The cost of inner Sydney mortgage not cheap


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Thinking of buying a home in inner Sydney? With the median house price above $1.5million, John McGrath, CEO of McGrath Estate Agents, calculates you would need a gross household income of $268,000 to pay off the mortgage. Even if you move to Sydney's middle ring, where median prices are above $1 million, you would need a household income of $197,000.

"The zone within 20km of the CBD is too expensive for more than 90% of Australians based on their ability to service the mortgage," says McGrath. He says Sydney is experiencing the Manhattan effect, where only the rich live in the city and everyone else lives in Brooklyn or one of the other boroughs. Even Sydney's less expensive outer ring requires a household income above $100,000 for most people to avoid mortgage stress.

The figures have been compiled by CoreLogic RP Data and are based on the most recent Australian Bureau of Statistics (ABS) household income and income distribution report, with a loan repayment of no more than 30% of income (the point where mortgage stress sets in), a loan-to-value ratio of 80% of the principal and a standard variable mortgage rate of 4.75%. "We believe as big cities become less affordable, many families will consider regional locations within a 90-minute commute from nearby cities," says McGrath.

Bondi beach

"Melbourne, Brisbane and NSW coastal regions will become increasingly attractive to the rising number of Gen X middle-income earners who are tired of Sydney's higher cost of living and the next generation of families among the more nimble, lifestyle-focused Gen Y."

He says the ABS data already shows an increasing number of Sydneysiders migrating to nearby commuter sea-change locations while others are heading to Melbourne.

Certainly, living in the inner ring of Melbourne only requires an income of $156,000, and $118,000 for the middle ring and $75,000 for the outer ring.

"Melbourne's population has been growing faster than Sydney's since 2000 and in two out of three models used by the ABS to project future populations, Melbourne will overtake Sydney in either 2030 or 2053," says McGrath. Brisbane is cheaper still with the inner-ring suburbs requiring an income of $114,000, the middle ring $84,000 and the outer ring $65,000.

John McGrath Stress test table
Source: McGrath Report 2015

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Susan has been a finance journalist for more than 30 years, beginning at the Australian Financial Review before moving to the Sydney Morning Herald. She edited a superannuation magazine, Superfunds, for the Association of Superannuation Funds of Australia, and writes regularly on superannuation and managed funds. She's also author of the best-selling book Women and Money.