2055: What's the future for Australian property?

Australia's demographic changes and your finances

The Intergenerational Report released last month has already made significant waves around the country, outlining the demographic changes that Australia is likely to see over the next 40 years. Commentators have been falling over each other to explain the implications these shifts will have for their chosen industries. 

While these developments can sound monumental and significant in the abstract, it can be difficult to grasp how such trends affect the ordinary consumer in tangible ways. What’s the connection between a bigger population and your savings account?

In fact, if the Intergenerational Report is correct, its predictions could have a marked impact on your financial situation. We’ll try help you make sense of it all.

More housing, lower prices

There are a number of reasons why house prices seem so huge right now: Plenty of investor activity, issues with the availability of land and the affordability of home loans spurred on by low interest rates, just to name a few. Another is a widely reported undersupply of homes — 228,000, according to the Australian Housing and Urban Research Institute. With Australia’s population growing, this means more buyers clamouring for less property, driving up prices.

With this in mind, the Intergenerational Report’s prediction of a 39.7 million-strong population by 2054/55 would seem to be more bad news. However, it may have the opposite effect if it ends up spurring on housing construction. Numerous housing industry bodies used the report’s release to call for more homes to be built, such as Master Builders Australia CEO Wilhelm Harnisch and the Housing Industry Association’s (HIA) Chief Executive of  Industry Policy and Media Graham Wolfe.

This growing pressure to add more housing supply is likely to increased construction activity, and an increase in stock could well bring prices down to a level easier on the home loan calculator. As HIA Senior Economist Shane Garrett said in an April 1 statement: “A steady pipeline of new homes represents the most effective solution to alleviating housing affordability pressures.”

Get used to living longer

Of course, it’s not all mortgages and home deposits. Your superannuation and savings are also likely to be impacted by future demographic changes, with Australians expected to continue living longer than ever. For those born in 2054-55, life expectancy is predicted to be 95.1 years for men and 96.6 years for women. 

While this is not the average for those who are alive today, it does indicate that life expectancies are generally growing, which means your retirement savings are likely to become increasingly stretched. This is particularly the case if living costs continue to rise. Since last quarter, the Association of Superannuation Funds of Australia’s (ASFA) retirement standard — the income needed for retirement — slightly increased.

Some Australians are already looking beyond super to fund their retirement. ING Direct found in a recent survey that Australians believe super will contribute to only 35.8 percent of their nest egg, and are looking toward their inheritance or property to make up the rest. In order to have a secure retirement down the track, it may be time to start thinking about an investment fund now.

A precarious age distribution

The consequence — at least partly — of this longer life expectancy is a larger proportion of older Australians. According to the Intergenerational Report there will be approximately 40,000 people aged over 100 in 40 years, and 2 million Australians aged 85 or over. To put that into perspective, 40 years prior to today, there were 122 Australians aged over 100 and 80,000 aged 85 or over. 

Experts have long been warning that a higher ratio of elderly to younger Australians will put an increasing strain on public services, which could have one of two outcomes:

The working population is taxed more in order to continue funding public services such as the Age Pension.
The services are reduced or cut, in order to alleviate funding pressures

Whatever, the case it points to the importance of taking out a savings account calculator and creating a workable budget for your retirement goals now, rather than leaving it to the last minute. Pauline Vamos, ASFA CEO, said as much. 

“[The report] shows how important it is to accumulate as much superannuation and private savings as you can,” she said. 

“Government finances will continue to be under pressure over the coming decades, and the best way to protect yourself against future policy changes is to start saving now for the retirement you want.”

With planning and discipline, you can set yourself up to be ready for any demographic shifts, whether good or bad.

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Learn more about home loans

Does Australia have no cost refinancing?

No Cost Refinancing is an option available in the US where the lender or broker covers your switching costs, such as appraisal fees and settlement costs. Unfortunately, no cost refinancing isn’t available in Australia.

Can I change jobs while I am applying for a home loan?

Whether you’re a new borrower or you’re refinancing your home loan, many lenders require you to be in a permanent job with the same employer for at least 6 months before applying for a home loan. Different lenders have different requirements. 

If your work situation changes for any reason while you’re applying for a mortgage, this could reduce your chances of successfully completing the process. Contacting the lender as soon as you know your employment situation is changing may allow you to work something out. 

Can I get a home loan if I am on an employment contract?

Some lenders will allow you to apply for a mortgage if you are a contractor or freelancer. However, many lenders prefer you to be in a permanent, ongoing role, because a more stable income means you’re more likely to keep up with your repayments.

If you’re a contractor, freelancer, or are otherwise self-employed, it may still be possible to apply for a low-doc home loan, as these mortgages require less specific proof of income.

Will I have to pay lenders' mortgage insurance twice if I refinance?

If your deposit was less than 20 per cent of your property’s value when you took out your original loan, you may have paid lenders’ mortgage insurance (LMI) to cover the lender against the risk that you may default on your repayments. 

If you refinance to a new home loan, but still don’t have enough deposit and/or equity to provide 20 per cent security, you’ll need to pay for the lender’s LMI a second time. This could potentially add thousands or tens of thousands of dollars in upfront costs to your mortgage, so it’s important to consider whether the financial benefits of refinancing may be worth these costs.

Is there a limit to how many times I can refinance?

There is no set limit to how many times you are allowed to refinance. Some surveyed RateCity users have refinanced up to three times.

However, if you refinance several times in short succession, it could affect your credit score. Lenders assess your credit score when you apply for new loans, so if you end up with bad credit, you may not be able to refinance if and when you really need to.

Before refinancing multiple times, consider getting a copy of your credit report and ensure your credit history is in good shape for future refinances.

I have a poor credit rating. Am I still able to get a mortgage?

Some lenders still allow you to apply for a home loan if you have impaired credit. However, you may pay a slightly higher interest rate and/or higher fees. This is to help offset the higher risk that you may default on your repayments.

I can't pick a loan. Should I apply to multiple lenders?

Applying for home loans with multiple lenders at once can affect your credit history, as multiple loan applications in short succession can make you look like a risky borrower. Comparing home loans from different lenders, assessing their features and benefits, and making one application to a preferred lender may help to improve your chances of success

Will I be paying two mortgages at once when I refinance?

No, given the way the loan and title transfer works, you will not have to pay two mortgages at the one time. You will make your last monthly repayment on loan number one and then the following month you will start paying off loan number two.

If I don't like my new lender after I refinance, can I go back to my previous lender?

If you wish to return to your previous lender after refinancing, you will have to go through the refinancing process again and pay a second set of discharge and upfront fees. 

Therefore, before you refinance, it’s important to weigh up the new prospective lender against your current lender in a number of areas, including fees, flexibility, customer service and interest rate.

Can I refinance if I have other products bundled with my home loan?

If your home loan was part of a package deal that included access to credit cards, transaction accounts or term deposits from the same lender, switching all of these over to a new lender can seem daunting. However, some lenders offer to manage part of this process for you as an incentive to refinance with them – contact your lender to learn more about what they offer.

What are the responsibilities of a mortgage broker?

Mortgage brokers act as the go-between for borrowers looking for a home loan and the lenders offering the loan. They offer personalised advice to help borrowers choose the right home loan for their needs.

In Australia, mortgage brokers are required by law to carry an Australian Credit License (ACL) if they offer credit assistance services. Which is the legal term for guidance regarding the different kinds of credit offered by lenders, including home loan mortgages. They may not need this license if they are working for an aggregator, for instance, as a franchisee. In both these situations, they need to comply with the regulations laid down by the Australian Securities and Investments Commission (ASIC).

These regulations, which are stipulated by Australian legislation, require mortgage brokers to comply with what are called “responsible lending” and “best interest” obligations. Responsible lending obligations mean brokers have to suggest “suitable” home loans. This means loans that you can easily qualify for,  actually meet your needs, and don’t prove unnecessarily challenging for you.

Starting 1 January 2021, mortgage brokers must comply with best interest obligations in addition to responsible lending obligations. These require mortgage brokers to act in the best interest of their customers and also requires them to prioritise their customers’ interests over their own. For instance, a mortgage broker may not recommend a lender who gives them a commission if that lender’s home loan offer does not benefit that particular customer.

How to break up with your mortgage broker

If you find a mortgage broker giving you generic advice or trying to sell you a competitive offer from an unsuitable lender, you might be better off  breaking up with the mortgage broker and consulting someone else. Breaking up with a mortgage broker can be done over the phone, or via email. You can also raise a complaint, either with the broker’s aggregator or with the Australian Financial Complaints Authority as necessary.

As licensed industry professionals, mortgage brokers have the responsibility of giving you accurate advice so that you know what to expect when you apply for a home loan. You may have approached the mortgage broker, for instance, because you have questions about the terms of a home loan a lender offered you. 

You should remember that mortgage brokers are obliged by law to act in your best interests and as part of complying with The Australian Securities and Investments Commission’s (ASIC) regulations. If you feel you didn’t get the right advice from the mortgage broker, or that you lost money as a result of accepting the broker’s suggestions regarding a lender or home loan offer, you can file a complaint with the ASIC and seek compensation. 

When you first speak to a mortgage broker, consider asking them about their Lender Panel, which is the list of lenders they usually recommend and who may pay them a commission. This information can help you decide if the advice they give you has anything to do with the remuneration they may receive from one or more lenders.

Do mortgage brokers need a consumer credit license?

In Australia, mortgage brokers are defined by law as being credit service or assistance providers, meaning that they help borrowers connect with lenders. Mortgage brokers may not always need a consumer credit license however if they’re operating solo they will need an Australian Credit License (ACL). Further, they may also need to comply with requirements asking them to mention their license number in full.

Some mortgage brokers can be “credit representatives”, or franchisees of a mortgage aggregator. In this case, if the aggregator has a license, the mortgage broker need not have one. The reasoning for this is that the franchise agreement usually requires mortgage brokers to comply with the laws applicable to the aggregator. If you’re speaking to a mortgage broker, you can ask them if they receive commissions from lenders, which is a good indicator that they need to be licensed. Consider requesting their license details if they don’t give you the details beforehand. 

You should remember that such a license protects you if you’re given incorrect or misleading advice that results in a home loan application rejection or any financial loss. Brokers are regulated by the Australian Securities & Investment Commission (ASIC), as per the National Consumer Credit Protection (NCCP) Act. 

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.