Based on the sources below, here is a summary of the finance news in Australia and its potential impact on Australian Mortgage Brokers:
Worsening Rental Affordability: Reports indicate that rental affordability in Australia is at its worst level on record. Surging rents have far outstripped income growth since the pandemic. This could mean that potential first-home buyers are finding it increasingly difficult to save for a deposit while paying high rents, potentially delaying their entry into the housing market and impacting the pool of immediate mortgage clients for brokers.
The PropTrack Rental Affordability Index showed that in the latter half of 2024, households could afford the smallest share of advertised rentals since 2008. Median-income households ($116,000 annually) could afford the smallest share of properties in at least 18 years, and typical-income households spending 25% of their income could afford just 36% of rentals. This situation is even more challenging for younger and lower-income households. Mortgage brokers may need to work with clients facing greater financial hurdles and explore alternative pathways to homeownership, such as guarantor loans or shared equity schemes.
Stagnant Housing Supply: Dwelling approvals data from the Australian Bureau of Statistics (ABS) suggest a worsening housing shortage. In January 2025, approvals were nearly 25% below the government’s target. Over the past year, approvals were 27% below the required annual target. An enormous gap exists between population growth (demand) and construction rates (supply). While a potential fall in interest rates might facilitate a construction rebound, high construction costs (around 40% above pre-pandemic levels) and government infrastructure projects drawing away resources are hindering supply. Australia faces a prolonged period of soft dwelling construction. For mortgage brokers, this means a continued environment of high property prices and limited stock, making it challenging for clients to find suitable and affordable homes and secure mortgages.
High Construction Costs and Red Tape: Research highlights that taxes and red tape now account for nearly half the cost of new homes in Sydney. Buyers of new Sydney house and land packages face an average of $576,000 in regulatory costs and taxes. These charges have risen by nearly 40% in the past five years. An average Sydney home building project faces seven months of red tape delays. High build costs and land costs are key roadblocks to building more homes. Developers are also reportedly shrinking apartment sizes to compensate for rising costs. Mortgage brokers dealing with clients looking to build new homes will need to be aware of these substantial upfront costs and potential delays, which can impact loan amounts and timelines.
Emergence of 40-Year Mortgages: Four lenders in Australia are now offering 40-year mortgages, with three specifically targeting first-time homebuyers. A recent survey indicated that one in three people would consider such a loan. While this reduces monthly repayments, it significantly increases the total interest paid over the life of the loan. The average age of a first-time homebuyer is now 36, making the prospect of paying off a mortgage into retirement a reality for some. Mortgage brokers will need to educate their clients on the pros and cons of these longer-term loans, helping them weigh lower monthly payments against substantially higher total costs.
Government Ban on Foreign Investment in Established Homes: A temporary two-year ban on foreign investors purchasing established homes will commence on April 1, 2025. The government hopes this will increase housing availability for Australians and prevent land banking. However, data suggests that foreign investors make up a small fraction of established property purchases (0.24% in 2022-23). The ban is unlikely to significantly impact housing prices or increase home availability. Importantly, the ban does not apply to off-the-plan developments and new builds. The direct impact on mortgage brokers may be minimal given the small percentage of established home sales to foreign investors. However, brokers may see continued interest from foreign buyers in new developments.
Relaxing Lending Restrictions: The government is reportedly relaxing lending restrictions by removing student debt from mortgage serviceability calculations. This could increase the borrowing capacity for many Australians. For example, someone earning $100,000 could potentially borrow $56,000 more. This policy change could positively impact mortgage brokers by expanding the pool of eligible borrowers and increasing the loan amounts some clients can secure.
New Housing Policy and Potential Value Increases: A new NSW government policy aims to encourage low and mid-rise apartment development within 800m of 171 nominated sites (mostly near railway stations and shopping centres). This policy overrides existing council regulations on height and floor space ratio. Some property owners near these sites have already seen significant increases in their property values. Mortgage brokers in these areas may see increased activity related to both development financing and purchases of new apartments in these zones.
In summary, last week’s finance news highlights a persistent challenge with housing affordability and supply in Australia. While potential interest rate falls and relaxed lending restrictions offer some hope, high costs and slow construction continue to be significant hurdles. The emergence of 40-year mortgages presents a new dynamic for first-time buyers. Mortgage brokers will need to be well-informed about these factors to effectively advise and assist their clients in navigating the current market.
Sources: MacroBusiness, The Nightly, First National Blog, Search Property Blog, realestate.com.au, Domain
Quotes:
“rental affordability is at its worst level on record, driven by surging rents far outstripping income growth since the onset of the pandemic.” (REA Group, via MacroBusiness)
“almost no rentals (2%) advertised in 2024-25 would have been affordable (using 25% of pre-tax income as the benchmark for affordability).” (MacroBusiness)
“an enormous gap exists between demand (population growth) and supply (construction rates).” (MacroBusiness)
“construction costs have increased by 40% over the past five years, while build times have blown out by over 40%.” (Master Builders Australia, via MacroBusiness)
“Governments have added almost $600,000 to the cost of a new home in Sydney that new home buyers are then required to repay as part of their mortgage for decades.” (realestate.com.au, quoting Mr. Reardon)
“one in three would consider taking on a 40-year mortgage.” (Finder survey, via The Nightly)
“this ban is unlikely to significantly impact housing prices or increase home availability for Australians.” (Search Property Blog)
“Australia’s property tax concessions are costly to the federal budget and unambiguously stimulate investor demand, which crowds out first-home buyers and lowers the nation’s homeownership rate.” (Leith van Onselen, MacroBusiness)
“There are more lenders coming into that space, but there are more projects in financial difficulties… A bunch of them are in distress. They’re not viable and it’s cost of delivery, an increase in building costs, the number of taxes, charges, levies – they’re not financially viable.” (Richard Temlett, Charter Keck Cramer, via Domain)