Research by Resolve Finance has highlighted a notable lack of confidence among young borrowers when it comes to navigating the mortgage market amid the current uncertain interest rate environment.
The study evaluated property owners’ confidence levels on a scale from one to five, where one represented “not confident at all”, and five indicated “extreme confidence”.
Among homeowners under 35 years old, only 44% expressed confidence in navigating the mortgage market. In contrast, 68% of respondents aged 55-64 and 76% over 65 reported feeling confident in their mortgage decision-making abilities.
Overall, 51% of homeowners reported feeling very or extremely confident in their ability to make informed decisions regarding their mortgage.
The survey also showed a positive correlation between confidence levels and the use of mortgage brokers.
Of those who engaged a broker, 17% expressed complete confidence in navigating the mortgage market. This contrasts with 9% of DIY borrowers and 8% who opt to stick with their current lender without exploring other options.
Don Crellin (pictured above center), managing director of Resolve Finance, said the survey results underscored the challenges faced by younger homeowners in navigating the complex mortgage market, especially in times of uncertain rate movements.
“It is heartening to see that those who engage the services of a mortgage broker exhibit higher levels of confidence in making informed decisions,” Crellin said.
“Mortgage brokers play a crucial role in helping clients navigate the intricacies of the mortgage market. They provide personalised advice, access to a wide range of lenders, and a comprehensive understanding of the current market conditions.”
However, there is still more to be done with the survey revealing that 16% of borrowers have chosen to stay with their current lender in the current market environment, indicating the need for increased awareness of the benefits borrowers receive by going through a mortgage broker.
With first homebuyers typically among the younger cohort, there are many challenges to navigate – especially when going it alone.
Over one third (36%) of Australian adults are considered financially illiterate, and terms such as ‘borrowing capacity’ and ‘LVR’ can leave borrowers feeling lost in a labyrinth of jargon.
Understanding the overarching narratives that dictate the mortgage industry, from interest rates to loan structures and the complex documentation requirements can leave one dizzy.
Add the pressure of building credit and saving for a down payment, and the dream of homeownership can quickly turn into a daunting nightmare.
Brooke Leembruggen, a 23-year-old first home buyer who bought her first property last year in Perth, said choosing the right mortgage was like navigating a maze.
"The options were overwhelming, and there's no right product as everyone's situation is different and there are so many different opinions on what is going to happen to interest rates and house prices," Leembruggen said. "It was really nerve racking for me."
Fortunately, Leembruggen worked with a broker who was able to show her different scenarios and how they might impact her repayments.
"This gave me clarity on different mortgage types, the potential risks and benefits, and ultimately helping me make a well-informed decision that aligns with my long-term plans."
Chitra Suppiah (pictured above left), mortgage broker and director of Resolve Finance Mosman in Perth, said she understood how young borrowers like Leembruggren can get overwhelmed in this interest rate environment.
"There is simply no consensus about whether rates with rise or fall this year so younger borrowers are understandably unsure about what product is right for them," Suppiah said. "Explaining the intricacies of variable rates, fixed rates, and the impact of possible rate rises or decreases becomes crucial in helping them make informed decisions."
For these reasons, Niti Bhargava (pictured above right), director and finance broker at Resolve Finance Derrimut in Melbourne, said it’s "incredibly important to have a broker in your corner”.
“By recognising these roadblocks, we can build bridges of support and equip young buyers with the tools they need to confidently conquer the mortgage maze.”
Building trust and confidence with younger clients in the context of complex rate fluctuations requires effective communication strategies tailored to their needs and preferences.
Suppiah said providing clear explanations of how interest rates work, the factors influencing fluctuations, and the potential impact on mortgage payments empowers clients to make informed decisions.
"Regular updates on market trends, coupled with proactive communication about any potential rate changes, demonstrates a commitment to keeping clients informed and in control. Utilising digital tools and platforms for communication can also cater to the preferences of younger generations and enhance overall transparency in the mortgage process."
Bhargava agreed that education is key.
“As brokers, I feel like it’s partly our responsibility to promote financial literacy among our clients. We streamline the mortgage process making it easier to achieve the goal of homeownership,” Bhargava said.
Having set ways to educate and communicate with all clients – whether they are younger, older, or from different backgrounds – can be a “game changer”, she said.
Here are some strategies and communication styles that Bhargava recommended for mortgage brokers to adopt:
Just like most things in life, knowledge is key to informed decision-making, and mortgage brokers are primed to support younger borrowers.
However, for clients approaching homeownership for the first time, Bhargava said it was crucial to take it slowly and break it down into bite-sized pieces.
“Get to know your client first and understand where they are at before dumping a whole load of information on them,” Bhargava said. “Share interesting articles, videos, infographics – anything that makes learning feel less like homework and more like grabbing coffee with a friend.”
While it’s important to make the experience more enjoyable and authentic, Bhargava said it was important not to sugarcoat things.
“Be upfront about the ups and downs of these rate changes. Tell them straight if something could get bumpy, but don't paint a black cloud either,” Bhargava said. “Remember, rates are unpredictable, but there's always history to learn from, so let's look at the bigger picture together.”
While questions are welcome, interrogation isn’t, according to Bhargava.
“Create a space where they can ask anything, no matter how silly it might sound. Offer them different options, explain the good and the not-so-good of each, and let them be the boss of their own mortgage decisions,” Bhargava said.
“After all, it's their home and future they are building, and they should be in the driver’s seat. We are just there giving guidance and direction.”
By combining these strategies, mortgage brokers can create a positive and transparent communication environment, fostering trust and confidence with their younger clients when navigating complex rate fluctuations.
