Australian renters are struggling - but going under the radar due to focus on mortgage borrowers.
Sydney MONDAY 8th May 2023 – Embargoed until 00:01 AM AEST on 8 May 2023
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 Covid19 pandemic began, highlighting a huge segment of financially stressed Australians who aren’t receiving the same attention and support as their homeowning 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% in April 2022, the Australian cash rate now sits at 3.85% 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% 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 4 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%), followed by the rising cost of housing (62%). The proportion of non-mortgage holders concerned about cash rate increases has also increased over time, up to 42% 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% up to 30%. 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. 1 in 4 (25%) 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%) and interest rates being too high (20%). 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 3 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.
Affordability, saving for a deposit and high interest rates are the primary barriers to home ownership.
This poses an opportunity for lenders to support renters who want to enter the property market.
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%), friends/ family second (25%) and thirdly, financial institution websites (24%) 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%), lender-provided information on government grants buyers may be eligible for (42%) and offering guidance to customers through the home buying journey or provide additional information about the market (35%).
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.
Notes for Editors:
About RFI Global
RFI Global was founded in Sydney in 2006 to provide financial intelligence for the Australian financial services market. It is now the #1 data and insight partner for the world’s financial services community, serving 49 markets with a local presence in Sydney, Singapore, Dubai, London, Paris, Toronto, New York, and San Francisco.
Since its inception, RFI has provided tailored subscription-based insight and data solutions for local, regional and global Financial Services players that enable them to make data-driven decisions confidently and quickly.
To learn more, please visit: www.rfi.global.
Since 1992 DBM has provided market research and consulting services to some of Australia’s largest B2C and B2B brands. The DBM Atlas program is used by more than 50 financial services brands to track key customer metrics such as advocacy, sentiment, product holdings and market share. Over recent years DBM have formed data partnerships to provide marketing solutions such as media planning, digital audience activation and geo-demographic targeting. In April 2023 RFI Global acquired the DBM Atlas product, creating Australia’s most comprehensive financial services customer data set. To learn more, please visit: https://www.dbmconsultants.com.au.
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