Younger Australians aren’t losing sight of their home ownership dreams
Ubank’s Kanishka Raja joined The Savings Tip Jar podcast to discuss the home ownership aspirations of younger Australians, and products and services to help them.
It’s no secret that many younger Australians would like to own a home but are struggling to do so. Research released this month from digital bank ubank confirms this, revealing over half (56 per cent) of Gen Z and Millennials that don’t currently own a home are looking to enter the property market in the next five years.
In a recent interview with The Savings Tip Jar podcast, ubank’s Chief Home Lending Officer, Kanishka Raja, discussed the digital bank’s latest research and its recent interest rate cuts to a range of fixed and variable home loan products.
Mr Raja said the research reflected what the bank is seeing too, “two-thirds of our business and new flow comes from Gen Z and Millennial customers.”
This is despite the challenges of the current environment, “we’re in a time of high interest rates and high cash rates in the market.”
Ubank recently announced rate cuts between 20 to 73 basis points to its fixed rate products across one to five years. Commenting on the bank’s decision, Mr Raja said there were two main reasons.
“Ultimately, these rates reflect the cost of funds for the fixed term home loans, and those cost of funds have come down. As lenders in a competitive marketplace, you want to pass on that benefit to the customer.
“Everyone has a point of view on what the RBA is going to do around rate cuts… and there are varying levels of consensus on whether the first rate cut is going to happen in the next six months, or the next 12 months. What the reduction in the fixed rate offers to the customer is a choice.
“For example, if you believe that the next rate cut from the RBA is going to come in, let’s say six months instead of 12 months’ time, then it’s an opportunity to lock in a lower rate right now and get ahead of that rate reduction.
“Because the gap between fixed rates and variable rates at the moment is roughly the equivalent of one to two rate cuts, which represents the expectation of where the market believes the RBA is going to go,” he said.
Regarding products and services that help ubank’s specific customer demographic, Mr Raja explained the popular product that offers no Lenders Mortgage Insurance (LMI) on 85 per cent Loan to Value Ratios (LVR) on owner occupied home loans repaying principal and interest.
“It’s important to frame this product in the context of what our core value proposition is, which is to help young Australians get momentum with money. This product is very much directed at those Gen Z and Millennial customers who are looking to get onto the property ladder.”
While the interest rate is slightly higher compared to ubank’s 80 per cent LVR products, Mr Raja explained the customer journey.
“They have good jobs, they have good salaries coming in, but they may not have the savings yet to get to a full 20 per cent deposit.
“As they build more equity, and their loan to value of the property goes below 80, they are eligible for a better rate. So, we often have customers doing these rate reviews with us,” he said.
Mr Raja gave examples of how customers can utilise that equity, saying that “you can bring down the effective rate on your loan or use that built-up equity as a cash-out to buy another investment property. From our perspective, it is about getting young customers onto the property ladder, and once they’re there, and as they build wealth through the value of their home, they can use it for other means.”
Regarding the speed of service, this new generation of customers is used to having everything available at their fingertips and not having to wait.
“At ubank, we’ve made a significant amount of investment in our technology on the front-end to make sure that customers who come in, through a broker or directly, get the simplest and fastest process.”
Mr Raja said the bank’s turnaround time to give customers unconditional approval has been at the forefront of the industry.
“It’s allowed the bank to build a strong brand as a digital challenger with simple, digital products and fast at providing quality service,” he said.
This interview was first published by The Savings Tip Jar podcast and is available to listen here.