBA’s 2 to 3 per cent target.