Australians are increasingly considering extending their mortgage terms to 40 years as the cost of living puts pressure on homebuyers, new research reveals. A survey conducted by comparison site Finder indicates nearly one-in-three Australians—equivalent to 6.2 million—are willing to adopt these extended loan terms if it means their monthly repayments become more manageable.
The findings emerge against a backdrop of soaring house prices and rising living costs. The average home loan has reportedly skyrocketed by 37% over recent years, now sitting at approximately $641,416, according to data from the Australian Bureau of Statistics (ABS) as of September 2024. This overwhelming financial pressure prompts many to explore options like 40-year mortgages, albeit with significant long-term financial ramifications.
Graham Cooke, head of consumer research at Finder, warns about the potential downsides of such arrangements. “While 40-year loans do offer some immediate financial relief by lowering monthly costs, they typically end up costing significantly more over the entire mortgage period,” he states. For example, shifting to a 40-year term from the standard 30-year term can reduce monthly repayments by around $300 but may cost borrowers close to $316,000 more over the loan's lifetime.
The Inspector General of the financial sector has noted how the housing affordability crisis is forcing millions to reconsider their financial commitments, causing gaps between homeownership and individuals' realities. The latest survey indicates these extended options are predominantly appealing to first home buyers, who represent the main demographic drawn to such loans. Currently, only four lenders the nation offers 40-year mortgages, with three of them focused exclusively on first-time homebuyers.
Cooke emphasizes the stark reality, saying, “Borrowing costs and house prices have combined to make the housing market less affordable for many Aussies. While these loans may provide initial access to housing, staying with them until the finish can be financially stressful.” This assertion finds resonance among potential borrowers, many of whom face tough choices as they navigate the realities of home purchasing.
Industry leaders caution about the broader economic trends influencing these purchasing decisions. Alan Hemmings, chief executive of Home Loan Experts, describes the findings as reflective of the significant barriers to entering the property market. “A loan term of 40 years appears lengthy, yet Australians frequently refinance their mortgages,” Hemmings reports. “This refinancing approach can often replicate the same financial outcome as merely extending the original loan term.”
With interest rates easing slightly, the Reserve Bank of Australia (RBA) recently reported its decision to lower the cash rate. This drop was seen as promising but did not alleviate all concerns about affordability. While such rate adjustments can create some breathing room for homeowners, experts suggest long-term financial planning is necessary as market conditions shift.
Barry Saoud, general manager of mortgages at Pepper Money, agrees. His firm recently announced its intent to offer 40-year mortgages as part of its new commitment to assisting borrowers. “We understand the overwhelming strain on budgets, and we're eager to provide more flexible loan options. Our data indicates borrowers often pay beyond the minimum due amounts and do not reach the full 40-year term,” Saoud explains, underscoring the necessity for loan adaptability.
Statistically, three of the four lenders providing 40-year loan products focus explicitly on initial home purchases, indicating the urgency felt by younger generations aspiring to home ownership. The market’s current dynamics—along with rising interest rates and increasing property valuations—further exacerbate the pressures placed on prospective homebuyers.
Recent commentary from Sally Tindall, research director at RateCity, emphasized the shifting perspectives within the market. “40-year mortgages are often targeted at aspiring first-time buyers who show greater resilience to long-term debt rather than experienced homeowners,” she said. Tindall recommended exploring alternative options before committing to extended mortgage terms. “Instead of opting for the maximum time available for payment, potential buyers should seriously weigh cheaper entry-point properties or locations slightly outside of preferred areas.”
Finally, as the housing affordability crisis places extreme stress on the Australian populace, many are finding themselves pitted against formidable financial decisions. While 40-year mortgages provide one route of escape from current struggles, financial experts urge caution, pointing out the long-term financial burden they can impose. Owning property, they warn, should come bundled with holistic financial foresight to mitigate future challenges, making prudent financial choices now more important than ever.