Single home owners dwindle amid rising mortgage rates: Lendi

Stagnant incomes, higher mortgage repayments, increased barriers to entry, and stubborn lender loyalty tax are the key findings of the Lendi Group 2023 Home Loan Report.

The report, comprising data collected across Lendi, Aussie, and Domain Home Loans from January to the end of November, revealed that over the course of 2023, the median income for borrowers fell by 3 per cent to $95,000.

This decline occurred despite a 40 per cent increase in variable mortgage rates for owner-occupiers throughout the year, amounting to $528 extra per month on a $500,000 variable principal & interest (P&I) loan.

This trend coincided with inflation, which has been slow to reduce to the Reserve Bank of Australia’s target range of 2–3 per cent, standing at 5.4 per cent in the September quarter, although down from its peak of 7.8 per cent in December 2022.

Consequently, the median variable mortgage rate available to owner-occupiers rose by 1.63 per cent over the year, bringing the average variable interest rate to 6.97 per cent in 2023 compared to 5.34 per cent in 2022.

The report revealed that home owners who secured a $500,000 P&I, variable, 30-year home loan faced an additional $528 in monthly expenses due to the full 1.63 per cent increase compared to 2022.

This persistent inflation not only constrained Australians’ borrowing capacity, but also led to the cash rate ending the year at 4.35 per cent.

Lendi Group co-founder and chief executive David Hyman stated that this higher rate environment posed significant affordability challenges, especially for younger generations and those on average wages.

The data revealed that only 20 per cent of all home loan applicants in 2023 were single earners with a median income of $109,000 annually.

Mr Hyman noted: “The average age of single borrowers was 41 and for couples was 40, showing just how hard it is for the younger generation or those on lower incomes to make it in Australia’s property market under current market conditions.

“This suggests you either need a dual-income household or earn well above the Australian average wage to be able to afford a home loan, which locks out a considerable portion of the nation’s population.”

First home buyers bear brunt

First-time home buyers, alongside single borrowers, bore the brunt of the economic challenges in 2023, with a 12 per cent decrease in home loan applications over 2023, representing only 35 per cent of all loan activity, a significant drop from 2022.

Of these, 50 per cent were in the 25–34 age category, followed by 26 per cent in the 35–44 category, while under 25-year-olds accounted for just 15 per cent of the total 2023 first home buyer market.

“We also know first home buyers are being hit the hardest, bearing the brunt of the higher rate environment,” Mr Hyman said.

“Despite these barriers to entry, new purchases are up 6 per cent, even if affordability on what people can buy is down.

“This shows Australians are willing to give up on a lot of other things, before they give up on the dream of home ownership.”

Additionally, half of all first home buyers earned individual salaries ranging from $37,000 to $90,000 annually, while 22 per cent earned between $90,000 and $120,000.

The median individual income for a first home buyer remained unchanged at $88,643.

However, the majority of first home buyers were either married (35 per cent) or in a de facto relationship (35 per cent).

Declining home equity

The Home Loan Report also highlighted persistent challenges for existing home owners, with declining equity and a 2 per cent drop in the average purchase value for new acquisitions across the nation in 2023.

In 2022, 51 per cent of Australian borrowers who refinanced owned more than 60 per cent of their property, which decreased to 45 per cent in 2023, signifying that more Australians now own less of their homes.

Mr Hyman said the amount of equity retreating in 2023 is disheartening.

“As brokers we know equity is a powerful asset, which not only provides home owners a safety net and the ability to decrease mortgage payments, but can be used to fund renovations and for parents, support their children to get their own foot into the housing market,” Mr Hyman said.

Despite home owners rolling off their fixed-rate home loans, there have also been fewer refinances due to rising costs and the dwindling equity.

While refinances surpassed new loans in the previous year, in 2023, refinancing volumes decreased by 6 per cent in favour of new loans.

Loyalty tax woes

The data also revealed that banks and lenders continued to prioritise new business over existing clients.

As of November 2023, existing borrowers were still charged rates 0.29 bps higher than new borrowers on average.

However, this marked an improvement from 2022, where the median lender loyalty tax across all lenders was 1.25 bps.

In 2023, a 0.30-bp lender loyalty difference was observed between customers in the big four banks compared to 0.15 bps for the non-majors.

Mr Hyman pointed out while 29 bps might not sound like life-changing money, refinancing and saving this amount can offset an entire rate increase.

Given the escalating rates, the report also highlighted a 4 per cent decrease in investor loan applications in 2023, accounting for 24 per cent of all home loan applications during the year.

Moreover, just 4 per cent of new purchases were made in the 95–100 per cent loan-to-value ratio (LVR) range, with 2 per cent more buyers purchasing in the 70–80 per cent LVR band compared to 2022.

“While we don’t expect the challenging conditions of 2023 to vanish in 2024, our mortgage brokers expect to use every tool they have in the year ahead to equip borrowers to navigate these hard times and continue to create wealth through home ownership,” Mr Hyman said.

[Related: 1 in 3 first home buyers used guarantee schemes]