In this episode, Terry chats with award wining mortgage broker and property adviser Chris Bates. Chris sheds some more light on what is happening (and what will likely happen) with interest rates. Plus how the banks are responding to the first rate rise in 11 years. Chris also shares his views on how the property market is responding, and do’s and don’t for prospective buyers.
If you’re wondering what these big shifts might mean for you, this episode has some sound guidance on how to batton down the hatches to protect yourself from the winds of change. But also how to position yourself from what will likely stay the same.
What you'll learn
Hi, it’s Terry. And in this episode, I’m going to be chatting with award-winning mortgage, broker and property advisor, Chris Bates. Yeah, I’ve had Chris on the show in the past, in episode 23, how to make smart moves with debt and property. But I wanted to bring Chris back on to just add a little bit more color to what we covered in our last episode Chris and I discuss what’s happening with interest rates, how the banks are reacting to the first rate rise in 11 years. And I also asked Chris how he sees things playing out in the property market over the next one to two years. And also what could happen after that. So, So, if you’re wondering what these big economic shifts might mean for you, if you’re a homeowner or even a home buyer, this episode has got some really sound guidance on how to Batten down the hatches to protect yourself from the winds of change, but also how to profit in the longer term from what will likely stay the same.
I hope you enjoy them.
Terry: Hi, Chris, welcome to the show.
Chris: Terry great to chat my, how you been?
Terry: I’ve been?
well, man, there’s a lot going on though. Isn’t there.
Chris: Absolutely. I mean, the, changed from late 20, 21 to 22 is massive. And it hasn’t fully played out. Right. We just saw the RBA lift rates yesterday and we’ve even got many emails this morning from clients who have finally realized rates are gonna go up. I think that’s quite interesting as well as that, it’s not until things happen.
People react rather than proactively. So yeah. Lots going
Terry: Yeah, and I appreciate you coming on the show.
to, just to kind of talk us through this. Did a little bit of an episode last time, but I thought it’d be good to get an expert in this space. Someone who really understands it from end to end. So, appreciate you coming on and sharing. So what do you think, is going
on? what is happening here? are we going to see these massive rate
Terry: Like what’s your view in
this big change.
Chris: Look, I mean, we’ve got a global inflation problem, we’ve pumped the world with low rates and capital and debt. And people have gone out and done investments, but also spent, we’ve got supply and trading shoes. We’ve got Ukraine, et cetera. There’s a big global story that’s causing inflation.
And I’m not going to be the expert in saying. It’s going to play out, but obviously the central banks around the world have to do something inflation’s a lot worse than the UK in the U S than it is here, but it is a global problem. And the RBA was not looking to increase rates to 2024.
I mean, it’s 20, 22 and it’s made, it’s not even H two and rates are going up, right? So therefore guidance has been a massive fail. It’s quite amusing that he sort of come out and said that he got it wrong, but. What that for guidance was to do is to pump up the market even more. Cause he’s running out.
He couldn’t drop rates any further, but overall we are in a heavily debted society. Governments do want a bit of inflation. They just want to keep it under, wraps. And they’re going to have to start increasing rates. Now question is, wasn’t, are they going to increase rates?
That was obvious, of course they’re gonna. For two reasons, one to slow down property markets and asset prices. But to, to give themselves a bit of fire power, if there is another crisis in a few years time, they need to have something in their toolkit to stimulate demand and these whole credit cycle again.
So rates are going to go up. The question is, how far do they go? And I’m not even that bothered how fast they go, whether they go up in a year or three years, like you’re only talking two years, The real question is you do that. from zero, which let’s just call that no 0.1 to 2% or did they go to 3% or do they go to 4%?
what’s happened to the property market per se, is that, buyers last year were told by the RBA and believe that rates were going to stay low, two or 3% for some time. And we even talking about negative rates, not even that long ago. Right.
And so a lot of people went out and access to credit has been quite easy. The Royal commission issues were solved a couple of years ago. And they went out and took on a lot of debt bought houses all over the Australia. Right. So we saw massive increases in asset prices.
What scared everyone in 2022 is it they’ve got to pay a lot more for the property because prices have gone up and be there potentially have to pay a lot more on an ongoing basis because their mortgages aren’t going to be 2%. They’re going to be 4% or 5% like the bank. For the sort of signing. So buyers have gone from risk gone to risk golf, and I’m not going to buy a property unless it really is everything I really want in a property.
I’m not. So what we’re saying is a lot of people try to cash in and late 20, 21, we had lockdowns in Melbourne, et cetera. And a lot of people couldn’t get there, know it takes a while to get your property on market. You got to get it painted and like a car you got to make sure it’s pristine to get the best sale price.
He also had difficulties getting agents and listings and things like photography and et cetera. So hopefully people wanted to sell late last year. They couldn’t get it on the market. And so then they listed it in February. And a lot of people came to market.
And a lot of the stuff that wasn’t great, people who said, oh, wow, I’d love to get. Busy road or this dark property. So 2022, we saw a big increase in listings. And then we saw a big drop in demand where buyers said, hang on a sec. I’m not going to buy that property for that price if rates are going to go up.
And so absolutely we’ve seen a really fast, cool off to poor properties. So things that are busy roads, dark privacy issues, weird floor plans, need big renovations, et cetera. Buyers are saying, hang on a sec. I’m just gonna be. but what we are saying though, it’s, already interesting is kind of similar to 2018 is the ones who have got good assets.
Like you’ve got a, got a property on a great street, but you would love to upgrade last year. You wanted to upgrade because rates are 2%, but this year you say, well, I’ve got to take on another million dollars a day and I’ve got to pay 4% interest on that. And I’ve got to pay stamp duty and I got to pay selling costs and yes, I can sell for a good price.
But I’m not sure if I really want to. so we’re already saying a real reduction in the quality of properties on the market, similar to 2018, where all the poor properties are on the market, but the good ones are just sitting on their hands and we’d get that Mexican standoff. So yeah, it’s, it’s a lot of fear going around.
I mean, you’ve got all the banks saying 15, 20% falls. You’ve got some really respected commentators saying that as well, like Chris joy. And I do think we’re going to see a repricing on a, quite a. The scale to pour assets, which to be honest, we’ve already seen 10, 15% falls to some of these
Terry: What’s interesting to me, is that the reasons that we’re forecasting, we’re not going to be lifting these rights. None of those conditions have really changed a lot. However, it’s just that we now are seeing inflation. That’s the thing that’s changed.
It’s not like our economy is all of a sudden flying
Chris: Yeah, that’s right. I mean, I think the numbers are good Wage growth. Isn’t like through the roof. Right. I mean, they would love to have waited till that was really sustainable. And we saw some really increases to wages, but they’ve had to sort of calm the market to be honest because the market’s freaking out.
And I think this is the interesting thing where the market’s pricing interest rates to go up three, 4% cash. Right. And then you add 2% on there for the bank margin. So you talked. Bank rates of five or 6% even Westpac, bill Evans, very respected commentator came out and said that he thought the rates were going to go to similar.
I like that as well. And that is a huge, huge change. And it’s a long way, we sort of 25% basis points increase yesterday would have to have an eight times. And they’re going to want to least see how that effect is and I’d actually argue a lot of the rate increase impact, which is the changing behavior as already.
Chris: And, even just that one rate increase, people are going to start, being a bit more tighter on their money, to potentially not invest as much. and sentiments going to change. And especially the first increase in 11 years, it’s all over the papers, all over the news.
And so sometimes don’t need to lift rates to get the outcome. And I feel like they’ve already got
Terry: Yeah, and the audio’s job is to manage people’s perceptions to manipulate their behavior. Right. And if they can, they want to do that.
without making any massive moves they want to do. Really in people’s heads more so in the actual economy, because the more moves they make in the economy, the massive ripple effects can happen with, which I cannot, foresee.
There’s so many externalities. And as you said, we’re so much more indebted than we were even 10 years ago. I read a stat that we paid 89% more for houses than we did in 2000. And. Over the last couple of years. So we’re way more. And then, so those smaller, like at 25 basis points, 50 basis points a 1% rise.
That’s a big deal.
Chris: It is, and it’s not gonna affect every suburb. The same, if you look at the amount of properties that have transacted in the last three years in a lot of suburbs, there’s probably only 15 to 20% of actually in good suburbs.
So 15 to 20% of the properties were bought in the last two or three years and have paid a bigger price than, previous recent boom. Right. And not all of them have gone in there with 90% mortgages. A lot of them are gone in with 60% mortgages or some have gone in cash buyers but some have got lines.
So the. established suburbs. It might only be five to 10% of properties in that suburb have got high debt and paid a lot of money, right? It’s not like the whole suburbs in a lot of debt, 30, 40% of the properties will be paid off. 30% of them will have quite low debt, maybe 20% of medium debt and maybe five, 10%, probably doesn’t have to 100, but have high debt.
Right. But in some suburbs, and this is the real thing, you, some suburbs where you’ve got new house and land packages. Every single bar in those suburbs pretty much goes in with a 10% deposit. Because they’re first time buyers and their affordability stretched and that’s why they’re borrowing in these house and land packages.
And so they’ve all got 90% LVRs and they’ve all paid a premium price because developers could shift them out at good prices the suburbs that maybe only got one income, maybe it’s a young family, maybe wage growth, isn’t there. Then you’ve got rising fuel costs that there may be using a lot more and maybe they’ve got, higher just living costs, et cetera.
That’s where you will see debt stress first, but you also see potentially more people rushing to the exit to protect what they have got, because that’s all they’ve got is their 150,000 let’s say. and then the same in of apartment markets and things that are investor centric. So the outskirts of the capital cities have gone up a lot because the low interest rates, well, that was driven because of low interest rate.
Now, if interest rates go higher, then people are going to have to reprice those properties. And so higher interest rates, isn’t going to cause a whole market to. But it is going to really, put debt stress on certain pockets. And you just want to make sure you don’t own those type of properties.
Terry: And I think that’s where I
Terry: it. The message that you sent the first time you come on the podcast was, a lot of the risk is actually in the property that you buy. So you buy the right property and as long as you can afford it, you’re going to probably be okay.
Chris: It is, you definitely need to be smart with your mortgages and how you manage that. But you need to be smart. Like, not just when you first buy the property with your mortgage, but every year you need to have like a debt strategy because if you buy a good asset yeah, absolutely. That lowers your risk dramatically.
And if you’re. Get problems with your mortgage. You can potentially sell it. And if it’s a good asset, you can make some money, but you don’t really want to sell it. Right? So once you’ve got your asset, then you want to protect it. And that’s where your debt strategy comes in. And a lot of people just sort of, get a little bit lazy with their mortgage.
And I think especially when you start to get quite a bit of debt and maybe multiple properties, mortgage strategy actually matters. If not more than your property strategy, you already bought the
properties. And so what you need to be doing a making sure you’re getting a really good ripe.
You need to be extending your loan terms. You need to be using offset accounts. You need to be releasing equity for buffers. You need all these sort of things, constantly switching banks and secure and cross secured. And absolutely you sort of have a great property strategy is then driven by a great debt strategy that protects you.
That gives you a sleep at night factor. Because if you, for example, it released a hundred thousand dollars. And that just sits in an offset account and rates go up 2% and that increases your mortgage repayments. I dunno, $2,000 a month. Are you worried about that when you’ve got a hundred thousand dollar buffer?
No. Right. But if you didn’t have that a hundred thousand dollars boffin, you had no money in the offset account and had an extended your loan terms for years and you hadn’t gotten interested and then your investment properties, all of a sudden you get actually wiped out. And so a debt strategy is absolutely something you really need to focus on a good broker should sort that out.
Terry: Yeah, of course, great points. I’d love to just dig into how our mortgage REITs are impacted by the cash. Right? So we haven’t really dived into that level of detail, but how that mechanism work?
Chris: Look, it’s extremely frustrating, you should just be a headline rate and you should be able to go on their website and figure out exactly what rate you should be paying. But the banks don’t like to make it that easy though, to make it murky. And when I started back in a broker 20 13, 20 14, a good discount on a mortgage was around one to 1.2%.
And what does the discount mean? So a bank quotes, a standard variable. For example, I just bring out Westpac right now for loans over 70%. their standard variable right. Was full point for. And so the banks will give you a standard variable rate and you can find that out at all the banks.
And that’s usually 90% of is probably should be on package lines. I mean, you can get basic home loans which have no offset account and no fees potentially, but once you’ve got those, understand the benefits of offset accounts then you potentially, we’re looking at a package line, especially when you’re borrowing more than a few hundred thousand, and that’s where, 90% of customers will go because you can potentially get the same rate with an office.
Chris: If not a better rate. So I guess to answer your question, all the banks have a standard variable, right? They have one for home loans, principal and interest, home loans, interest only investment loans, principal, and interest, investment loans interest only.
So if you’re, for example, talking home, Principal and interest at the moment they’re around sort of 4.5% and all the banks are pretty much always the same. It’s like five, 10 basis points difference. But what you want to do as a customer is locking a discount on that standard variable, right? And that’s what you negotiate.
So when you walk into, for example, right now, west Pakistan, you get a discount of 1.2, 9%. If you just sort of walk in off the brand. But we know that only gives you a rate of say 3.1.
Well, if we walk into a bank, we can get actually under 2% at Westpac. So we can, instead of getting a 1.2, 9% discount, which the bank offers online, we can increase that discount dramatically closer to 2.5% which is crazy how much discounts have gone up.
So there used to be about a one to 1.2% discount, and a lot of existing customers are on those days. But over the last eight years, discounts keep on getting bigger because what they do is they keep competing for new customers and keep offering bigger discounts to new customers. And all their existing customers are on really poor discounts because they haven’t gone and renegotiated.
Terry: that lazy texts.
Chris: Absolutely. this is one of the benefits of online lenders and brokers and brokers are riding two and three loans. Now. They’re driving competition. The bank are having to re offer really good rates to new customers. And they’ve got all these old customers that have only had loans more than three years, the longer your line, the worse your discount.
And they’re just, kind of making money off you. The problem with the banks is at the last two or three years has been the biggest increase in refinances ever. And we’ve also had the biggest increases in fixed loans ever because of the. And all the banks are freaking out because all these fixed lines are going to come off and consumers realize now that they need to refinance.
and that’s what I’d urge anyone. Who’s got a loan more than two years even potentially one year to be honest, cause it’s even dropped in that last year is reveal, right? Cause if you can save yourself 25 basis points, that’s same as when the RBA just increased rates 25 basis
points. So you’ve just protected yourself from what that rate rise. And you could probably save a lot more than 25 basis points, probably 50 to
just, I want to dig into what you were saying. we can get discounts. You mean brokers can get you a discount, is that correct?
Chris: the bank offers or something online, you go into a branch and the sales pitch will come out and say, look, if you sign up today or we can get you this to this account, locked in, we’re going to do your favor, blah, blah, blah. And it’s a real special deal we’ve got on the moment.
That’s the spiel. The reality is if you go into a branch or you go to a broker. Well, both competing with each other. We shouldn’t be, but on reality banks make more money through branches because they don’t pay brokers who introduce customers to them. But then they have to pay staff and offices and all this sort of stuff.
But you need to negotiate. So you need to know what’s a good deal out there and that’s something we’re always constantly trying to negotiate for our clients. Unfortunately, the banks don’t get the right idea, even when we go and try to reprice a customer who might be paying a.
I genuinely very rarely come close to what they’re offering new customers. And so what we have to do is refinance them somewhere else and say, look, if you don’t love us, we’ll leave you. And that’s sort of what you need to do with home minds. You’ve got to constantly fight for a better rate.
Terry: Yeah. So rule of thumb, there is if you’re a new customer or you are appearing to be a new customer, or you’re a customer that might leave, you will probably get a better, right. And not requires you to do a little bit of work, but in this current environment is probably a big return on that.
Chris: exactly. And a good broker. We’ll make that work really easy. I broke it as one of my ex I hope fill this PDF in and then do this and do that and do this. Look, we try to reverse engineer and say, what does the customer really have to do? I send us their payslips, their driver’s license, upload their bank statements.
And that’s mainly it really, to be honest and Once we’ve got that, then we do everything else. We can reverse engineer everything once we’ve got all your IDs and payslips, et cetera. So the work’s usually very minimal. If you’ve got a good broker who can, understand your issues, cause everyone’s got some issues, that’s the problems with these online lenders and things like that is that we’d love to have vanilla
deals, but there might be something with their income, they’ve just started a business, they’ve got a big commission element.
They’ve got bonuses, they’re on contracting. They’ve had more than a month off between jobs. So these are some issues that our bank will be. We’ve got to get around that. so yeah, that’s sort of goal here is to do a little bit of work, get a good broker and then let them do all the heavy lifting they’ll go out and negotiate.
They’ll get the loan approved. And then you can just switch banks and it doesn’t cost much to switch banks. This is something that sometimes people forget is they think it’s thousands of dollars and there’s big exit penalties, et cetera. Now, there can be a few close fix rates, but most people on fixed rates.
There’s no break cost because there’s. And you probably wouldn’t want to break it anyway, and we’d probably advise you to stay there if that was your situation. But it usually costs maybe 700 to a thousand dollars to swap banks. Probably under that potentially. And so if can save more than 700 to a thousand dollars, plus a lot of banks are giving cash back.
It’s a no brainer and there’s no point paying loyal to banks. call from a BDM at a bank this morning. We were probably one of their biggest riders in new south Wales. We’ve only lost one deal there in the last month. And he’s calling me to say, why aren’t you writing more with us?
I said, how can you compete with Westpac at the moment? And it’s 40 50 basis points cheaper, even though you’d want our business. And we were supporting you last month, we can’t support you anymore. We’re going to this bank and that’s the same as you as a customer, you just need to constantly be
switching. it’s probably, who knows what the future holds here, but if you. your crystal ball. How do you think this is going to play out over the next couple of years? Do you think it’s just going to be right. Rise, rise, rise, rise, rise, rise, rise, rise, rise, rise, rise, rise all the way up to, those 4, 5, 6, 7% like what’s your, sense of what’s going to happen?
I think once you go, maybe at 1%, I think it’ll be fine. I don’t. Can really impact the market too much. I think people are in their heads thinking that potentially even up to 2%, I think that’s fine. And I think once you start going more than 2%, which means variable rates on home loans start going.
Cause a lot of people aren’t getting great rates probably go from about 4.5 to 500. I think it’s really going to hamstring the economy. I think people got to really cut back their spending, especially the people who are, who can’t refinance and a bit of a prisoner at banks which is definitely something that happens.
And they can’t extend their loan terms, et cetera. So I think, once you get to about 2% interest rates, I think the economy impact will be quite massive. People will really cut back their spending. We are a consumer economy. We stopped going on holidays. We stopped eating out. And I think That will slow down inflation. who knows with global inflation, if supply chain issues get sorted or things in Ukraine, et cetera, that may be, reduce the inflation impact. And maybe that means that they don’t need to keep increasing rates. think if you go further than sort of 2% which I think is a long way away, he was talking about a seven potential rate rises, unless they do a double, which.
I think that would really scare the market even more. So I don’t think they want to do that. I just want to go gradual. So I’d probably be bank on something like that. I’d probably say, a 2% increase before you start to really slow down the economy. And when that happens, then maybe they don’t need to keep increasing rates.
And maybe the slowing down the economy is already happening. He could already say it with all the news and people who stopped talking about it and maybe people will make some
CapEx. If there’s a silver lining here and there are benefits and there are good parts of this change, what would some of those be, do you think?
Look, I think asset price increasing if rates have stayed on zero for another three or four years, absolutely. The market would have kept kicking. so it had to go up to really slow the market down and it did. I even said that the last couple of years it says, who’s this talk rates starting to go up, then you’ll see the market slow down.
opera, came in last year and try to slow the market down with a 5% reduction in borrowing capacity as like. if you want to slide the market down, increase rights or smash borrowing capacity down. And it was kind of, he knew he know there. And so got to also understand as well as rates go up, borrowing capacities for, and so we’re in markets where they’re not getting increases interest.
And markets has, they’re not getting increases in income. They going forward or the next few years I can borrow less and they’ve got to pay a lot more for the property and they’ve got to pay higher interest rates. And that’s another reason why the affordability sector’s going to get hit because you’re gonna see very little increases in wages.
And a reduction in borrowing capacity and a reduction in demand for credit. So if I was going to sort of play out the next few years, it should be a question. I would say that affordability sector is going to be in trouble. Things that have got lots of investors that are running for the Hills. A lot of the investor hotspots over the last few years, I think they are going to really.
But I also think that in the good suburbs, you’re actually going to say a deterioration in the ability to buy a quality asset similar to 2018, which was when Sydney market fell 15%, it was really hard to buy something. There was nothing on the market, nothing on a good street, because why would you selling that?
the only people selling a good asset in that period of the people buying a better asset, but they go, I can’t find a better asset, so I’m going to sit still. And so the next few years is actually going to be harder and he actually going to see a reduction in listings. We’re already at very low listing levels across the whole country.
So very low listings, very low quality of those listings and a big reduction in demand. But the buyers that are out that there’s still gonna be buyers out there. You’ve still got a demographic needs. On a massive scale. So you got all the people who are in apartments to having families that really want to upgrade.
You’ve got all the people who’ve never bought. First-time buyers who, and starting having couples and putting their assets together and wanting to buy a family home. You got people who potentially a downsizing, you’ve got people who need a bigger house when their kids are a bit bigger, right.
They’ve got a house, but they, can’t afford to do a rhino because rhino cost through the roof, but they have to upgrade. And they can’t borrow to do a run out. So you’re still gonna see a boss. And you can already still say there’s a subset of the market that had got big wage increases. There is a talent shortage, whether it’s the lack of being able to hire international talent or whether it’s just a dramatic increase in their demand, like in the construction industry or tech and lots of different jobs have got massive increases in salary.
So they’re going to be out in the. I guess, opportunistic in the next couple of years and willing to take on debts because they’d believe rates are going to go up to five, 6%. They think they’re going to go up to four and then potentially something around the world’s going to kick off and then rates potentially could fall again.
And they’re going to want to take advantage of people who are the rushing for the
Terry: If you were a home buyer right now, how should you be playing this? So obviously you just said that there’s going to be less listing. There’s probably going to be less good properties. would you guide someone in that, center?
Chris: I’ve been saying this all the way through the boom. Is, you’ve gotta be really careful or is focusing on getting a quality asset because when things turn and things are already turned, the quality assets hold their value because there’s a reduction in supply. And there’s always an increasing demand for those who love to get into that suburb any opportunity, but the quality property, the things that are compromised.
We’ll really struggle. And so right now it’s even more important than ever to make sure you don’t just try to get into the market because you think it’s an opportunity to buy a poor asset, so what’s a poor asset. you’ve got to think can they be a more than me? Is there a supply issue?
High-rise apartments that are high density, can they do more than yes. Is it scarce? No. Okay. housing estates. Can there be more. Okay, is it a restricted supply and does it appeal to lot of buyers in that marketplace?
So it could be a house. So you said that’s restricted supply, but it could be a house on a busy road. That’s south facing that doesn’t get any light. That’s got privacy issues. That’s noisy. That’s on a weird block. you just gotta be really careful right now, by something that a lot of buyers aren’t going to like because those are the properties that have keep on falling and those, the properties will keep on coming on the market.
So if you’re going to buy one of those, I probably wouldn’t buy it, in any market really, but you could potentially buy if markets fall a lot more and they get really bad.
Like you’re paying a $2 million property properties gone to 1.3 and the good properties are held their dies.
Then maybe it’s an opportunity, but that’s definitely not now. So right now for home buyers is be super patient, but if you find a property that does tick all your boxes it’s to try to play it a bit smarter, try to get a, either a buyer’s agent or get in with the agency. Agents are desperate for good buyers, befriend the agent.
So the agent comes on, they go, right, I’ve got this good property coming on, which is hard to find, but the first person who. And the vendor was a little bit nervous vendors. Sometimes don’t realize how good their property is and haven’t been tracking the market cause they haven’t really been answered.
They didn’t know, this is the first good property that’s come on in three months and they should have lots of demand. And the agents sometimes just want to take a bird in the hand. So what you potentially do for buyers at the moment is, is just be really patient really focused on a quality asset.
And when that right property comes on, that ticks all your. He’s trying to get in and try to get it for a fair price. And before other people see it, because what you say, all the buyers will swarm to that. And there’ll be 10 properties on the open homes. None of them are really, no one was rock up and then that one good one.
There’ll be a queue. Even in down markets. We saw it in 2018. I remember prime example, climate trying to borrow this cracking property in the inner west. I said, mate, that is a crack at ticks, every single box, or I can, that’s going to go super hot. It went for a massive price bigger than what it would have went in the boom in
because all the buyers went there and they all compete.
Chris: So yeah, that’s the advice. It’s not a case of like, try to time the market buying a poor ass to absolutely stay away. But if you’re buying it in a good asset, it’s just being patient and trying to play things a little bit smarter. I using buyer’s agents or befriending
Terry: Yeah. So what I’m hearing is have a plan, basically, if a patient very picky
Chris: Yep. And really protect yourself on the mortgages and things like that. Think that through. So, we give you clients lost what the repayments are and well, yeah, repayments on these ridiculously low rates are X, but this is what you would pay if you went to 4% And then secondly, you should buffet.
So we could really stretch to that 20% deposit, but we’d have nothing. You’d have to sell that car, but if you potentially just borrowed 88% paid a bit of mortgage insurance. Yeah. It’s not ideal, but you’ve kept 80 grand or a hundred grand in cash in your offset account and you can sleep at night.
Maybe that’s a better strategy right now. Be smart. Right. Protect yourself. Maybe not dangers, aren’t always caught once you first purchase. A lot of first-time buyers, they’re like, oh yeah, I’ve got 200 grand in the bank. 100 grand, whatever. And then I lose it all. And they got two grand in the back of a 10 grand in the bank, and it’s really stressful and it’s actually a dangerous science after you purchase the property, don’t go and celebrate, get through that danger zone and save hard just as hard as when you, before you bought the property and build your buffers back up.
and also be careful with the property you buy. I mean, you can make a mistake. We got a client trying to buy an apartment yesterday and there’s all sorts of issues with the strata report. Right. Haven’t had a meeting for two years because of COVID. there’s lots of things wrong with the building.
And so it’s just too risky at the moment, to go into that, then pay higher interest rates. Plus you get the special levy. And so the same is when you’re buying a house, you don’t wanna buy a house. That’s maybe got potential building issues when there’s a builder shortage, and you’ve got to pay massive costs just to fix couple of tiles on the roof or something like that.
Terry: I’m going to put a door on our back area. Cause it’s a door with wood. It’s going to cost me
three grand to put a fricking door on the It’s insane.
Chris: Exactly right. So you get an asset. That’s not going to need massive.
That’s a quality asset that you can leave in, build, get through that danger zone, build your Buffett’s up, understand if you can power higher in Tish rights and just be patient.
That that would be my
Terry: great. A Voss.
Terry: What should people be looking for right now from a good broker? If you’ve got a good broker around you, what should be seeing and hearing from them?
Chris: Look, it’s interesting, right? there’s Facebook groups for everything. Sometimes I’ll look at the broker one, right? And this isn’t disrespect. It’s 70,000 brokers. We probably we’ll do over $300 million alone this year. That puts us in the top 1%. Right. But unfortunately a lot of brokers don’t see themselves as trusted advisors and not saying from an advice point of view, but in the client’s mind, see themselves.
Someone that the client can come to and ask them questions and really talk them through and get actual sort of guidance and understand the facts of fee. So you want a broker that can be there not to validate you, You want someone who’s going to trust and guide you and give you good sound guidance. Right. And so a good broker is doing that, Not just saying, look, here’s the fixed rates and here’s the variable, right? Look, this is what would have to happen to the variable rate to make that a better bet.
So we don’t fix any our loans right now for our clients, because it’s just, doesn’t make
sense. the verb brighter, competitive than there ever been lower actually. But then the fixed rates have really jumped. And so you really want a broker that can understand offset accounts in structuring and extending lines and then selling you on the benefits. If a client says to you look, I really want to go interest only and we go, why would you go into your time on the, on that?
You’re going to pay an extra 1%. We would say, look, do you think it’s really the best decision? Why don’t you get paid? And so a good broker actually challenges you thinking and then gives you really good advice, which is best practice, educate you on why that’s a better decision. And then, actually guide you through it makes you make sure you make that decision because unfortunately, a lot of people make the wrong decision.
They pay off their home loans. They take out less loans than they need when they could have used an offset account. so that’s a good broker. And then a good broker is there when you need to do a refinance can actually efficiently. Get you through and get you through another bank, you need a whole team for that.
You need an infrastructure and an ability to know where to place that loan. And unfortunately that’s where a lot of brokers, they get just too busy and it gets too much. And that’s what it was like for me for the first few years before we had a
Terry: that’s actually really important. Isn’t it? Because. That can be stressful. That whole sort of process like, Yeah, I mean this document, if that’s all streamlined and just makes it so much easier for you to focus on, as you said, making great decisions, because I do feel like there’s a lot of cognitive load that comes with, oh, where do I get that?
then people just get worn down by it. So in order for you to make great decisions, you’ve got to have good systems.
Chris: Yeah, absolutely. I think you’re right. we see a lot of clients that have gone Burt with, by a broker or a bank and they launched alone did got declined. Like we don’t ever get the con loan. The reason is that we know what the banks are going to look at. And we, when we see an issue, we don’t just hit and hope.
Right. And just go, let’s launch this and see what happens because that doesn’t look right on us as brokers. And it affects our sort to KPI numbers with the bank and the bank. Ongoing, but it also doesn’t look great from a customer point of view and it affects the customer’s credit report credit reports are mattering more than they ever have.
I’m kind of shocked before I really care whether your six score was 600, 700, 800, now they’re like San Jose. Your scores are under 700. What’s happened. Okay. That’s fine. That’s okay. you’ve lodged a couple of credit cards last year, that’s fine, but oh, actually know what you’ve had a pretty bad payment history.
Now what that affects how we get our wholesale funding. We don’t really want you as a customer into credit scorings. So you’ve got to be careful just going and getting declined lines, but also if you get a decline loan on your. The next bank’s less likely to approve you because they’re seeing things in they’re saying, Hey, well, I’ll do a bit of digging here.
They’ve already lodged it with two banks. And so you definitely don’t want a large loans unless, you know, they’re going to get approved. And so that would be my other advice is just be really careful of your credit far. Cause it starting to matter more and
Terry: And how can people get on top of that mole? Like what are some resources they can look to understand how to maximize.
Chris: Yeah, there’s heaps of places. You can get your credit score done and check it. and you can even do things like tracking. So whenever something happens to it, they can get a notification. And I think that’s smart. I actually do think, sometimes playing credit card games and points missing payments on your loan is all the banks know about it now.
I used to have to ask for bank statements, but there’s things called open banking and comprehensive credit reporting that’s increasing. And you need to get smarter with your money now. We’ve got to massive, massive clients. If some of our biggest clients and they’ve had some issues with their credit.
We’re doing one at the moment and it’s a massive issue. We having to fight hard, well, I remind all of you, right. And it’s a small thing on a credit card that Mr. Repayment, but we’re having to fight hard to get the low. It’s a no brainer, but it’s just poor credit management is so hard to justify to our prod that you approving line.
If you can’t manage your credit card, how can you manage this multi multi-million dollar loan? And so just be really careful with it, make sure you’re paying rent payments on time. If you’re not using a card I’ve seen clients do that. They’d get an old credit card and they move address.
They never changed the address. And then they have an annual. Costs like an annual $90 fee or something like that. And then that then defaults and then he got late payments on that. And so small mistakes like that can really destroy your credit. So I’d be really careful managing
Terry: I think that’s even more important than ever, right? Because we’re still in an inflationary environment access to good credit securing good assets. is still
a massive superpower and an edge. And so anything
that prevents you from being able to partake in that game is really going to hold you back.
Chris: Can be massively costly. Trying to remember back to this client last year and they were on a really poor rate and they had like a loan that they went to another broker who done it like a non-bank. And this is going to be an issue that pops up actually, where a lot of last two years we do under 2% of our loans with non-banks.
I think it is. Well, under 5%,
non-banks to people like Peppa Liberty. So they go and get wholesale funding lines, even places like online lenders, like a theater and things like that. they get wholesale money and then they sell that on, through their own channels. So it could be through brokers or it could be, yeah.
Chris: And the problem is their wholesale funding line is there’s always limits on their lines. Either charge a lot Higher, right? Because they’re doing non-conforming loans, people with bad credit, et cetera like that, or they charge a cheap rate, but then you’ve got to be a really vanilla deal. And so what we’ve seen is a lot of people have been arising non-banks, especially the investors cause they got them.
Well, used to genuinely lend more money than the other banks you could get around that calculators, but there’s always a risk there, right. To hire into what you do is you go to another. You buy your investment property, then two years later you refinance. And if you stuff your credit up by making a mistake, then you get stuck at these lenders with high rates.
And that’s what we saw. We saw a client with millions of dollars aligners. Basic credit errors, missing payments and things like that. And I couldn’t refinance. And so in the next few years, like you said, you want to keep your credit squeaky clean, and then if you get any issues and you can refinance go to another bank, right.
get a lower rate and extend your loan term, protect yourself, protect yourself. Cause the last thing you want to do in down markets, whether it’s property or shares is be the one who’s. And the people who lose all that money, the people who bind booms and high price, and then they can’t afford to stay on the ship and they bail and they’re in shares.
They’re the lost investors that basically lose everything because they didn’t hold on for that extra six or 12 months. And the same in asset property markets.
Terry: it is, it’s a kind of a shaky period and those people that are well-prepared can work their way through it.
it all comes back to
cashflow. be right on top of your cashflow. That’s how you optimize.
Chris: Yeah, absolutely we deal with clients who aren’t really at that sort of initial sort of, what comes in, goes out month to month sort of basis if, sort of maybe learned some habits there and they’ve started to build a savings pool, then you helped them.
Get their first home. But absolutely. I think that, if you haven’t got a structure and a system and got on top of your cashflow I’d definitely be doing that right now, just because there’s no better time to be doing that than when it rights her increasing. And you’re potentially going to have more outgoings with higher inflation.
You want to be getting ahead of that curve and saving money where you
Terry: yeah, love it. Anything you want to say before we wrap this up?
Chris: don’t buy too much into the media. Whether it’s the banks, the banks want to encourage transactions, they actually want people to start selling their
properties because it means that the person usually buying the property takes out more debt than the person selling the
property. and so it just creates more transactions, these more debt. And so the banks talk to market up and they also talk the market down. So they talked to upgrade and they talk up fear. And so don’t be too concerned about what the banks are saying, don’t be sort of thinking, oh, the rights is going to, increase to infinity.
There’s always going to be an issue where they stop increasing and just try to apply things smarter. And don’t try to time the market too much, because what happens is you get these bounce. people wait for the bottom, they miss the bottom and the ball bounces and the market.
And so in share markets, what you do is you go, oh, Do I jump at that sort of first bounce? Cause it’d be bounces along the way that aren’t real bounces. Like it’s not still falling, but people think it stopped and then they buy in and then it falls further. And so, but when it does bounce and it really does take off consumer confidence comes back and people stop buying.
There’s usually low. Is that usually the bottom of the worst liquidity
event where people are less likely to sell. And then all these increasing demands, similar to what 2021 was. And then all of a sudden the market starts running and you start chasing the markets. It’s try not to get too tricky with it.
I think we know obviously near where that point is, there’s a lot of, dropping demands due to come through and more listings, but, just wait for that quality asset. Don’t try to time it too
Terry: Yeah, great points. Love it. Hey, where can people learn a little bit more about you and, what you’re doing with willful
Chris: we’ve got another podcast as well. I might throw it in there, elephant in the room. If anyone wants to check that out, it’s been going for about four
Terry: great party.
Chris: if you want to sort of chat to me you can jump on our website, wealth, fool.com today. You and yeah, we’d love to help, the first chats just to get to know you and talk through your life and your goals and, and what what’s happening really.
And then we can figure out what to do from there.
Terry: Thanks, man. I really appreciate it.
Chris: Awesome. Thanks Tara. Good chat.