Earning a lower-than-average income does not necessarily mean your homeownership dreams are over – but it certainly makes your entry to the property ladder more challenging.

CoreLogic and ANU recently conducted a study that found that only 17.6% of all available housing stock in Australia is affordable to low-income workers. This is because home prices continue their upward trend and first home buyer activity continues its decline.

The listed properties in Australia are available to middle- and high-income earners.

The figures were generated using household incomes that ANU researchers had created. They included low (25th%), middle (50th%), and high (75th%) incomes. Each week, they represented $905, $1654 and $2,760.

The researchers used these numbers to calculate the borrowing capacity. They used a 30-year term loan with 2.44% rate of interest and monthly payments based on 30% of income. To determine the affordability points for each income level (low-income earners, $376,041 and middle-income earners, respectively) a 20% deposit was added to the borrowing capacity.

Low-income households still find Sydney and Melbourne the most affordable housing markets. Only 2.9% and 4.2% respectively of the listed properties are considered accessible. The list of most affordable cities included Darwin (62.1%) and Brisbane (26.7%). Perth (25%) was however the top choice.

Who are Australia’s low-income earners?

Among the job categories that fall closest to the research’s lowest tier are hospital porters earning $956 a week, supermarket checkout operators with a weekly wage of $962, and cleaners with weekly earnings of $975, according to data obtained by Realestate.com.au.

Middle tier include primary school teachers ($1,611) paramedics ($1,434), registered nurses (1,411), entry-level officers ($1,212), waitstaff ($1,154), childcare workers (1,063). Property website noted that many of the people at the lower and middle tiers were essential workers who were heavily dependent on during the pandemic.

You can use our location mortgage calculator to find out which suburbs you can afford to buy your house.

Are you able to take out a mortgage on your home if you have a low-income?

It is possible for low-income individuals to get mortgages approved, even though there is no income minimum. There are steps you can take to increase your chances of getting a loan if you have a lower income than the average.

1. Show that you can afford monthly repayments

When buying a house, one of the most important factors to consider is how much mortgage you are able to afford. This is important because it can often make the difference between living comfortably or struggling to make ends satisfy.

Although expert opinion differs on the exact amount, the consensus is that you should have enough money to cover your other financial obligations once you make a home loan payment. Many lenders and mortgage experts adhere to the 28% limit – meaning your monthly mortgage repayments should not exceed 28% of your gross monthly income or the amount you earn before taxes are deducted. This percentage will also keep you below 30% mortgage stress threshold.

2. Make a deposit and save!

It may not be easy depending on your financial situation. Saving for a deposit is often the most challenging step before getting on the property ladder as the amount, typically pegged at 20% of the property’s value, can easily reach six figures – especially with current home prices on the rise. However, if you work hard, are committed, and have financial discipline, you might be able to overcome the barrier and get your loan approved.

3. Find a loan guarantee

If you’re having difficulty raising enough funds to cover a deposit, a relative may be able help you obtain a home loan. A home loan guarantor is an immediate family member, often a parent or a sibling – although uncles and aunts are allowed in some instances – who has agreed to take responsibility for paying the loan if you fail to make repayments.

As security for the loan, guarantors might be required to pledge equity from their homes. Some lenders offer guarantor loans of up to 105% of the property’s value to cover for additional expenses such as stamp duty and application fees.

4. Make the most of government grants

You can also benefit from state-based incentives to help you pay the deposit if you’re a first-time buyer. First Home Owners Grant (FHOG) is a cash grant that can be used to purchase an existing home or build a new one. The First Home Super Saver Schemes (FHSS) allows first-time home buyers to take a portion from their super contributions to pay down their deposit.

Another government incentive, the First Home Loan Deposit Scheme (FHLDS), enables FHBs to purchase a property for as little as 5% deposit without having to pay lenders’ mortgage insurance. While the program can only be used by 10,000 borrowers during a financial year, 10,000 more spots were available for buyers who are eligible for the 2020/21 fiscal year.

These cash grants can be combined. Given the monetary limitations to these subsidies, the big question is whether the cash you raise will be sufficient for a deposit.

5. Consider non-traditional options

Specialist lenders may offer 100% home loans, but they have strict eligibility requirements and higher interest rates due to the risk involved. A loan-to-value ratio of 95% is also possible. However, you will need to make a deposit of 5%. This type of loan may require you to pay LMI.