RFi Group Opinion - Australia: The Great Australian Property Dream - Is it actually a two-headed Demon?

November saw submissions put forward for RFi’s Australian Lending Awards, the winners of which will be announced in February 2018 at the Australian Mortgage Innovation Summit (AMIS). This is, therefore, a good time of year to reflect on innovation in the mortgage market and where it might meet the pain points of the population – particularly for would-be first home buyers and those at the other end of the property ownership cycle.

"One in two millennials has the primary financial goal of owning their own home.
House price appreciation is making it harder for these individuals to own their own home and this is evidenced by the ageing profile of first home buyers (FHB) in Australia."

In recent work that we have conducted at RFi, we asked consumers of all ages what their top three financial goals were and it’s quite revealing. When you break it down by generation, you can see the evolution of the very pain points that innovation in the home lending space could and should address.



Take the Millennials (aged 18-34); one in two has the primary financial goal of owning their own home. House price appreciation is making it harder for these individuals to own their own home and this is evidenced by the ageing profile of first home buyers (FHB) in Australia. RFi research suggests that in the 1970’s the average age of an FHB was about 22 years, whereas, in the 2010’s, the average FHB is almost ten years older.

"On the product innovation side of things, lenders are constructing products that enable groups of FHBs to share the purchase of properties, or as Barclays is doing, to share the purchase with the bank, paying rent on the unowned portion."

What to do? Serviceability of debt is pretty affordable at the moment given interest rate levels, but we don’t live in an environment where lenders (or regulators) have an appetite for 100% LVR lending. If we look globally, there are examples of government-sponsored affordable housing initiatives and lenders partnering with construction companies to build and fund affordable housing. On the product innovation side of things, lenders are constructing products that enable groups of FHBs to share the purchase of properties, or as Barclays is doing, to share the purchase with the bank, paying rent on the unowned portion.

The concept of sharing fits well within the shared economy of the future and sits comfortably alongside our share cars and our Airbnb holidays.



But what about the property ownership issues among older generations? To start with, RFi research shows that the average expected retirement savings gap for Baby Boomers sits at just greater than $500k. And yet, many of these same people are sitting on extensive property wealth here in Australia. Indeed, the top two goals of this generation are to maintain their current lifestyle and to ensure a comfortable retirement.

"The average expected retirement savings gap for Baby Boomers sits at just greater than $500k. And yet, many of these same people are sitting on extensive property wealth here in Australia."

So, what is the answer? I was also fortunate enough in November to attend and participate in Fintech Australia’s Intersekt conference in Melbourne. One of the speakers – Ron Suber (“the Godfather of Fintech”) – was putting forward a proposal that as a Baby Boomer with property, should he wish to go on a big holiday or have a more comfortable retirement without borrowing against or selling his property, why couldn’t he sell a share in his property?

Would there be an opportunity to structure investment products to specifically offer liquidity to these property owners? Would Millennials be interested in getting a foot on the ladder by investing in the pooled properties of older generations and benefiting from the upside, even if they can’t actually move in?

Going forward it seems there is ample opportunity for innovation and I am excited to see how the industry responds.

Upcoming Events
01
Feb
18
UK Business Banking Forum 2018
London, England, United Kingdom
22
Feb
18
Australian Mortgage Innovation Summit 2018
Sydney, NSW, Australia
22
Feb
18
Australian Lending Awards 2018
Sydney, NSW, Australia
See all upcoming events
map4
Subscribe to receive insights delivered straight to your inbox
Latest news, unbiased expert analysis and insights across banking and finance