Superannuation – Digital Finance Analytics (DFA) Blog

Would Refinancing Mortgages To Fixed 30 Year Loans Help Australians?

Today I want to look at the question of refinancing after the RBA rate cut, and whether a long term fixed rate mortgage in Australia would be a good idea.

While the ‘big four’ banks have committed to passing on the full 0.25 percentage point RBA driven rate cut to their customers, meaning those on variable rates will have their interest rate reduced by that amount in the next few months, if your mortgage rate is currently in the high sixes or 7 per cent, then you should definitely look and see if you can get a better rate following the RBA’s rate cut on Tuesday.

Beyond that, there is a fundamental difference between the mortgage markets in the US and Australia. A 30-year fixed mortgage is a dominant product in the US, where they account for about 70 per cent of outstanding mortgages but in Australia the bulk of loans are variable rate loans, which move in line with market rates, and indirectly the RBA cash rate, together with short term fixed rates which are again priced off the yield curve.

In the US, In the US, government-backed institutions like Fannie Mae and Freddie Mac provide liquidity to banks so they can sell 30-year fixed-rate mortgages. As a result, Banks in America are able to offer the riskier loans because of the existence of these so called government-sponsored enterprises (GSEs).

BlackRock chief executive Larry Fink suggested that Australia should introduce 30-year mortgages. The chief executive of the $18 trillion investment giant BlackRock said “We believe Australia should be building a 30-year fixed-rate mortgage market,” in an interview reported in the AFR. Fink, who was a pioneer of the mortgage-backed securities market during the 1980s, says Australia is uniquely positioned to pursue such a development because of the size of its $4 trillion superannuation pool.

Seems to me that engineering long term fixed rates in Australia may sound attractive to the big investment houses, the banks, and even the Government, but I am not convinced it is good for ordinary Australians. And it is worth remembering that through the GFC, US mortgage borrowers defaulted in droves, due to rate resets from low teaser rates, allowing those same investment houses to subsequently hoover up stressed property for a song. They are on the side of investors not prospective home owners.

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DFA Live Q&A HD Replay: Investing Now: With Damien Klassen

This is an edited version of a live discussion with Head of Investments at Walk The World Funds and Nucleus Wealth, Damien Klassen as we dive into the current market chaos and explore what is really going on. Is this a replay of the DotCom bubble, or a minor glitch, and where will the markets pivot to next?

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The “Tapping Super For Home Purchase” Conundrum!

Housing affordability is shot, as we have been discussing, thanks to demand stoked by high migration, higher lending multiples as the financial system was deregulation, and higher interest rates mirroring the RBA’s battel to tame inflation. As a result first time buyers are delaying their purchase by several years, and more borrowers are leveraged up to the gills, despite first home grant schemes, and shared equity schemes, which as the Productivity Commission showed did help a few get into the market, but lifted prices for everyone else, so did not help structurally.

Australians are already among the highest carriers of household debt in the world. In fact, according to Domain’s 2024 First Home Buyer Report, an entry-price home in Melbourne costs $678,000. In Sydney, it jumps to $927,250. Looking outside the two major cities reduces the cost to $545,000. To be lucky enough to secure any of these options, a 20 per cent deposit will set you back between $109,000 and $185,000.

So where do prospective buyers get that sort of cash? Well some might be able to get help from the Family Bank, as I showed recently, the average is more than $106,000 now, great if you have wealthy parents. Others may be able to save, but it’s a long road, and whilst interest rates are higher than they have been for some time on deposits, it will take years, and longer still if rates are cut later. Then of course there is the old chestnut, use accumulated super.

This week we got a draft report from the parliamentary committee chaired by prominent superannuation critic Andrew Bragg which has upped the ante on the Coalition’s super for housing policy, suggesting first home buyers should be able to withdraw all their retirement savings to buy a house or use it as collateral to help borrow.

My view is that this is actually a proxy political war on the purpose and nature of superannuation, rather than a real honest discussion about how to fix the broken property market. It is in essence a mixture of misdirection – look over there, not here, and avoid the more critical issues of migration control and increased and better-quality supply of affordable housing. Or in other words, it’s a case of fiddling while Rome burns, again.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Today’s post is brought to you by Ribbon Property Consultants.

DFA Live Q&A HD Replay: Investing Now With Damien Klassen

This is an edited version of a live discussion with Head of Investments at Nucleus Wealth and Walk The World Funds, Damien Klassen. Where are the markets heading, and what are the chances there will be a policy mistake as rates are taken higher?

You can ask a question live.

Go to the Walk The World Universe at https://walktheworld.com.au/