71% of Australians avoiding IO loans

by Miklos Bolza07 Dec 2017
Three in 10 Australians have admitted they would not opt for an interest-only loan despite some of them recognising the benefits, new research has found.

A paper from Gateway Credit Union, entitled the 2017 Mortgage Holders Sentiment Report, found that 46% of Australians were ‘adamant decliners’ of interest-only loans, meaning they would not choose them and perceived that they increased debt.

A further 25% were ‘resistant approvers’ who chose not to use interest-only lending despite acknowledging the benefits.

Of those remaining, 11% viewed interest-only loans as bad but still used them (hesitant compliers) while only 18% said they used interest-only loans because they increased cash flow (enthusiastic users).

Paul Thomas, CEO of Gateway Credit Union, said it was encouraging to see so many Australians were aware of the dangers behind interest-only lending.

“While they do serve a purpose for some borrowers, the reality is for many the interest-only home loan can create a precarious situation, especially if borrowers enter the loan without considering if they can service it once the interest-only period ends.”

The research also uncovered a generational gap with the Baby Boomers more likely to be adamant decliners. At the other end of the spectrum, Gen Y were more likely to be enthusiastic users.

Thomas said it made sense that the younger generation was more accepting of interest-only home loans.

“Many younger Australians are finding it difficult to break into the property market or are at a stage of life – such as starting a family – when they need more cash flow. An interest-only home loan would afford them more flexibility with their finances, suggesting their acceptance may be a result of necessity.”

Over the past five years, the number of adamant decliners has increased by 5% while the number of enthusiastic users has dropped by 4%. Numbers of resistant approvers and hesitant compliers have remained steady.

Gateway Credit Union’s research polled over 1,000 borrowers through an online survey and is nationally representative of Australians over the age of 18.

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