Australia’s mortgage market is an outlier among advanced economies, with borrowers bearing most of the interest rate risk and facing limited access to long-term fixed-rate home loans, according to a novel report released Friday by the Consumer Policy Research Centre (CPRC) and Mortgage Stress Victoria (MSV).
The report, authored in part by CPRC chief executive Erin Turner, argues that Australian mortgages should be “cheaper and fairer,” asserting that the current system places an undue burden of risk on borrowers. Unlike many other nations, Australia relies heavily on variable-rate mortgages, leaving households vulnerable to fluctuating costs and hindering long-term financial planning.
Data from September 2024 revealed that fixed-rate loans accounted for only 3% of new lending by value, underscoring the dominance of variable rates. Even when borrowers opt for fixed rates, the report found that terms are typically short, with most lenders capping offers at five years. Longer terms, such as seven or ten years, are available but often come with significantly higher rates.
“Long-term fixed interest rate loans of 20 or 30 years are not on offer for Australians,” Turner stated. “When Australians choose fixed-rate home loans, they typically lock in rates for two years or less.” The report highlights a common practice where borrowers automatically revert to a lender’s variable rate upon the expiration of a fixed term, even if that rate is not competitive.
The CPRC and MSV report contrasts the Australian market with those in Canada, Denmark, the United States, South Korea, and the European Union, where fixed-rate mortgages with terms ranging from 10 to 50 years are commonplace. Turner suggested that with government planning and engagement, Australian borrowers could benefit from similar long-term fixed-rate products, providing greater certainty over housing costs.
The Federal Reserve lowered interest rates by half a percentage point in September 2024, a more aggressive move than anticipated, bringing the federal funds rate to a target range of 4.75-5 percent. This decision, yet, does not directly impact the Australian mortgage market, which is governed by the Reserve Bank of Australia and its own monetary policies.
Recent trends in September 2024 showed a slight decrease in mortgage rates in the United States, with the average 30-year fixed mortgage rate falling to 6.37%. However, the Australian report focuses on the structural limitations within its own market, rather than external rate fluctuations.
The report frames the need for 30-year fixed lending not only as a consumer protection issue but also as a fundamental question of system design, suggesting that structural supports present in other countries are currently lacking in Australia.
