‘Perfect opportunity’: BlackRock CEO calls for 30-year mortgages in Australia
The head of the world’s largest investment firm has called for a new type of mortgage that would represent a major shake-up in Australia’s housing market.
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The head of the world’s largest investment firm has called for the introduction of 30-year fixed-rate mortgages in Australia, saying the country’s $4.2 trillion superannuation pool could be used to create the market.
Larry Fink, chief executive of $18 trillion asset manager BlackRock, told The Australian Financial Review on a visit to Australia this week that the fevered reaction to the Reserve Bank’s 25 basis-point rate cut highlighted the problems with variable-rate mortgages overwhelmingly favoured by borrowers.
“When you are worried about high, rising interest rates, what do you do? You don’t consume as much. It drags down the economy,” he told the newspaper.
“One of the greatest foundations of the United States is that more Americans invest in equities than any place in the world. Why? They have more confidence, they’re more hopeful. But another foundation is they don’t have to worry about the ups and downs of their mortgage payments.”
Mr Fink said while Australia was the envy of the world in many ways, lack of access to capital made it less attractive to entrepreneurs than the US, and this was partly because “the banking system is much larger than the capital markets”.
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He suggested the creation of a 30-year fixed rate mortgage market similar to the US could help solve this problem — and that Australia’s world-class pension savings system could provide the necessary liquidity.
The longest fixed-rate mortgages in Australia are typically 10 years.
In the US, the 30-year fixed mortgage is by far the most popular mortgage product.
Banks in America are able to offer the riskier loans because of the existence of government-sponsored enterprises (GSEs) like Freddie Mac and Fannie Mae that operate in the secondary mortgage market.
These GSEs purchase mortgages from lenders, taking on the associated risk, and in turn then pool mortgages together to sell on investment markets as mortgage-backed securities (MBSs). Mr Fink was one of the pioneers of MBSs in the 1980s.
“Australia has a perfect opportunity right now, with all the long-term savings in the superannuation system,” he said.
“What would be better than to create a 30-year mortgage market here that gives more confidence to the Australian consumer? Because when they own a home, they know for the life of that ownership that at the time they’re in that home, their payments are fixed. There’s a lot of pressure on the supers to invest more back in Australia. What better way can they invest than by building out a mortgage market?”
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A 2023 parliamentary research paper explored whether 30-year mortgages would be viable in Australia, noting previous calls to create an “AussieMac” GSE equivalent.
“Critics of the ‘AussieMac’ proposal argued that the government should not interfere in the mortgage securitisation market, as the US experience showed that GSEs could encourage both borrowers and lenders to take on excessive risk,” the paper said.
“GSEs could also become ‘Too Big to Fail’ and require a taxpayer bailout.”
The paper also noted a key difference between the US and Australia was prohibitively high exit fees for borrowers wishing to refinance or terminate fixed-rate mortgages.
“This stands in contrast to the situation in the US, where borrowers are unencumbered by such break fees – but typically pay a higher interest rate to compensate lenders for the extra risk,” it said.
“Additionally, residential mortgages in Australia are ‘full recourse loans’, which means that if a borrower defaults, the lender can pursue all the borrower’s assets. In the US, some states treat mortgages as non-recourse debt, meaning that the lender can only pursue the loan collateral (usually, the house) in the case of borrower default. In other words, Australian borrowers cannot simply ‘walk away’ from fixed-rate mortgages that they can no longer afford.”
Originally published as ‘Perfect opportunity’: BlackRock CEO calls for 30-year mortgages in Australia
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