The future of our housing market, rests with Gen Y. Have we prepared them enough? We look at the particular crisis they face with housing finance, and credit defaults what the ramifications could be for their future and ours.
The older portion of Gen Y are in their mid to late 20’s. This age is the time when many previous generations have claimed their rite of passage by entering the Australian dream of owning their own property. But that was in the good old days of affordability.
According to the Courier Mail in January, housing affordability seems to be eluding us. In 1981, the typical home sold for $48,000 just a little over three times the median household income of $15,000. But what do you do when wage rises have not matched property price rises? Today, the median home will set you back $408,000 about six-and-a-half times the median household income of $61,000.
Property owners may say the market is low, but in reality despite a market slump, prices are still exorbitantly high for our first home buyers. Saving enough for a home can take years, and may require sacrificing the rental accommodation in preference for moving in with Mum and Dad just to scrape funds together. All of this effort may be lost, or not even attempted if you have poor credit history.
The volume of credit available to young people pre-GFC was huge, and for people developing habits around credit, in hindsight it was extremely irresponsible to be throwing money at 18 -20 year olds and expecting them to know how to be responsible with credit.
So many Gen Yers don’t have any clue why their history with credit matters, or how to commit to spending reduction and consistent habits of repayment because they have a history of getting what they want when they want it, and worrying about it later. Unfortunately the ‘later’ is now.
We’re sorry Gen Y. Previous generations before you have failed to pass on the skills necessary to give you the right habits of mind to keep you out of trouble and allow you to accomplish the big goals. Goals like property, education, business or starting a family.
This has been confirmed in two ways. Credit reporting agency Veda Advantage recently released some of their data from the last three years, which showed that Gen Y holds 60% share of all credit defaults. From telco defaults through to loan defaults – Gen Y tops the list in every category. Which invariably is a deal-breaker when applying for a mainstream home loan for the 5 year term of the listing. (See our release to the media today for more information).
This may explain our latest first home buyer figures. The Australian Bureau of Statistics revealed two days ago that first home buyer numbers have fallen again, almost a whole percentage point from November 2012 to December 2012. (15.8% Nov 2012 down to 14.9% in December 2012).
What Veda doesn’t tell us from their data, is how many people have defaults in this country. That we have to speculate on. Veda holds the credit files of approximately 16.5 million Australians. How many of those people have bad credit? Last year Fitch Ratings revealed mortgage delinquencies alone (mortgages over 90 days in arrears) were 1.6 % of all mortgages in the first quarter of 2012. So when we look at the number of defaults across the board, taking into account the more common defaults from telcos, energy providers and credit cards – we could increase that figure, to say 5%? If we assume that figure is correct, then 825,000 Australians have defaults on their credit file. If we apply the 60% rule, then 495,000 Gen Yers have defaults on their credit file. Pure speculation, but one that bears thinking about when we look at why interest rate cuts have yet to make a significant impact amongst first home buyers.
Paramount to prevention, is education. Education about the wider, philosophical issues of finances so they understand where credit fits in to society and to their own lives, as well as the ins and outs of taking on credit in Australia.
This should begin in schools, and be upheld in the credit arena, by government and the media.
Second to that, is education and insistence on credit reporting accuracy. With defaults almost ‘a dime a dozen’ in this age group, could consumers get blaze about the process the Creditor took in listing the default? Could accuracy take a back seat and defaults pile up on Australian credit reports without an understanding of what constitutes a lawful listing? Every Australian needs to know that mistakes can happen on credit reports.
Likewise, bad credit can be listed on credit files unknowingly. We have a responsibility to check our credit report, as the onus on ensuring accuracy rests with the consumer. This can be done for free – but many Australians don’t know this.
They probably also don’t know that a credit listing should be tested against the appropriate legislation for its validity and its accuracy. The process of dispute is not easy, but Creditors should be called to account for any inaccuracy. Australians should also know Creditors have a legal obligation to remove a listing which was placed incorrectly.
Changes for the better are coming in Australian credit reporting particularly around correction of credit reporting mistakes, but education is key for every credit active individual to make best use of these changes, aware of the action they need to take to ensure their rights are upheld.
As the emerging generation into the housing market, Gen Y is at the forefront of this shift in psyche. Let’s hope they embrace it, and insist on changes that will benefit their generation into the future.
Find more information on getting help with checking and disputing the accuracy of a credit listing, at www.mycra.com.au.
Image 2: KROMKRATHOG/ www.FreeDigitalPhotos.net