Millennials forced to put off key life events

Millennials forced to put off key life events

Australians are delaying major life events until later in life than they did a decade ago, according to Roy Morgan Research. 

An analysis of long-running trends, including moving out from the family home, living in shared housing, renting, taking out a mortgage or owning one’s home, has shown that they are all occurring at a later age. 

Aussies living at home

Age Bracket % in 2007 % in 2017
18-19 54 58
22-24 24 28
25-29 12 16

This trend of increasing amounts of young Aussies living at home has directly affected key indicators, according to a statement released by Roy Morgan Research. 

“As Australians delay moving out and put off buying a home, and getting a home loan, an increasing proportion of Australians are now renting – now the largest proportion of Australians aged 25-34.” 

This has led to more and more young Australians living in shared housing.  22-24 year olds are the largest age bracket living in shared housing, unchanged since 2007. However, this now encompasses 31 per cent of the population, compared to 26 per cent in 2007. 

No doubt, record high property prices with no signs of dropping are contributing to these results.

Death of the Mortgage 

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While 36 per cent of 25 – 29 year olds (down one percentage point since 2007) are renting, there has been an interesting increase in older age groups renting. 

“In 2007 more Australians aged 20-24 had a home loan than were renting. Now 42 per cent of 30-34 year olds are renting,” according to the Roy Morgan release. 

There are also more 35-39 year olds who are renting, increasing almost ten percentage points over the decade. 

More Australians aged 45-49 are renting (23 per cent) than own their own home (18 per cent). However, 52 per cent of this age group have a home loan, which may correlate to the recent rise in ‘rentvesting’. 

These results signify a major social shift from 2007, where 28 per cent of 45-49 year olds owned their own home and only 18 per cent were renting. 

Roy Morgan Research has also found that an increasing proportion of home buyers are now in their 40s. 

“Clearly the later in life one takes out a home loan, the later in life it will be when one comes to own the home outright,” explained Roy Morgan Research. 

“Now only 12 per cent of 40-44 year olds own their home (down from 18 per cent in 2007), and just 18 per cent of 45-49yr olds own their home (28 per cent in 2007). This trend is evident through older age groups. 

“It now takes until Australians are aged 60-64 years old, almost at retirement age, for a majority (60 per cent) to own their home whereas in 2007, 55 per cent of 55-59 year olds owned their home”. 

Why are key life events being delayed? 

Roy Morgan Research CEO Michele Levine believes that “long-term employment trends and an increasingly expensive housing market are delaying the traditional Australian dream of owning one’s own home”. 

“Important life-changing decisions are happening later in life than they used to – even compared to just a decade ago. 

“The changing shape of Australia is driven by two demographic trends – millennials are staying at school or in education longer and staying at home or in shared accommodation while they do that; Baby Boomers, rather than paying off homes as quickly as possible, are using the equity in their homes to renovate, upgrade, invest or finance whatever other activities that want to engage in. 

“The increasing price of housing relative to incomes – especially among younger Australians, is only part of the story,” said Ms Levine. 

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What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

Does Australia have no-deposit home loans?

Australia no longer has no-deposit home loans – or 100 per cent home loans as they’re also known – because they’re regarded as too risky.

However, some lenders allow some borrowers to take out mortgages with a 5 per cent deposit.

Another option is to source a deposit from elsewhere – either by using a parental guarantee or by drawing out equity from another property.

What is a low-deposit home loan?

A low-deposit home loan is a mortgage where you need to borrow more than 80 per cent of the purchase price – in other words, your deposit is less than 20 per cent of the purchase price.

For example, if you want to buy a $500,000 property, you’ll need a low-deposit home loan if your deposit is less than $100,000 and therefore you need to borrow more than $400,000.

As a general rule, you’ll need to pay LMI (lender’s mortgage insurance) if you take out a low-deposit home loan. You can use this LMI calculator to estimate your LMI payment.

How much debt is too much?

A home loan is considered to be too large when the monthly repayments exceed 30 per cent of your pre-tax income. Anything over this threshold is officially known as ‘mortgage stress’ – and for good reason – it can seriously affect your lifestyle and your actual stress levels.

The best way to avoid mortgage stress is by factoring in a sizeable buffer of at least 2 – 3 per cent. If this then tips you over into the mortgage stress category, then it’s likely you’re taking on too much debt.

If you’re wondering if this kind of buffer is really necessary, consider this: historically, the average interest rate is around 7 per cent, so the chances of your 30 year loan spending half of its time above this rate is entirely plausible – and that’s before you’ve even factored in any of life’s emergencies such as the loss of one income or the arrival of a new family member.

What is a credit limit?

The maximum amount that can be borrowed from a lender, as per the home loan contract.

How much can I borrow with a guaranteed home loan?

Some lenders will allow you to borrow 100 per cent of the value of the property with a guaranteed home loan. For that to happen, the lender would have to feel confident in your ability to pay off the mortgage and in the security provided by your guarantor.

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.

Who offers 40 year mortgages?

Home loans spanning 40 years are offered by select lenders, though the loan period is much longer than a standard 30-year home loan. You're more likely to find a maximum of 35 years, such as is the case with Teacher’s Mutual Bank

Currently, 40 year home loan lenders in Australia include AlphaBeta Money, BCU, G&C Mutual Bank, Pepper, and Sydney Mutual Bank.

Even though these lengthier loans 35 to 40 year loans do exist on the market, they are not overwhelmingly popular, as the extra interest you pay compared to a 30-year loan can be over $100,000 or more.

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.

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.

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.