In less than two weeks, the Reserve Bank will once again gather around its boardroom table to decide whether Australians can afford another interest rate hike.
If rates go up by another 25 basis points, it will be the fourth increase this year, taking the cash rate to 4.6 per cent.
For many homeowners, that won’t just be another economic headline. It’ll be another punch to the wallet.
The average mortgage repayment has already increased by around $239 a month on a $500,000 variable loan, $287 on a $600,000 loan and $358 on a $750,000 loan.
And if you’re renting? Don’t kid yourself. Those higher repayments have a habit of finding their way to tenants eventually too.
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Personally, I’m exhausted and, quite frankly, it’s f**ked.
I’m tired of having to reshuffle money every month because another bill has gone up.
I’m tired of opening emails from my bank wondering whether this will be the one informing me my mortgage repayment is about to climb again.
I’m tired of paying more for groceries, more for petrol, more for insurance and more for electricity.
Source: ABC Australia
If we’re serious about helping everyday Australians not only buy homes but actually keep them, why are we still treating every mortgage holder exactly the same?
Why not make mortgages work a little bit more like tax?
Before you start angrily typing, hear me out.
Australia already accepts the principle that people who earn more should contribute more.
That’s the foundation of our tax system.
The more you earn, the more tax you generally pay.
Yet when it comes to mortgages, the single biggest household expense most Australians will ever have, a nurse and a mining executive can be hit with exactly the same rate rise.
Sure, their loan sizes may differ.
But the impact of a rate increase isn’t felt equally.
A household earning $90,000 a year and a household earning $250,000 a year are living in completely different financial universes.
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New research from Money.com.au reveals 51 per cent of Australians would support income-based mortgage pricing – a model where lower-income earners could access discounted home loan rates, either directly through lenders or via government subsidies similar to existing housing affordability schemes. Picture: Sam Ruttyn
One unexpected bill can derail the first family for months.
The second family might not even notice.
So here’s my admittedly radical thought.
What if Australia introduced income-tested mortgages?
What if lower-income households qualified for lower home loan rates, while higher-income households paid slightly more?
Not dramatically more.
But enough to help keep lower-income Aussies in their homes when rates inevitably rise.
Currently, the average full-time salary in Australia sits at around $106,650 a year, while the median full-time wage is closer to $90,500.
Under a model like this, households below a certain income threshold could receive discounted mortgage rates, either directly through lenders or via government-backed subsidies.
To test whether I was completely losing my mind, I asked Money.com.au to survey Australians.
Turns out I’m not alone.
Source: Money.com.au
More than half of Australians – 51 per cent – said they would support income-based mortgage pricing.
Support was strongest among younger Australians, with 68 per cent of Gen Z and 58 per cent of Millennials backing the concept.
Older Australians were less enthusiastic.
Which, if we’re being honest, probably won’t surprise anybody.
When asked where the income cut-off should sit, homeowners suggested an average annual household income threshold of $115,000.
Younger Australians pushed that figure higher, arguing households earning up to $125,000 should still qualify for discounted rates.
Money.com.au mortgage expert Nick Burgess says the findings raise an interesting question about whether alternative lending models could help tackle growing intergenerational inequality.
“Younger Australians face higher property prices, larger deposit hurdles and tougher pathways into home ownership than previous generations,” he says.
“They’re also more likely to feel the squeeze from interest rate rises.”
One possible model, he suggests, could see households earning under $115,000 receive a subsidised mortgage rate of five per cent.
The rate could then rise by 0.25 percentage points for every additional $10,000 in household income.
It’s not perfect.
Nothing is.
But at least it’s an attempt to acknowledge a reality politicians seem reluctant to confront.
Not every borrower experiences financial pain equally.
Compare the Market economic director David Koch.
Compare the Market economic director David “Kochie” Koch agrees the concept isn’t completely outlandish.
“The idea of income-based support for low income and first home borrowers isn’t completely untested. Hungary and Poland both offer subsidies for lower-income borrowers,” he says.
“Poland offers a fixed mortgage rate of around 2 per cent for up to ten years for eligible borrowers. The Government then pays the lender the difference to the market rate.”
As for Australia, Kochie says the RBA has just two immediate jobs: keep unemployment and inflation low and one main lever … interest rates.
I’m not suggesting the Reserve Bank should means-test interest rates.
That isn’t its job.
As Koch points out, the RBA has one primary weapon in its fight against inflation: Interest rates.
The government, however, has far more tools available.
The real question is whether we’re willing to think differently about housing.
Because what we’re doing now clearly isn’t working.
If the definition of insanity is doing the same thing over and over and expecting a different result, Australia’s housing system is starting to look positively unhinged.
And for the millions of Australians nervously waiting for the next Reserve Bank decision, that conversation can’t come soon enough.
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