Australia has one of the most concentrated banking systems in the developed world, and we owe more to the ‘Big 4’ banks than ever, including those about to retire. Harry Chemay with the analysis.
A lot has been written about Australia’s falling housing affordability in the last few years. Most of it has focussed on the problem of getting that first foot on the housing ladder and ceasing to be a ‘forever renter’.
Less, however, has been written about what it means to have a mortgage in Australia now and what it might mean as homeowners age.
Turns out it’s a lot easier to get into mortgage debt than it is to pay off. It’s never been easy to be mortgage free, but it’s getting a lot harder. That’s bad for individuals but great for the major banks.
The mortgage market
It’s difficult to find accurate historical snapshots of Australia’s entire mortgage market, but occasionally, its size and characteristics are revealed as part of an official proceeding.
As was the case in the 2018-19 Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (the Hayne Royal Commission). Data gathered there shows that in November 2017, there was a total of $1.07 trillion in finance for owner-occupied housing provided by approved deposit-taking institutions (ADIs) and a further $560B for investment properties.
Housing loans were comfortably the largest asset of ADIs, accounting for some 42% of total assets at the time.
Banks completely dominated the mortgage market, holding a 98% market share,
with the balance held by a smattering of permanent building societies and credit cooperatives.
Spin forward seven years and what does the mortgage market look like now?
The most recent data released by the banking regulator, APRA, shows that the total amount of credit extended for owner-occupied loans by all ADIs sat at some $1.5 trillion in June, up 50% since the Hayne RC. Credit outstanding across all property loan types (including investment and revolving credit lines) totalled $2.26 trillion.
But this isn’t a story about all ADIs. Credit unions and building societies continue to be bit players, with barely any change in market share since 2017. As for the banks, only four really count in the mortgage market.
The ‘major banks’ (as APRA collectively refers to the ANZ Bank, Commonwealth Bank, NAB and Westpac) currently hold around 75% of all property-related loans. These ‘Big 4’ account for over $1.7 trillion of all residential property credit outstanding at present.
Unsurprisingly, that results in Australia having one of the most concentrated banking sectors among advanced nations, as the chart below from a 2017 Reserve Bank paper indicates. (More recent data suggests this has not changed much.)
Source: Reserve Bank of Australia
Owner-occupier debt burden
To understand the mortgage market and its impacts on home-owning borrowers, you first need to understand who is, and who isn’t, an owner-occupier mortgagor.
Using data available from the Australian Institute of Health and Welfare, I estimate that the current number of dwellings in Australia to be approximately 10.5 million (up from 9.8 million at the 2021 Census).
Of these, I estimate that around:
67% (7 million households) are homeowners, of which:
- 32% (3.4 million households) are without a mortgage
- 35% (3.7 million households) are with a mortgage
31% (3.3 million households) are renters:
- 26% (2.7 million households) rent from private landlords/investors
- 3% (320,000 households) rent from state or territory housing authorities
- 2.4% (250,000 households) rent from other landlords
The remaining 220,000 households have other arrangements, including households that are not owners with or without a mortgage or a renter.
It’s the 3.7 million households with an existing mortgage who collectively owe some $1.5 trillion in owner-occupier term loans.
The Hayne RC noted that the average balance of such a loan in September 2017 was $264,000. The current equivalent is just shy of $410,000 – 55% growth in seven years.
The average new owner-occupier loan, according to the Australian Bureau of Statistics (ABS), is now around $640,000 across Australia, a direct result of a nationwide median (middle) dwelling price of some $800,000.
(As an aside, a $640,000 principal & interest owner-occupier mortgage taken for 25 years at the current standard variable interest rate will result in you repaying roughly the same again in interest for a total repayment of around $1.27 million in today’s dollars.)
The ‘fair go’ has gone amid the cost of housing crisis and super perks for the wealthy
Ageing, yet still indebted
Clearly not every mortgaged household has a $640,000 or greater loan balance outstanding. Many have been servicing mortgages for years, possibly for two-plus decades. So the older the mortgaged household, all things equal the lower the outstanding balance should be.
And this is indeed the case, as the latest NAB Wellbeing Survey data indicates.
Source: NAB Wellbeing Survey, 3rd Quarter, 2024.
NAB’s current average outstanding balance for the peak mortgage years (30 to 49) just about aligns with my estimate of just over $400,000. But look at the 50 to 64 and the 65+ age groups. These are non-trivial balances remaining.
According to the ABS, the most recent estimated average mortgage outstanding for those aged between 55 and 64 is now north of $230,000,
with 54% of homeowners in this age group still owing their bank for the roof over their head.
How are so many older Australians, who would likely have bought their first homes in the 1990s or 2000s at significantly lower prices, still carrying so much mortgage debt in 2024?
After all, a median Sydney house in 1990 would have cost the equivalent of around $450,000 today (adjusting for inflation), while a similar Melbourne house would have cost some $310,000.
In the year 2000, the median prices in those two cities would have been $540,000 and $360,000, respectively.
In a second article, we’ll uncover just why so many older Australians are still holding large mortgages despite getting into housing at much lower prices.
Harry Chemay has more than two decades of experience across both wealth management and institutional asset consulting. An active participant within the wealth and superannuation space, Harry is a regular contributor to investment websites in Australia and overseas, writing on investing and financial planning.