The sea- and tree-change towns where home buyers are paying in cash

Home buyers in towns exposed to natural disasters and the effects of climate change could struggle to get a mortgage, as the risks associated jack up insurance prices.

NSW’s Lismore and Victoria’s Paynesville had disproportionately high shares of mortgage-free sales in financial year 2024, data from property settlements platform PEXA showed – a sign that lenders were reluctant to be involved in the at-risk areas.

PEXA chief economist Julie Toth said the regional towns, and some surrounding areas, had high levels of cash-only purchases but didn’t have a clear demographic explanation. For example, Toth said she would expect to see a corresponding portion of retiree buyers because they tended to buy with cash from another property sale. An unusually low portion of land purchases would also stand out.

“We can see there is a different story emerging there, and it does appear linked to the impacts of natural disasters and climate change,” she said.

Land Insight’s Tim Osborne said it could become impossible to get loans in some areas. “If people will want to remain in these areas, they will have to pay in cash,” said the co-founder of the environmental risk data analytics company, which is part of PEXA.

In Paynesville, 60.1 per cent of sales were mortgage-free, the highest in the state. Nearby Loch Sport and Lakes Entrance were close behind at 51.3 per cent and 50.8 per cent, respectively.

In Lismore, 56.1 per cent of homes were purchased without a mortgage, and just 6.7 per cent were for blocks of land.

The NSW North Coast town has suffered through unusually devastating floods in recent years; Paynesville and its surrounds are at risk of coastal inundation, and the risk will increase as sea levels rise.

These events made insurance unaffordable or unattainable; and if a home can’t be insured, banks won’t lend to their would-be purchasers. Areas where insurance becomes inaccessible are sometimes known as “red zones”.

“That’s the pinch point, in practical terms, for someone looking to buy. It’s what’s happening in the insurance market that’s contributing to what we see in the mortgage data,” Toth said.

“It’s the flow-on effects … it has wider ramifications than if you’ll get a payout the next time you get flooded. It affects who can buy and if you can get a loan. It affects if you can get permits for renovations and extensions.”

Property owners along Ninety Mile Beach, near Paynesville, have already faced issues getting permits to build on land which is considered at risk of coastal inundation.

University of Tasmania Climate Futures Group Associate Professor Sarah Boulter said it wasn’t yet clear how widespread the issue had become, but the NSW government’s reaction to the 2022 Lismore floods had indicated the area was becoming uninhabitable.

“There’s a whole area of Lismore that will no longer be residential because properties are being purchased by the government, and it will revert to being what it has been for a long time in history, a flood plain,” she said.

“The NSW government [is] investing in programs of relocating people and homes and developing new estates where they haven’t previously because there’s an expectation we can’t keep putting people at risk.”

Osborne said it wasn’t just seaside towns where it would become hard to buy a home. The effects of unbearable heat and fragile infrastructure could make some lenders baulk.

“Places like Broken Hill are going to be too hot to live in the future,” he said. “[In October, there was] a major windstorm … all the major electrical towers that ran into Broken Hill got wiped out. The town was out of power for over a week.

“You add in all these other factors, and Broken Hill is going to be hotter and will have these kinds of events … if I was a risk manager at Broken Hill bank, I’d be asking for a 50 per cent deposit because I want to get my money back as quickly as possible.”

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Osborne said it might not become impossible to get mortgages in at-risk areas, depending on the lender’s appetite for risk.

“The bigger banks, CBA or any tier one, might feel an obligation to lend to these areas and offset it with more lower-risk areas,” he said.

Boulter said it wasn’t clear whether Australians would work to keep these areas habitable.

“We’re thinking about risk in the future and how we can manage those risks before they become catastrophic,” she said. “It comes down to that social decision-making. It’s about having uncomfortable conversations about how to tackle these problems.

“We’re going to have difficult conversations about where people can and can’t live.”