Many of Australia’s youngest homeowners are feeling lost and struggling to keep up with their mortgage payments. Rising interest rates and the expanding cost of living are straining many household budgets across the country, but Gen Z appears to be in a particularly tough spot.
Finder data released on Wednesday revealed how many Australians are deeply in debt. Gen Z is by far the most popular, with 46% of homeowners saying they are too thin.
This is followed by Millennials (37 percent), Gen Xers (26 percent), and finally Baby Boomers (20 percent).
Mortgage broker Jess Phillips told Yahoo Finance that too many young prospective buyers don’t have realistic expectations of what they can afford.
“This is your first step into the real estate market and you will take advantage of this later,” she said.
“Most of the time, it doesn’t have to be the biggest and the best.”
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Phillips said many Gen Z and Millennial buyers want to quickly check all the boxes, including price range, suburban location, property size and conditions.
She says social media and unrealistic depictions of people’s lives are having an impact.
“People just show the highlights of their day, it might be 30 seconds, but then they just think they have to keep it going, especially in Sydney…thinking that people in Sydney need to catch up. It’s crazy to be there,”’ she told Yahoo Finance.
At least one in three people surveyed by Finder admitted they had borrowed too much to acquire a property – the equivalent of more than A$1 million.
If the RBA doesn’t cut rates in 2024, will I be forced to sell my home? Email stew.perrie@yahooinc.com
Another study by Finder found that nearly one in five homeowners missed at least one loan payment in the past year.
In January, 35% of mortgage holders said they felt stressed about their mortgage, but that jumped to 47% in October, a record high.
Richard Witten, mortgage expert at Finder, said: ‘Households are desperately trying to cut spending or increase income to avoid financial stress, but this financial safety net won’t last forever. ” he said.
This comes at a time when Australia’s big four banks are making more than $200,000 in profits on the average home loan.
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The big four banks made $17.6 billion in owner-occupier loans out of a total pre-tax profit of $44.6 billion between 2023 and 2024, new research from the Australia Institute found.
But Whitten said all is not lost.
Interest rates are expected to fall several times over the next year.
There are other ways to relieve yourself of the pain of a mortgage.
“Re-evaluate your situation and think about the best way to reduce mortgage stress,” Witten said.
“Refinancing is a great way to lower your interest rate, lower your monthly payments, and save money over the life of your loan.
“Lenders may also be able to offer you temporary interest-only payments or extend the term of your mortgage to reduce your monthly payments.
“While this will mean paying more interest in the long term, it could provide much-needed relief in the short term.”
Earlier this year, the Reserve Bank of Australia urged Australia not to expect a rate cut in 2024.
But the tone was a little softer than ever at the September interest rate meeting, with key data due to be released this week that could signal a cut in rates this year.
The Australian Bureau of Statistics will release the Consumer Price Index for the September quarter on Wednesday.
If inflation falls again, the RBA could consider cutting rates in November or December.
According to preliminary forecasts, the headline inflation rate is expected to rise by 0.4% from the previous quarter, to an annual rate of 2.8%.
All eyes will be on Australia’s central bank governor Michelle Bullock next week as the central bank decides what to do with interest rates. (Source: AAP)
This is technically within the RBA’s inflation target of 2-3%.
However, the Governing Council argues that adjusted inflation, which excludes the impact of temporary measures such as government subsidies, provides a more accurate picture of the state of the economy.
This is expected to rise 0.7% quarter-on-quarter and bring the annualized rate to 3.4%, down from 3.8% in the June quarter.
Independent economist Saul Eslake predicts that inflation will slow, but only because of government spending.
“The large drop in inflation can be attributed almost entirely to government policy actions, particularly electricity bill rebates and, to a lesser extent, federal rent subsidies,” he said.
He added that even if inflation were to fall, the RBA was unlikely to have the confidence to lower the cash rate from 4.35% due to the large role government spending plays in lowering the cash rate.
“I have always believed that the Reserve Bank would not reduce the cash rate until February 2025 at the earliest,” he said.
Commonwealth Bank: First rate cut in December 2024, 5 rate cuts, cash rate to 3.10%
Westpac: First rate cut in February 2025, 4 rate cuts, cash rate to 3.35%
NAB: First rate cut in February 2025, cash rate to 3.10% after 5 rate cuts
ANZ: First rate cut in February 2025, 3 rate cuts, cash rate to 3.60%
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