Borrowers getting creative as they wrestle with rising interest rates
Interest rates being pushed up by rampant inflation are forcing mortgagees and prospective buyers to find new ways of servicing debt.
Borrowers are increasingly turning to refinancing and pairing up with friends and family to overcome the weighty burden of rapidly rising interest rates.
NAB research released Friday (27 January) reveals that 40 per cent of young Australians are considering buying a property with someone other than a romantic partner.
Outside of dropping their price range, buying with another person tops the list of compromises Aussies aged 18 to 29 are prepared to make to get into the market.
Almost a third are willing to buy and rent the property out initially, while 20 per cent say they’re up for moving into a share house.
For those already paying off a mortgage, record numbers are refinancing in the quest for a better deal.
Borrowers refinanced a record $19.5 billion of loans in November, the most recent month for which we have data, according to the Reserve Bank of Australia (RBA).
By way of comparison, that was 20.4% higher than the year before and 88.2% higher than two years before.
Helen Avis, Director of Finance, Specialist Mortgage, said the RBA has hinted that at least one more rate rise is coming as it wrestles with inflation that has taken off, recently hitting 7.3 per cent.
“In December, it said it wanted to ‘return inflation to the 2-3% target range over time’ and would ‘do what is necessary to achieve that outcome’, by which it means increasing the official cash rate yet again.”
“So if it’s been a while since you took out your home loan, now would be a good time to think about refinancing,” Ms Avis said.
Borrowers getting creative
NAB Executive (Home Ownership), Andy Kerr, said younger people are getting creative when it comes to making their property dreams come true.
“Younger Australians aren’t letting meeting a partner or getting married later in life hold them back from owning a home now.
“People are definitely looking at their options and casting the net wider when thinking about who they could buy with,” Mr Kerr said.
“Rentvesting – purchasing in one location and then renting in another – is another trend that is creeping up in popularity.
“Interestingly, our data shows that first home buyers aren’t being deterred from entering the property market, despite the market softening overall and rising cost-of-living.
“Buyers are just thinking outside of the box to make it happen.”
The NAB research also found that the most common compromise (41 per cent) buyers of all ages were willing to make was the amount they’re willing to spend.
About one in three said they would trade off the size of the land, garden or outdoor space (31 per cent), while about 28 per cent would give up their preferred location.
One in 10 aren’t willing to budge at all on their wish list.
Mr Kerr said regardless of who you were buying with it’s important that you talk about how you’ll jointly save for a deposit, agree on the property and meet ongoing costs.
“As buying a home is the biggest purchase most of us will make, it’s also worth considering getting a solicitor involved for additional comfort,” he said.