We're refreshing our podcast content in 2022 with a more direct and purpose built show which will have a focus on the Australian Property Market and Banking and Technology news and insights.

This will keep us focussed on real time current affairs, changes, and opportunities that w're seeing in the property and financial markets. In this episode we're covering:

1. Will the world end if interest rates were to rise?
2. How fixed rates have already gone through the roof
3. An update on the 'mortgage hostage' situation
4. And whether baby boomers are finally going to see 'that recession' they've been calling for more than 3 decades.

Each podcast moving forward will be about 20 minutes in length to keep our content to-the-point and up to date.

Listen to Episode 9 on Spotify here or Apple Podcasts here.

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Episode Transcription

Sean (00:00):

Welcome to the podcast. Tell us what you really think, where Sean and Anthony basically just tell you what we really think. We cover all things, property, finance, and technology, and we are brought to you by www.ratetracker.com.au. Rightio we're back. We had a little, little bit of a siesta towards the end of last year. Got a little bit manic there heading into, into Christmas and everything. Anthony, welcome back,

Anthony (00:25):

Sean. Pleasure to be here. Yes, it's been too long, but now we've got a bit of, bit more time. We're definitely gonna dedicate more time to this and sharing our thoughts.

Sean (00:33):

Yeah, for sure. And it's gonna change a little bit. Obviously we spend all of our lives in finance, property and technology, so we're just gonna focus on those three topics more. So keep it really direct. And with the show, we're basically just gonna cover off on a couple of topics each fortnight, try and keep it under 20 minutes just to make sure it's short, sharp and snappy and people can get the information they need with current affairs today's episode. Without further ado, we're gonna kick off on couple of really hot topics in the media at the moment. Anth, want to fire off on the first?

Anthony (01:03):

One. Yeah, sure. So is the world gonna end if interest rates rise?

Sean (01:08):

Ask channel nine news and they'll probably say yes we'll cover off on that. And then we'll cover off on why it's a little bit too late to fix your home loan. So being obviously a huge changes, but you don't really see these things happening at the point in time they happen. You only really notice when it's too late and then the third one is

Anthony (01:26):

Improved commercial lending conditions as well as mortgage hostage and how that works and, and why there's some great new products.

Sean (01:34):

Yeah. Another, another big topic in the market mortgage hostage. They love grabbing that one every couple of months and launching something about it. And now we've we've finally got some good solutions for it. So before we jump into the three topics, we're just gonna cover off every week or every every episode on the property update in Australia and whether or not it's a boom or gloom scenario based on the narrative in the marketplace. What are your thoughts on the marketplace now in February, 2022?

Anthony (02:01):

Yeah. So last year, no doubt was extremely strong and I think some of the data came out. Now the year has ended Australian dwellings went up 22 odd percent was yeah, was what call logic announced. But now we are, what we're seeing is, is it's a lot cooler in terms of the market conditions. It's not as, not as hot and, and manic and frantic. And I think everyone thought that this year was gonna start as strong if not stronger than than what it ended last year. But SQM research who's Louis Christopher who's is a great I guess commentator, he commentates and he watches on a lot of the property listing numbers. And so he's actually that announced that the Sydney market is only 2.8% higher than January of last year. And Melbourne has actually recorded a 12.9% drop on new listings. So that's, that's pretty big

Sean (02:59):

And you can feel it. I mean, people have been looking for property, a lot of them for, for sort of six months, 12 months and the fussy ones, even 18 months to two years, and basically just keep getting pushed further and further along without, without any keys. The listings have been slow. There was a little bit of a peak there in probably the September to December quarter. Last year in 2021, the stock was eaten up pretty quickly. It started to plateau a little bit towards Christmas there where the properties would get listed and they may actually run a full campaign. There was most of 2021. They wouldn't even make it a week into the campaign and the property, any good quality properties to be gone with the listings this year. With the listingts this year, what do you think, what do you think's attributing to the, the lack of listings? I mean, there's, there's plenty of property in the city. The population hasn't increased significantly and if anything has dropped with the mass exadus to Brisbane last year what's making people hesitant to list their properties.

Anthony (04:00):

Yeah, definitely. There there's, there's multitude of, of reasons. You've got less government stimulus. There's a whole lot of stimulus over the 12 last 12, 18 months giving people lot more money to do things. Affordability big one, cuz obviously it's jumped up that 22 odd percent over the last 12 months. So that's, that's becoming challenging. Fixed loans going up already. And we'll go into a bit of detail there as well as in some areas tightening of, of credit conditions. So that they seem to be the, the majority of it. And and then obviously, you know, the, the election coming up. Yeah, we mentioned.

Sean (04:37):

Yeah. And we'll keep an eye on the election in other episodes as well. I think that's gonna play a big part in the, in the 2022 situation. But I think one of the things with the, hysteria that was around last year and driving prices, like we, saw properties that were, you know, purchased. I know we, looked at red hill and what happened there, we had properties that were purchased, you know, only two years ago at 1.1 million. And they're up for 2.2 million, like we're talking enormous, enormous unfathomable growth in certain pockets. When you look at that and you think, well, how that's gonna discourage a lot of buyers for even trying, that's gonna discourage a lot of people for going to market. I'm surprised it hasn't enticed people to, to try and say, I wanna slice of that pie.

Sean (05:24):

Yeah. I wanna try and get that. Now there was that situation late last year, everyone thought jump on the band wagon. Yeah and I can just pick my price. That I don't think is gonna happen this year. I think people are a little bit smarter and a little bit more patient and they probably think, "well, if I can, if I can stand here and wait for the right property to come along", I reckon they probably have a better crack getting it rather than going out and spending, you know, 10, 20% higher, more, more than what you expected to. Yeah. So it'd be interesting one. Yeah,

Anthony (05:53):

For sure.

Sean (05:53):

We'll keep a, keep close eye on that. And like I said, we'll cover that, that property doom boom or gloom every episode now let's jump into the first topic. This is this is probably one that is, gonna be again around for the year. So when we look at the interest rates they've been, I mean, they're in the media every month talking about 'em every day, every day you know, what will happen if they rise? Is the world gonna end If they rise? What's your take on it based on where we're at now?

Anthony (06:26):

Definitely look interest rates in the, in ones and twos. Really. It doesn't seem it's too sustainable for long period of time. It's obviously created this huge increase in property prices over the last 12-18 months. It was obviously done cuz of the global pandemic and all the challenges there, but rates are gonna have to increase. It's just not sustainable saying at these levels. So it's not the, you know, if, it's just when. And that's what everyone kind doesn't know, you got some economists coming in saying it's next month. Some economists coming in saying it's next year. Yeah. And the RBAs pretty adamant. It's gonna still be next year. But one of the things I'm really confident that I think not going to happen is that it's not gonna be significantly increased quickly. Yeah. It's gonna be incremental and, and slow.

Sean (07:13):

Yeah. I mean they can't, they can't increase it aggressively because if we look at, so some of the things that we are seeing on the frontline as, as brokers and seeing what people are buying and what they're borrowing people have, have extended themselves a lot. Yeah. If we went back 18 months and said, right, what's, what's sort of a standard, I guess even if you use the multiple of their income, people are extending themselves. They're much more comfortable to go out and spend, you know, two, two and a half, 3 million on the property two years ago that would've got you nearly anything you wanted. Whereas now that doesn't get you anything you wanted. Yeah. And it basically people seem like they're more open to the idea of having that much debt. Yeah. So you go and throw, you know, five interest rate rises at those people. They're gonna feel that, especially when they've got 1, 2, 2 and a half, 3 million worth of debt leveraging against their name, all of a sudden, if payments go up by $15,000 a year, that's gonna cripple some people. So I think they they're gonna have to tread very carefully. They're obviously gonna have to be smart. But we'll wait and see what happens with that. We've never been able to predict it in the past. It's been pretty difficult. So I don't think anyone's ever predicted it. Right. Never. There's always someone saying they're going up, always someone saying they're going down. I don't think it'll go, It can't go down anymore. I mean, it can't, we can't encourage people to go and spend more on property.

Anthony (08:28):

That's that definitely stopped

Sean (08:30):

Investment properties are effectively free at the moment because rates are so low rents are so high and we've seen rents increase across all regional and capital cities. So when you look at thatformula, we can't really put more fuel to the fire in that scenario. So I reckon a little bit more stability and we'll, we'll wait and see how the population respond.

Anthony (08:51):

Yeah. It's definitely not gonna be going exponentially up. And even though America, you see the inflation of seven and half percent, I think it's was, was reported and they're talking a half a percent rate rise, you know, as, as early as next month. Australia's different to that. We're not at those levels. We didn't print all that money that I think you've got a bit of data on that as well, but that you can talk about later, but yeah. Seems like it's gonna be gradual. And and it's I guess demonstrated in how fixed rates are priced at the moment.

Sean (09:22):

Yeah. Which will be covered in the next topic, which will move on to now. Fixed rates with the dominant product selection for most of our clients, for what probably two years, probably 18 months, two years fixed rates dropped, you know, you, you get about 1.79% fixed for two years and that's, that's just insanely low. You'd be crazy not to now Melbourne cup last year, a lot of things were happening in the background while everyone's focus was on the lockdowns being lifted and everyone's focus was on, you know, all the excitement of the end of the year approach and new beginnings on the horizon. We saw fixed rates go up. How many times with most lenders who have gone up three to four times.

Anthony (10:05):

Yeah. In that one month, lenders went up at least twice. Yeah. And it happened quickly. Some unfortunately with some of our clients, we did get caught out in terms of, they didn't warn us and they [increased rates] did it overnight. Some others were able to rate lock, which was able to lock in that rate before their loan settled. But yeah, it was a pretty crazy time for us.

Sean (10:24):

And I think those markets which we can explain that the, the reason the fixed rates and the variable rates don't follow the same pricing trends is because the, the money comes from different market sources. So when fixed rates are priced, their fixed rates are priced that it has nothing to do with the RBA cash rate. Yeah. So there's very little influence. The, swap market is completely different where they're getting that money. So you're never going to see a correlation between those two. And I think that's where the water's muddy a little bit that people are led to believe that fixed rates and variable rates are the same. Yes.

Sean (10:58):

Which, I mean, it was all well and good while the fixed rates were 1.7-9% and they were taking them all. And then now they're all confused and annoyed that they're not that low. Yeah. however, what we noticed was when a lot of the lenders increase their fixed rates. So substantially over a period of say four to six weeks, the variable rates dropped with a lot of lenders by up to half a percent.

Anthony (11:20):

And no one talked about that.

Sean (11:21):

No one talked about that, how much fat in the margin do the banks have that they can drop it by half a percent without even thinking about it.

Anthony (11:29):

Yeah. So it's funny. Yeah. So that, that fixed rate, it's, it's a futures market that they're pricing their loans on. Yeah. That, that could go up dramatically that cause they think their rates are gonna go up eventually, but yeah, the variable can just plumit down. Yeah.

Sean (11:44):

So we, we are now seeing variables in the 1.99 space, which is insane. I mean when fixed rates were at 1 79, 1 8, 9 variables were at 2.79, 2.89 some 2.5, Whatever. Yeah. But there was still over half percent difference. Now it's gone the other way. Where, what are the differences we're seeing now in between a fixed and variable rate? I think if like, if you looked at the lowest variable rates in the market versus the average two year fix, which is probably still the cheapest.

Anthony (12:11):

Yeah. So what you said variable about 1.99, or call it yeah. 2%. Yeah.

Sean (12:17):

Pretty Common.

Anthony (12:17):

And fixed rates are, you would say probably 2.7, 2.8. Yeah. And that's probably best case scenario.

Sean (12:24):

Yeah. And a lot, like, even, even some of our, favorite lenders that have the lowest variable rates, they're fixed rates are now in the 3's. Cause they're just like, we're not, we're either an A) not interested in it. Yep. Or B) the funding is so expensive. This is where we need to price it. So yeah. Regardless the boat has sailed to, to fix your rates. I can't see variable rates exceeding the current advertised, fixed rates in the timeframes that you can fix for. So the banks aren't stupid and they pay people in high places, a lot of money to make these decisions as to what the, this is gonna be priced at so that they make money. They're not a charity. They're not gonna give us the money. In, in our pocket. Yes. A lot of people picked that it was a good time to fix at 1.89.

Sean (13:02):

Well done. It was that was, that was a very, very clever move. Some people fixed for three years at 1.9. Yeah. They're laughing. Right now the boat sailed. We wouldn't make any, any recommendations for people to fix only because the, the gap is probably not gonna be closed by the time you fix rate expires. Yeah. We're still doing a few where they hedge their bets where they say, I want a bit fixed just for certainty. And I wanna bit variable because I like the lower repayment. So we'll see, we'll see how that plays out.

Anthony (13:32):

Yeah, definitely.

Sean (13:34):

Now to cover off on the third point is the lending conditions. And, we said in the intro that the mortgage hostage scenario has been in the news for just over two years once rates dropped from the considerable highs of the 5 and 6's and so percent, yes, they dropped all the way to, well, I guess they dropping to, to 1.99 now. A lot of people had their situation change where they can no longer show the bank with the current regulations that they can afford to refinance their mortgage. So they're stuck on interest rates of three and a half percent, 4% to, you know, whatever it might be. They might be stuck with a, a second tier lender

Anthony (14:13):

Or for a low dock loan for some self employed clients.

Sean (14:16):

Yeah, exactly. And they've maintained their repayments perfectly for five years. Yeah. But they can't do anything.

Anthony (14:21):

Yeah.

Sean (14:22):

So that's what created the mortgage hostage discussion. And it was recommended that the banks review how they approach this. Yes. Let's let's drop the bombshell. And what's happened this week in the, in the prime major sort of banking sphere.

Anthony (14:35):

Yeah. So a multitude of banks have released new product where you have to just demonstrate, you'd be able to you've been able to conduct your loan perfectly over the last 12 months. And it doesn't matter if your serviceability and you demonstrate that you can service the loan. That's put to the side. And they're just focusing on that loan, as long as you don't want to increase that loan limit. And you just wanna refinance the current loan amount, give or take $5k that they will simply look at just refinancing that loan. No questions asked.

Sean (15:03):

Think about the number of people stuck in that situation. They're gonna be able to benefit from this.

Anthony (15:08):

Yeah huge. Like, we're gonna go through a process of contacting a lot of our clients just to see how they're going. If we can simply look at adopting this product. It's not only in the residential, it's in the commercial space as well. So lot of homeowners, as well as investor and there've been certain circumstances, well, a lot of circumstances would just hold clients. We can't, they don't fit the bank's criteria. So it's gonna help a lot of customers. And so if you got any friends or family or people, you know, that are kind of, maybe in that situation. Reach out to someone or reach out to us and, and to, to resolve it for 'em.

Sean (15:41):

Yeah. And you feel like a bit of an idiot when they come and say, hang on, but I don't get it. I'm paying four grand a month now. Yeah. And you're telling me that if refinance, it's gonna be three grand a a month, but you're telling him I can't service it because I can't show I've been managing it for two years and you feel a bit, dumbfound trying to explain to them. "I'm really sorry, but this is just the way the system works that we need to demonstrate. You can afford it on these terms". Yes. So it's a, it's a huge, huge change. And it's gonna help, not only those people get into better positions, it'll then free up the cashflow for their family. And it'll also then potentially give them the opportunity to look at other avenues like investment that they haven't been able to, because they've been locked up on a high rate mortgage. So that'll be a, an interesting space to watch and something we are gonna be hugely active in with, our clients. And, also just spreading the word about that.

Anthony (16:29):

Yeah. Can't wait.

Sean (16:32):

The fact that, that now just quickly on that one, before we move on tp the closing notes, is that applicable for investment and own occupied products?

Anthony (16:41):

Yeah. I believe so. So, and like I mentioned, yeah. Residential/commercial. So it's it's gonna cater for all clients. And yeah, we can't wait to roll it out and talk about a bit more with, with the, the product and the rates and, and what's available to

Sean (16:57):

People. Huge, progress. Look in, in closing notes, that's the state of play where we stand now still a few unknowns and the world is still pretty crazy. Right. So things can change really quickly as we're all well, and truly accustomed to now. Yep.

Anthony (17:18):

Hard to predict things.

Sean (17:20):

Very hard to predict things hard to think about what you're gonna do next week. The property market for the rest of the year. Obviously we'll do it on a regular basis, but what's your, what's your opinion right now?

Anthony (17:32):

Yeah I just can't see in the expert growth as last year, you know, and I dunno if you call it plateauing It more seems like to, it's gonna be bubbling along. It's been a slow start to the year with the listing. So it seems to, it's gonna take a bit a while to get going with all the talk. It just seems like it's just gonna be not as crazy and aggressive as last year, which it probably it's a good thing at the end of the day. It's not sustainable. What happened last year,

Anthony (17:59):

Nah, not at all. Which is good if we can do that and not go down and probably won't but see how we go.

Sean (18:03):

Yeah. And we I think we, we looked at some of the, some of the figures you need to, you need to be mindful of the possible outcomes. And right now we've got, we've got the share market, you know, it, it's starting to get a little bit shaky with some of the tech stocks and some of the articles coming out with, you know, 20, 25% reductions in prices as they release, they release their figures. Look, those companies are going nowhere in a short period of time, but some of those stocks, for example, have valued it over 30, 40 times, their annual revenue. Not their profit, their revenue, some of them aren't even profitable and they're valued at 30 to 40 times they're revenue. So you gotta think, well who is valuing that, that particular entity at that level? Who's who put that number on it to say that that stock was worth that amount?

Sean (18:54):

There is, there is also a, a little bit more uncertainty with the election coming up this year, which will cover, covering more depth in the next episode. But I think it's just a matter of being wary, keeping very close to the ground, not, not being I by things that are outside of your individual circumstances, because that's a big thing that massive FOMO issue was huge last year. And I think one of the things that drove the property market to that level of hysteria, so fingers crossed, we do get that plateau of emotion. And we can, we can just see things stable out .

Anthony (19:31):

People are happy to sit on the sidelines maybe first after this year, at least. Yeah. And, you know, seeing what happens the second half.

Sean (19:37):

No worries.

Anthony (19:38):

Good to talk.

Sean (19:38):

We'll tailor those opinions as the as the weeks go on

Anthony (19:43):

Beauty. Good, good episode.

Sean (19:45):

Good to be back.