Renters are struggling – Image: Pexels
  • Renters are doing worse than mortgage holders
  • Renters losing hope of owning a home
  • Lenders could be doing more to help

While rising interest rates continue to place pressure on mortgage holders, new research has found that renters could be financially worse off than those feeling cash rate pain.

A report from RFI Global and DBM Atlas reveals that Australian renters have accumulated less wealth than homeowners in the three years since the Covid began and they aren’t receiving the same amount of attention as mortgage holders.

According to the research, the average owner-occupier mortgage customer has banked close to $19,000 more in their deposit accounts since the onset of Covid – close to four times the incremental amount banked by renters, who saved closer to $5,000.

On top of that, when compared to renters, a higher proportion of mortgage holders have increased the value of their investments in shares and managed funds since the onset of the pandemic.

Could rate rises hurt renters more than landlords?

Despite renters not being immediately impacted by higher interest rates, the research found that costs for renters still increase as landlords “pass on” rate hikes to their tenants.

Renters are also facing cost of living pressures, with RFI data showing that the primary concern for non-mortgage holders is inflation (75%), followed by the rising cost of housing (62%).

The proportion of non-mortgage holders concerned about cash rate increases has also increased over time, up to 42% in March 2023.

Renters losing hope of owning a home

The research also found that with increased barriers to entry, Australians are taking out their first home loan later in life. At the same time, the median age of consumers saving for a deposit has declined over time. This means that customers are saving for longer – creating more opportunities for disillusionment with the process.

RFI data showed a significant increase in younger consumers saving for a house deposit, in particular among savers under 25, during COVID.

Between March 2020 and August 2022, the proportion of savers under 25 who reported a house deposit as their primary savings goal almost doubled, from 18% up to 30%. However, in early 2023 there was a reversal of this trend, with a significant decline in saving for a deposit among savers under 35.

According to the research, this could reflect a sense among prospective buyers that affordability is slipping away from them and the barriers to entry are too high.

RFI Global said the challenge of entering the property market comes in a number of forms, all of which are deeply interconnected. One in four savings account holders indicate the top barrier to buying a home was affording the property in the first place, followed closely by saving for a deposit (24%) and interest rates being too high (20%).

The proportion of customers saving towards their first home who see saving for a deposit and interest rates to be key barriers increased significantly in the last 3 years since the initial onset of the pandemic in March 2020.

They said when there is the perception that house prices are increasing faster than people can ever possibly hope to save, there is also the likelihood that some will just give up on the dream of home ownership.

Rising rates have negatively impacted affordability and put simply, people are no longer able to borrow as much as they could before.

“It’s an incredibly hard market to enter, and renters are understandably put off,” said RFI Global.

“Affordability, saving for a deposit and high interest rates are the primary barriers to home ownership.

“This poses an opportunity for lenders to support renters who want to enter the property market.”

Lenders are making a mistake

RFI said that lenders might be missing an opportunity to maintain a position of trust among prospective buyers, with their research showing that first home buyers are likely to turn to a broker first when exploring their home borrowing capability (43%) followed by friends and family (25%) and finally, financial institution websites (24%) for advice.

They said that challenges to housing market entry can be addressed in a number of ways, including, providing a lower minimum deposit requirement (63%), lender-provided information on government grants buyers may be eligible for (42%) and offering guidance to customers through the home buying journey or provide additional information about the market (35%).

You May Also Like

Australian building costs have continued to soar, but has your insurance cover kept pace?

MCG Quantity Surveyors analysis found underinsurance could cost homeowners over $100K to replace a property, with the issue even more profound in the commercial property sector.

When will Australian property prices fall? One major challenge continues to prop prices up

Property prices are up by over 35% across the country since Covid, and while not the same story in each city, that’s little solace to prospective buyers pulling their hair out.

A window of opportunity could be open for savvy Australian property investors, but time is ticking

One expert has noticed investors are on the move while there’s less competition and fewer buyers in the marketplace.

Why Aussie property buyers aren’t waiting for rate cuts anymore

A surge in home loans shows buyers aren’t waiting for interest rates to drop before taking the plunge.