This is a terrible idea.
ANZ boss Shayne Elliott has a vision for Australia. He wants to make house more affordable for young people by… wait for it… making them more expensive.
There’s a range of things he wants to do to shake up the mortgage market, but among them is the idea of 50-year mortgages.
Elliott said “little things” like the 3% buffer the Australian Prudential Regulation Authority (APRA) imposes on mortgagees through lenders to ensure they could service their loans if interest rates increased was perhaps “too high”.
Mr Elliott added that reducing the typical deposit requirement on a home to avoid paying lender’s mortgage insurance (LMI) from 20% to 15% “should also be on the table”…
“All those things should be thought about; how long mortgages are, what’s the actual deposit we do, what buffers we put in place, what exclusions we apply. I think all of that is absolutely fair to review and decide whether we’ve got our settings right.”
He noted that there was no law that said that a bank couldn’t offer 40-year loans or even 50-year loans, but it needed to be appropriate for the homebuyer.
You see ideas like this float up out of the swamp from time to time, and people think they make a certain sense.
The longer you can spread your mortgage out over, the less your regular payments are. If the monthly repayments are smaller, that makes them easier to manage, and the house is more affordable, right?
BUT… you end up paying more over the long run (which is why banks would love to see something like this because they make more money), which means that house costs you more money to buy in total.
So how can something that costs you more money be more affordable?
This is the slight of hand the banks don’t want you to see. In truth, we’re not talking about making mortgages more affordable, we’re talking about making them more accessible.
And we put limits on the accessibility of credit for all sorts of good reasons.
BUT IT GETS WORSE – because if you introduce a change to the entire market, and the market is super tight and competitive, like ours is, the individual benefits get competed away, and nobody ends up better off.
Take first home owner grants for example. They’re popular with first home owners because they feel like they’re getting a leg up.
But every other first home buyer is getting the same leg up, and since they tend to compete with each other in similar markets, all it does is push up the price in those markets, and the homes are as unaffordable as they ever were.
So no, the only people who benefit from first home buyer grants are the sellers. The only people who would benefit from 50-year mortgages are the banks.
Let’s not go there hey?
DB