The launch of Australia’s first 10-year interest-only home loan available to owner occupiers has stirred debate and discussion – a response we welcome. Conversations about housing affordability and rising household debt are not only timely, but critical to the financial wellbeing and future prosperity of Australians.
A 10-year interest-only loan won’t be right for everyone. For many Australians – particularly younger borrowers – paying down their home loan as quickly as possible remains the soundest financial advice. We also believe, unequivocally, that banks must lend responsibly, with strong processes and checks in place. Lending must be about doing what’s right for customers, within a framework of robust regulation and consumer protection.
Australia is fortunate to have a banking regulatory system that is among the most rigorous in the world. And while steps should be taken to level the regulatory competitive playing field for smaller banks, this system can be credited with helping shield our banking sector during the Global Financial Crisis and the shock of the pandemic.
Mortgage brokers now facilitate over three-quarters of all new residential loans, offering valuable advice and access to a range of loan options. They are also bound by strict obligations to act in the best interests of customers.
Within this robust framework of checks and balances, AMP Bank’s new interest-only loan is designed to provide more choice and flexibility, particularly for older Australians navigating new and complex financial realities.
One of those realities is this: increasing numbers of Australians are heading into retirement with mortgage debt. According to the ABS, the average household debt for those aged 55 to 64 has risen to close to $250,000 – up from $156,000 in 2011-12. We anticipate this number will only get bigger, and our own AMP research shows that 9 in 10 Australians over 50 expect to still be paying off a mortgage in retirement.
The root causes are primarily structural – rising property prices as a result of constrained housing supply and people starting their careers and families later than previous generations. While plenty needs to be done, encouragingly Government at all levels is more focused than ever on addressing the supply issue.
The availability and cost of credit, of course, has a role to play in demand for housing, but it is also essential to giving Australians the flexibility and options they need to purchase or continue to finance their home. And as a banking industry, we can’t turn a blind eye to the changing circumstances of our customers. We have a responsibility to evolve our products and services, recognising that Australians are carrying more debt into retirement.
So, what does retirement look like today? Imagine a 65-year-old homeowner transitioning out of the workforce. They may still carry a modest mortgage. Their home is more than an asset – it’s where they raised their family, and increasingly, where adult children are returning to live, or simply staying for longer. At the same time, they’re facing into a complex and sometimes bewildering retirement system, unsure whether their savings will last, and a reluctance to spend for fear of running out of money. They want to live in their home for as long aspossible.
In circumstances like this, a 10-year interest-only loan could offer a powerful combination of financial relief and peace of mind. It allows retirees to hold onto the equity in their home and provides breathing room – freeing up cashflow that allows them to maintain their lifestyle, support family, or avoid rushing into downsizing decisions they’re not ready for.
This flexibility can help retirees adjust gradually, giving them time to take stock of their new circumstances and plan for the years ahead. And for those who intend to sell the home in future, continuing to repay principal on an asset they won’t keep may feel unnecessary. In effect, paying down the principal may only serve to increase their children’s inheritance at the expense of their own living standards.
This loan won’t suit everyone, nor should it. But for the growing number of Australians entering retirement with mortgage debt, it provides a valuable option – one that reflects how real lives and real needs are changing.
The financial services industry has a responsibility to evolve with its customers. Doing so thoughtfully, and with the right safeguards, is not about fuelling debt – it’s about helpingAustralians retire with greater financial confidence.
Ends.
First published in The Adviser, 15 May 2025