Household Mortgage Affordability Analysis 2020 to 2023

Results and Analysis

The progression of the median mortgage debt service to income (DSI) ratio for households with a mortgage on the household’s main residence (HMR) varies across the gross household income distribution for the period H1 2020 to H1 2023. For all households the median debt service to income ratio reduced from 11.6% in 2020 to 11.2% in 2021 and further to 11.0% in H1 2022. In H2 2022 the debt service to income ratio rose to 11.6% and to 11.8% in H1 2023.

Mortgage participation rates increase with higher household income. Therefore, care is required when interpreting the results for the first and second-income quintiles, due to the low number of households with mortgages in these quintile groups.

Households in the first gross household income quintile, the 20% of households with the lowest gross income, had the highest debt service to income ratio across the period. The debt service to income ratio for these households fell from 34.7% in H1 2020 to 27.6% in H1 2021. Between H1 2021 and H1 2023 their debt service to income ratio rose from 27.6% to 40.8%. The largest growth was between H1 2022 and H2 2022 where the DSI ratio increased from 32.0% to 38.0%.

Households in the second quintile saw the median debt service to income ratio fluctuate across the analysis period between a ratio of 21.5% in H1 2020 and 24.9% in H3 2023. 

In the third income quintile the DSI ratio fell between H1 2020 and H1 2021 from 15.3% to 13.8%. In H2 2021 and H1 2022 the DSI ratio remained steady at 14.6% and 14.5% before increasing to 14.8% in H2 2022 and to 15.6% in H1 2023.

In the fourth income quintile the DSI ratio remained stable between H1 2020 and H1 2022, between 11.6% and 11.7%. In H2 2022 the DSI ratio rose to 12.7% and in H1 2023 to 13.4%.

The median debt service to income ratio of households in the fifth quintile were least impacted by interest rate changes over the analysis period, with the DSI remained steady between 9.0% and 9.2% throughout. See figure 2.1 and table 2.1.

When examining the median mortgage debt service to income (DSI) ratio over the period 2020 to 2023 by the type of mortgage, we can see that the DSI ratio for all mortgage types fell from 11.6% in 2020 to 11.2% in 2021 and to 11.0% in H1 2022. In H2 2022 the debt service to income ratio increased to 11.6% and to 11.8% in H1 2023.

The DSI ratio for all mortgages is based upon households’ HMR mortgage debt repayments divided by household income. Some households have multiple HMR mortgages whose mortgage repayments are summed and divided by household income. When the DSI ratio is calculated for each mortgage type separately, households’ debt repayments on each mortgage type are similarly divided by household income. For households with multiple mortgages, household income isn't reduced to account for the fact that the income is covering multiple mortgages. For this reason, the DSI ratio for all households appears relatively higher than the DSI ratio for each of the mortgage types.

The composition of households in each mortgage type group can change during the period. For example, at the commencement of the analysis period a household may have had a variable rate mortgage, which may have been changed to a fixed-rate mortgage at some point. In the analysis this household would have been categorised as part of the variable rate mortgage type for the start of the period and as a fixed-rate mortgage type after they changed mortgage type.

Households with fixed-rate mortgages had the highest median debt service to income ratio of all mortgage types from H1 2020 to H2 2021. From H1 2022 onwards households with variable rate mortgages had the highest median DSI ratio. Tracker rate mortgage holders had the lowest DSI ratios from H1 2020 to H2 2022, but in H1 2023 household with tracker rate mortgages had a higher DSI than households with fixed-rate mortgages.

The debt service to income ratio of households with tracker rate mortgages fell from 9.9% in H1 2020 to 9.2% in H1 2022. In H2 2022 the immediate impact of interest rate increases were evident, with the median DSI ratio of these households increasing to 10.0% in H2 2022 and to 10.5% in H1 2023.

Households with fixed-rate mortgages had a median debt service to income ratio of 11.6% and 11.8% in H1 2020 and H2 2020. The median DSI ratio for households with fixed rate mortgages fell from this level continuously until H2 2022 when the median ratio was 10.2%. In H1 2023 the median DSI ratio rose slightly to 10.4%.

The DSI ratio for households with variable rate mortgages fell continuously from 10.9% in H1 2020 to 9.8% in H2 2021. From H1 2022 the DSI ratio for these households went up to 10.5%, fell slightly to 10.4% in H2 2022, and increased again in H1 2023 to 10.7%. See figure 2.2 and table 2.2.

To get a clearer picture of the impact interest rate increases had on households by mortgage types, the analysis is further restricted to include only one “main” household mortgage for each household. Households are then classified into distinct groups based upon the type of mortgage they had over the analysis period.

Households are grouped into those which:

• had variable rate mortgages only for the duration of the period
• had tracker rate mortgages only for the duration of the period
• had fixed-rate mortgages only for the duration of the period
• changed from a variable rate to a fixed-rate mortgage at some point in 2022 or 2023.

When examining the debt service to income ratio over the period by type of mortgage with this increased restriction, we can see that the median DSI ratio for households who had variable rate mortgages only, fell from 11.4% in H1 2020 to 10.7% in H2 2021. However, it grew to a ratio of 11.2% in H1 2022, and to 11.5% in H2 2022, but remained unchanged in H1 2023.

The median debt service to income ratio of households with tracker rate mortgages only, fell continuously from 10.3% in H2 2020 to 9.4% in H1 2022 but increased to a rate of 10.6% in H2 2022 and to 11.3% in H1 2023.

The median debt service to income ratio of households with fixed-rate mortgages only fell continuously from 12.0% in H2 2020 to 10.5% in H2 2022 and rose slightly to 10.6% in H1 2023.

The median debt service to income ratio of households who had a variable rate mortgage in 2020 and 2021 but moved to a fixed-rate mortgage in 2022 or H1 2023 was 9.5% from H1 2020 to H1 2022 but went up to 9.6% in H2 2022 and to 10.2% in H1 2023. Those households who moved from variable rate mortgages had, on average higher household income compared to other variable rate mortgage holders and thus had a lower DSI ratio in 2020 and 2021. As well as changing from a variable rate to fixed rate mortgage these households may have also restructured or refinanced their mortgage and may have changed other terms of the mortgage such as the mortgage amount or mortgage term etc., which would also be reflected in the median DSI ratios presented. See figure 2.3 and table 2.3.

To get a better sense of the impact of changes in interest rates and income changes had on household mortgage affordability, the debts service to income ratio is split into 5 percentage point bands. The proportion of households that fall into each band, in each period H1 2020 to H1 2023, is presented in the figures and table below by type of mortgage. All households with HMR mortgages are included in this part of the analysis and therefore the analysis is not restricted to the one “main” mortgage as was the case in the previous section.

For households with variable rate mortgages, the proportion of households with a debt service to income ratio in the lowest, 0% to < 5%, band rose over the period from 15.3% in H1 2020 to 19.0% in H1 2023. From H1 2020 to H1 2023 the proportion of households in the 10% to < 15% band fell from 27.8% to 22.5%, while the proportion of households in the 15% to < 20% band increased across the series from 9.7% in H1 2020 to 13.6% in H1 2022 and to 15.9% in H1 2023.

Although the proportion of households paying 20% or more of their gross household income on servicing their mortgage debt decreased over the analysis period from 17.6% in H1 2020 to 14.6% in H1 2023, the proportion of households who paid 15% or more of their gross household income to service their household mortgage debt increased by 2 percentage points from 28.5% in H1 2022 to 30.5% in H1 2023. See figure 2.4 and table 2.4.

For households with tracker rate HMR mortgages, the proportion of households in the two lowest debt service to income ratio bands increased over the period from H1 2020 to H1 2022, while the proportion of households in the two highest DSI bands fell in the period from H1 2020 to H1 2022. This illustrates the increased affordability of tracker rate mortgages relative to income, up to H1 2022.

From H1 2022 to H1 2023 the proportion of households in the lowest three bands all decreased, with the most substantial fall seen in the 5% to < 10% band whose proportion fell from 39.4% in H1 2022 to 33.0% in H1 2023. Meanwhile, the proportion of tracker rate households in the highest two bands, the 15% to < 20% and 20%+ bands, both rose from 9.4% and 7.0% to 13.1% and 13.3% of households respectively.

The proportion of households with tracker rate mortgages who paid less than 10% of their gross household income on servicing their household mortgages reduced from 56.6% in H1 2022 to 47.3% in H1 2023. The proportion of households with tracker rate mortgages who paid 15% or more of their gross household income on servicing their household mortgages increased by 10 percentage points from 16.4% in H1 2022 to 26.4% in H1 2023. See figure 2.5 and table 2.4.

For households with fixed rate HMR mortgages there was an increase in the proportion of households with debt service to income ratios in the lowest two bands over the period H1 2020 to H1 2023. The proportion of households in the middle DSI band, 10% to < 15%, rose between H1 2020 and H1 2021 and decreased in each period from H1 2021 (32.6%) to H1 2023 (26.4%). The proportion of households in the two highest bands combined reduced in the period from H1 2020 to H2 2021 and increased to 25.4% in H1 2023. See figure 2.6 and table 2.4.