Experts criticise 50-year loans: ‘More risk, less reward’

As the Reserve Bank of Australia (RBA) gears up for another anticipated cash rate hold, a contentious proposal for 50-year mortgages has come under fire from Australian experts. The plan, which echoes a recent announcement by US President Donald Trump, aims to address housing affordability but is seen by many as a potential catalyst for further increasing property prices rather than improving accessibility.

In a move that has sparked global debate, President Trump recently revealed that his administration is considering implementing a 50-year mortgage repayment plan to tackle the housing crisis in the United States. However, Australian experts have been quick to dismiss the idea, arguing that such an approach would exacerbate existing challenges in the housing market.

The December Finder RBA Cash Rate Survey revealed that four out of five experts believe 50-year mortgages would not be viable in Australia. Instead of alleviating pressure, they argue, these lengthy loans could intensify the strain on the property market.

University of Sydney associate professor Stella Huangfu highlighted the potential pitfalls of a 50-year mortgage. “In most cases, it actually allows people to borrow more, which pushes prices even higher,” she explained. Huangfu further noted, “Buyers end up paying far more interest over their lifetime, carrying debt for decades longer, and building equity much more slowly.”

The concern that borrowers would be saddled with debt well into their retirement years was echoed by University of NSW senior lecturer Dr Nalini Prasad. “It’s hard to pay off a mortgage if you’re retired,” Prasad pointed out, highlighting the financial pressures that could arise from servicing loans into one’s 80s or 90s.

Wealth analyst Dale Gillham added that extending mortgage terms might benefit lenders more than borrowers. “Australia has this unique love affair with property, and we need to look deeper into why this is,” he said. Gillham underscored the need to address systemic issues driving property prices to “unrealistic levels.” He remarked, “As it stands, due to government compliance, taxes and fees, building new homes is far from affordable, and in many cases is not viable for investors.”

Australia’s current standard mortgage term is 30 years, although some banks have begun exploring the possibility of 40-year mortgages. Earlier this year, Great Southern Bank introduced 40-year mortgages for first home buyers aged 18 to 40, aiming to reduce monthly repayments and facilitate market entry. However, experts caution that while longer terms may lower initial payments, they could lead to higher total costs over time. Borrowers may find themselves needing to refinance or make extra repayments as their financial situations evolve.

The potential for increased mortgage stress among borrowers is another concern. Although mortgage stress among Australian homeowners has eased to its lowest level in over two years following the RBA’s August rate cut to 3.6 per cent, a significant 25.3 per cent remain at risk. This is due to ongoing income pressures, employment challenges, and rising inflation.

With the RBA’s cash rate decision looming, Australian households are seeking financial relief. According to Finder’s Consumer Sentiment Tracker, 43 per cent of Australians have less than $1,000 in savings. Graham Cooke, head of consumer research at Finder, advises borrowers to reassess their financial strategies during the holiday period. “Take a hard look at where you’ve been spending your money. Stop paying for things you don’t need or aren’t using – think unused memberships and subscriptions – and don’t pay too much for what you do need – your mortgage, energy provider, etc.,” Cooke recommended. He also suggested exploring ways to generate additional income, such as investing, finding a savings account with a better interest rate, or starting a side hustle.

As Australia evaluates its housing market strategies, experts continue to emphasise the importance of addressing underlying issues rather than resorting to longer mortgage terms. The debate over 50-year loans serves as a reminder of the complexities involved in ensuring housing affordability and accessibility in a rapidly changing economic landscape.

This article was first published on Smart Property Investment, a sister publication of Property Buzz.