With consistent and continued interest rate hikes, focus in the Australian media has been firmly fixed on mortgage borrowers – in particular those who are on fixed rates loans due to roll onto higher variable rates in coming months.
The latest combined RFI Global and DBM Atlas consumer research has however revealed that Australian renters are the segment who have accumulated the least wealth in the three years since the COVID- 19 pandemic began, highlighting a huge segment of financially stressed Australians who aren’t receiving the same attention and support as their home owning peers.
Two weeks ago, in response to Australia’s continued interest rate hikes, RFI Global released research showcasing the continued stress of mortgage borrowers around the country.
From a record low of 0.1 per cent in April 2022, the Australian cash rate now sits at 3.85 per cent following 11 rate hikes in the last year.
The rapid rise in rates has drawn concern in the media about the potential hardship faced by mortgage customers, particularly those rolling off low fixed rate mortgages.
RFI has since identified another segment of consumers who are also doing it tough, and seemingly going under the radar – Australian renters. According to the Australian Bureau of Statistics, 31 per cent of Australian households are renters – amounting to 2.9m households.
This percentage increases markedly if the household is headed by someone under the age of 35.
Savings stress on renters is more than triple that of homeowners.
In April 2023, RFI’s DBM Atlas data revealed that the average owner-occupier mortgage customer has banked close to $19,000 more in their deposit accounts since the onset of the COVID 19 pandemic – close to four times the incremental amount banked by renters, who saved closer to $5,000. In addition, when compared to renters, a higher proportion of mortgage customers have increased the value of their investments in shares and managed funds since the onset of the pandemic.
These findings highlight the fact that renters are a segment facing financial stress due to lower savings buffers. While interest rate increases do not impact renters as directly as mortgage holders, there are indirect impacts to renters – in particular, rising rental costs as landlords “pass on” rate hikes to their tenants. Renters are also facing cost of living pressures. RFI data shows that the primary concern for non-mortgage holders is inflation (75 per cent), followed by the rising cost of housing (62 per cent). The proportion of non-mortgage holders concerned about cash rate increases has also increased over time, up to 42 per cent in March 2023.
Is getting into the property market still realistic for renters?
With increased barriers to entry, it is perhaps not surprising that Australians are taking out their first home loan later in life. Meanwhile, the median age of consumers saving for a deposit has declined over time. This means that customers are saving for longer – creating more opportunities for disillusionment with the process.
During the pandemic, RFI data showed a significant increase in younger consumers saving for a house deposit, in particular among savers under 25. Between March 2020 and August 2022, the proportion of savers under 25 who reported a house deposit as their primary savings goal almost doubled, from 18 per cent up to 30 per cent. However, in early 2023 we saw a reversal of this trend, with a significant decline in saving for a deposit among savers under 35. Looking at the big picture, this could reflect a sense among prospective buyers that affordability is slipping away from them and the barriers to entry are too high (unaffordable house prices, cost of living and interest rate hikes), as well as the renewed opportunity to use their disposable income on activities that weren’t available to them during the pandemic (travel, social activities, events etc).
Australians are taking out their first mortgage later in life but saving younger – suggesting greater barriers to home ownership facing young Australians.
According to RFI Global’s recently released First Home Savers Report 2023, the challenge of entering the property market comes in a number of forms, all which are deeply interconnected.
One in four (25 percent) savings account holders indicate the top barrier to buying a home is affording the property in the first place, followed closely by saving for a deposit (24 per cent) and interest rates being too high (20 percent). The proportion of customers saving towards their first home who see saving for a deposit and interest rates to be key barriers increased significantly in the last three years since the initial onset of the pandemic in March 2020.
When there is the perception that house prices are increasing faster than people can ever possibly hope to save, there is also the likelihood some will just give up on the dream of home ownership.
Rising rates have negatively impacted affordability and put simply, people are no longer able to borrow as much as they could before.
It’s an incredibly hard market to enter, and renters are understandably put off.
When it comes to lending, latest research from RFI shows that lenders may be missing an opportunity to maintain a position of trust among prospective buyers.
The latest April data shows that FHBs are in fact likely to turn to a broker first when exploring their home borrowing capability (43 per cent), friends/ family second (25 per cent) and thirdly, financial institution websites (24 per cent) for advice.
However, all is not lost for lenders wanting to help those who remain eager to get on the property ladder.
RFI data reveals that challenges to housing market entry can be addressed in a number of ways – including, providing a lower minimum deposit requirement (63 per cent), lender-provided information on government grants buyers may be eligible for (42 per cent) and offering guidance to customers through the home buying journey or provide additional information about the market (35 per cent).
A lower minimum deposit requirement is the number one thing lenders can do to support FHBs.
RFI data consistently proves it is all about positive communication and providing that guiding hand to help a naturally nervous and apprehensive customer make an educated decision when it comes to borrowing capacity and affordability. Hence, that close broker relationship still comes up trumps.
Assisting a stressed renter into the property market, with sound advice, and guidance on financial position could benefit both a lender and their customer.
This all starts with helping customers save a deposit, and by supporting customers with alternative pathways to home ownership, including lower deposit options.
For a lender who does win a customer’s first home loan, there is the opportunity to secure and maintain a long-term banking relationship having helped the customer at a time of significant challenge and stress. This relationship will deepen over time as other product needs arise.
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