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The four magic words for a better mortgage deal · The Money Puzzle

0:16
Speaker 1: Hello and welcome to the Australian's Money Puzzle podcast. I'm
0:19
Speaker 1: James Kirby, the Wealth Editor at The Australian. Welcome aboard everybody.
0:23
Speaker 1: If you are interested in property investment in any fashion
0:31
Speaker 1: or even the basic challenge of owning your own home,
0:36
Speaker 1: you should know that really the outstanding issue in property
0:40
Speaker 1: for property investors just now is not a demand or
0:45
Speaker 1: setting apart. or founding a property or even price because
0:50
Speaker 1: the prices are coming along very nicely, thank you. 17
0:53
Speaker 1: months of consecutive price growth in Australia. I mean, it's
0:57
Speaker 1: absolutely tremendous market. The issue for everyone right now is
1:01
Speaker 1: what you might call holding costs. It's costs that as
1:06
Speaker 1: an investor, it's the costs that you are facing as
1:09
Speaker 1: a homeowner. This week, I just did some work already
1:13
Speaker 1: this week on this really interesting topic I mentioned of
1:16
Speaker 1: the market where people are extending their mortgages. Something like
1:20
Speaker 1: one in 10 people are now pushing out their mortgages, right?
1:22
Speaker 1: So you're strapped basically to the price of the mortgage.
1:25
Speaker 1: How do they make ends meet? Where does extra money
1:28
Speaker 1: come from? And it's signed away. It's an old-fashioned way.
1:30
Speaker 1: You add five years to your mortgage. Suddenly you cut
1:34
Speaker 1: your mortgage bill by $ 180 a month or so. But
1:38
Speaker 1: guess what? Your mortgage costs about $ 140, 000 more. You literally
1:42
Speaker 1: pay £ 140, 000 more to the bank over the full period
1:44
Speaker 1: of time. That's the average mortgage on the average home
1:47
Speaker 1: in Australia. Very interesting development this week. Similarly, on the
1:51
Speaker 1: investment side, the holding costs. My guest today has done
1:55
Speaker 1: some work on this. I'm going to talk about it.
1:58
Speaker 1: And in essence, what he has discovered is that the
2:01
Speaker 1: holding costs of a property, of managing property, have really
2:05
Speaker 1: risen quite substantially in recent times, largely on the back
2:09
Speaker 1: of higher interest rates, which is of course, the defining
2:13
Speaker 1: feature of our market at the moment. My guest is
2:15
Speaker 1: a regular on the show. It's Stuart Weems. He's an advisor,
2:18
Speaker 1: of course. He's a mortgage broker. He's a property expert, author,
2:22
Speaker 1: and indeed podcast host himself of the Investopoli podcast. How
2:27
Speaker 1: are you, Stuart?
2:28
Speaker 2: I'm really well, James. I always enjoy our chats. I'm
2:30
Speaker 2: particularly excited to talk about holding costs.
2:33
Speaker 1: Well, I imagine you are because you've just been writing
2:35
Speaker 1: about them. And you know and I know if you
2:37
Speaker 1: write a piece of something, then you really know it
2:40
Speaker 1: for a while at least. Yeah, that's right. And I
2:43
Speaker 1: wanted to just talk to you about that. Were you
2:45
Speaker 1: aware that people are doing this, extending their mortgages, as
2:49
Speaker 1: I say, 1 in 10, doing it at the moment
2:52
Speaker 1: that that number is going to rise and rise? Were
2:54
Speaker 1: you aware that was happening?
2:55
Speaker 2: You know, James, thinking about it more, I reckon it
2:58
Speaker 2: would be a lot more than 10% because every time
3:00
Speaker 2: you refinance... almost always your mortgage term is reset back
3:05
Speaker 2: to 30 years. So if we think about it, a
3:08
Speaker 2: lot of people, in fact, everyone that refinances and the
3:12
Speaker 2: average life of the loan, I haven't seen the most
3:15
Speaker 2: recent data, but it's three to five years. Typically people
3:19
Speaker 2: refinance every three to five years. So people are resetting
3:22
Speaker 2: their loan term. Everyone that refinances is resetting their loan term.
3:27
Speaker 2: Whether they realize they're doing it or not is another question.
3:31
Speaker 2: But it happens as a matter of course when you
3:33
Speaker 2: do refinance. Of course, we've experienced a lot of rate
3:37
Speaker 2: increases over the last couple of years. So one solution
3:40
Speaker 2: to managing the higher cost of repayment is to reset
3:45
Speaker 2: the loan term. Now, that's not going to make a
3:47
Speaker 2: big difference if the loan is relatively new. So it
3:50
Speaker 2: was only set up a couple of years ago. But
3:53
Speaker 2: if your loan was set up 10 years ago, and
3:55
Speaker 2: so the remaining term is 20 years, well, resetting it
3:59
Speaker 2: back to 30 years is going to reduce your repayments
4:02
Speaker 2: at a cost, as you've alluded to, James, you know,
4:05
Speaker 2: the longer you take to reap your home loan. But
4:08
Speaker 2: I guess there's another element here as well is one
4:11
Speaker 2: is trying to set your repayments at the minimum just
4:14
Speaker 2: to give you yourself a bit of headroom, a bit
4:16
Speaker 2: of safety. whilst you still might intend to make extra repayments.
4:20
Speaker 2: So it's still possible to keep the repayment amount the same,
4:23
Speaker 2: but just try and reduce to the minimum repayment to
4:26
Speaker 2: give yourself some flexibility, maybe in the months where your
4:30
Speaker 2: income's a little bit lower, expenses are a little bit higher.
4:32
Speaker 1: Well, if I came in to you and I said,
4:35
Speaker 1: and this is even just on the home loan, if
4:36
Speaker 1: I said to you, we are absolutely caught. The rate
4:41
Speaker 1: rises have really caught us. My mortgage is very large.
4:44
Speaker 1: I've got to find some extra cash somewhere. Someone said
4:48
Speaker 1: to me, I can cut $ 180 off my mortgage a month. Cash,
4:52
Speaker 1: I probably have to make $ 250 a month to be
4:55
Speaker 1: able to find the $ 180 to pay, if you know
4:57
Speaker 1: what I mean. What would you say to them? Would
4:59
Speaker 1: you say, look, on balance, it's a good idea? Would
5:02
Speaker 1: you say, never do that? What would your instinctive advice be?
5:06
Speaker 2: First question that jumps into my mind, James, is have
5:09
Speaker 2: they overborrowed? Is this just a band-aid solution? Are we
5:12
Speaker 2: just kicking the can down the road or do we
5:15
Speaker 2: have a bigger problem here? That's the first thing that
5:17
Speaker 2: I would want to ascertain. It might be that it
5:20
Speaker 2: could be a temporary change in their situation. So one
5:25
Speaker 2: of the spouses is on maternity or paternity leave or
5:28
Speaker 2: something like that, and they just need to get through
5:30
Speaker 2: this sort of very difficult period of time. And if
5:33
Speaker 2: we feel like it's temporary, it could be a great solution.
5:36
Speaker 2: But if we look at the numbers and we decide, well, look,
5:40
Speaker 2: you probably overextended yourself, then we probably need to have
5:43
Speaker 2: a deeper conversation. Now, we could extend the loan term
5:47
Speaker 2: as an initial step, but we really need to have
5:49
Speaker 2: another solution, which probably is going to be one that
5:53
Speaker 2: means sort of changing their home and changing their mortgage
5:55
Speaker 2: at some point.
5:57
Speaker 1: Right. Well, I'm actually very loathe to do that, Stuart.
6:02
Speaker 1: I imagine given the choice, it's always easier to kick
6:04
Speaker 1: the can down the road, isn't it? The odds of
6:06
Speaker 1: the name gratification, as we say, it's always easy to
6:09
Speaker 1: do that. Yeah.
6:10
Speaker 2: And I think, you know, it goes to a wider
6:12
Speaker 2: investment strategy question is, do they need to have zero
6:15
Speaker 2: home loan by the time they get into retirement? Or
6:18
Speaker 2: is a downsizing strategy in their situation okay? So if
6:23
Speaker 2: people can make friends with that, if they say, look,
6:25
Speaker 2: we understand extending the mortgage is going to mean that
6:28
Speaker 2: we're going to pay more interest. And by the time
6:30
Speaker 2: we get to age 60 or 65, whatever their retirement
6:33
Speaker 2: age target is, we're going to have a home loan.
6:36
Speaker 2: And that means we're going to have to downsize in
6:38
Speaker 2: order to extinguish that home loan. If they can make
6:41
Speaker 2: friends with that, chances are the capital growth will more
6:44
Speaker 2: than offset the interest cost, you know, and particularly from
6:47
Speaker 2: an after-tax basis. So they're probably better off to do
6:51
Speaker 2: that as a general observation. But they just need to
6:54
Speaker 2: make friends with that is our strategy. That's the consequence
6:58
Speaker 2: of doing this is that we know we need to
7:00
Speaker 2: downsize at some point in the future.
7:02
Speaker 1: That's really good. That's a really good answer. And it
7:05
Speaker 1: really cuts to this. Before we talk about investors, just
7:08
Speaker 1: to finish on that. So then the person says, OK, listen,
7:12
Speaker 1: I know I'm up for another $ 140, 000 that I have
7:15
Speaker 1: to pay the bank, but the bank must be paid
7:17
Speaker 1: in the fullness of time. And I know I'm pushing
7:20
Speaker 1: tomorrow's problems away from today, but I must do this.
7:24
Speaker 1: And you say, okay, well, you must do it on
7:26
Speaker 1: the basis that when the time comes, this family home
7:30
Speaker 1: you've got, you must sell it. It's not like you
7:33
Speaker 1: could decide to sell it and move somewhere smaller. Even
7:35
Speaker 1: I have to move somewhere smaller to pay off the mortgage.
7:38
Speaker 1: If you want a mortgage free retirement, which on the
7:41
Speaker 1: show has regularly come up as a sort of basically
7:44
Speaker 1: a rock bottom. If you want to build wealth, you
7:46
Speaker 1: accidentally got to get rid of that mortgage. So here's
7:48
Speaker 1: the million dollar question. In your experience, when people downsize,
7:52
Speaker 1: do they really save that much? If they're just buying
7:54
Speaker 1: a townhouse around the corner from the family home, it
7:57
Speaker 1: seems to me that they cost more or less the
7:59
Speaker 1: same as those big houses in many suburbs. Do people
8:01
Speaker 1: really save much when they downsize, or is there a
8:04
Speaker 1: proper way to do it?
8:05
Speaker 2: In my experience, the answer is yes. They downsize to
8:09
Speaker 2: achieve their goal, which is to repay the home loan. Essentially,
8:13
Speaker 2: if that's your strategy... you've got to work out how
8:16
Speaker 2: much cash I'm going to walk away with after repaying
8:18
Speaker 2: that mortgage. That's my budget. So you have to make
8:21
Speaker 2: it work. And in the situations that I've helped clients with,
8:25
Speaker 2: we have made it work and it's been fine. It
8:27
Speaker 2: hasn't created any problems. The thing that I would counsel
8:31
Speaker 2: and encourage people to do is just make friends with
8:33
Speaker 2: maybe the worst case scenario, which is I'm going to
8:36
Speaker 2: have to make some compromises in terms of accommodation size.
8:40
Speaker 2: And if you can make friends with that now it
8:43
Speaker 2: might not necessarily end that way you know maybe your
8:46
Speaker 2: cash flow is a lot different your income might end
8:48
Speaker 2: up being different interest rates might end up being lower
8:51
Speaker 2: maybe the property growth is better there's a lot that
8:53
Speaker 2: can change over a period of time you know but
8:56
Speaker 2: if we can make friends with what is the worst
8:58
Speaker 2: case scenario well and then if it turns out better
9:01
Speaker 2: that's all i see on the cake.
9:03
Speaker 1: So people can they downsize in the same postcode And
9:08
Speaker 1: save money?
9:08
Speaker 2: Well, they can only if they can make friends with
9:12
Speaker 2: smaller accommodation size.
9:13
Speaker 1: Yeah, right.
9:14
Speaker 2: So we're going from a family home to a two
9:16
Speaker 2: bedroom townhouse, for example.
9:18
Speaker 1: Yeah.
9:18
Speaker 2: You know, that's what you'd need. That's what you'd need
9:20
Speaker 2: to do. And look, most people at that age and
9:23
Speaker 2: stage of life actually want that. Kids are moved out
9:25
Speaker 2: of home. They don't need a four bedroom home. They're
9:28
Speaker 2: sick of doing the garden on weekends. You know, those, those.
9:31
Speaker 1: They don't need a four ring barbecue. That's right. Yeah. Yeah. So.
9:35
Speaker 2: So that typically sort of suits their lifestyle decisions or
9:39
Speaker 2: situation as well. But they just have to make friends
9:42
Speaker 2: with that.
9:43
Speaker 1: Very interesting. Now let's just flick on to the investor.
9:46
Speaker 1: Quite a different story here. But tell us, first of all,
9:50
Speaker 1: that essential conclusion you came to when you did the
9:52
Speaker 1: deep dive on the figures about holding costs and the
9:55
Speaker 1: extent to which they've risen for the average investor.
9:58
Speaker 2: So the idea came out. of a lot of conversations
10:01
Speaker 2: I've been having with investors and obviously being an investor myself,
10:04
Speaker 2: I've noticed over the last four years, so let's say
10:07
Speaker 2: really since the beginning of the pandemic, we're all being
10:10
Speaker 2: conditioned to understand that costs have increased substantially. And sometimes
10:15
Speaker 2: these things creep up on us, right? We have one
10:17
Speaker 2: year of you know, very high inflation, then inflation started
10:21
Speaker 2: to come down a little bit, we might fool ourselves
10:24
Speaker 2: into thinking, oh, well, actually things are normalizing. Not really.
10:27
Speaker 2: Prices are never going to go backwards. The new cost
10:30
Speaker 2: is the new cost. And so I had a look
10:33
Speaker 2: at some of these things across some clients and my
10:35
Speaker 2: own properties. Council rates over the last four years up
10:39
Speaker 2: about 30%. Insurance up about 20%. General CPIs up about 17%
10:44
Speaker 2: over that time. Land tax, so since the start of 2020.
10:48
Speaker 2: Interest rates sort of doubled over that time. You know,
10:52
Speaker 2: variable rates might have been circa three, three and a
10:54
Speaker 2: half percent. They're now six, six and a half percent,
10:57
Speaker 2: seven percent.
10:57
Speaker 1: That's the big one, huh?
10:59
Speaker 2: That's the big one.
11:00
Speaker 1: Yeah.
11:01
Speaker 2: So naturally, it's natural, I think, for property investors to think, oh,
11:05
Speaker 2: all these costs are rising, compliance costs. You've got to
11:08
Speaker 2: pay your property manager a little bit more because they're
11:10
Speaker 2: doing a lot more work today for their money than
11:12
Speaker 2: they were 10 years ago. And so it's natural to think, oh,
11:16
Speaker 2: you know, how does that impact my investment returns? Is
11:19
Speaker 2: it worth hanging onto these properties? You know, if I
11:21
Speaker 2: haven't seen the growth, particularly in Melbourne and Sydney, they're
11:25
Speaker 2: underperforming the other cities, I should say. It's natural to ask,
11:28
Speaker 2: you know, is it worthwhile to hang onto this? And
11:30
Speaker 2: so I thought, oh, let's do an analysis on this,
11:33
Speaker 2: a financial analysis. And my gut feeling was that the
11:37
Speaker 2: holding costs would have A material impact on investing in property.
11:43
Speaker 2: That was my initial feeling going in before I did
11:45
Speaker 2: the numbers. The answer is it doesn't. It doesn't really
11:48
Speaker 2: have much of an impact at all. And the two factors,
11:53
Speaker 2: the two most important factors, the first one is capital growth.
11:56
Speaker 2: You know, how much will your property grow over the
11:58
Speaker 2: long term? And the second one is interest rates. They're
12:02
Speaker 2: the only two that are quite sensitive to investment returns.
12:05
Speaker 2: Everything else isn't very sensitive to your investment returns. And
12:11
Speaker 2: the approach that I looked at, James, was looking at
12:14
Speaker 2: what's called the internal rate of return. And so just
12:17
Speaker 2: to explain it quite simply, obviously when we invest in property,
12:21
Speaker 2: typically most investors go and borrow to do that. So
12:25
Speaker 2: there's not an initial capital outlay because we're borrowing the
12:29
Speaker 2: purchase price plus the costs and so forth. But what
12:32
Speaker 2: we do have to contribute from our own pocket is
12:34
Speaker 2: the holding costs, the shortfall between the rent after expenses
12:39
Speaker 2: and the loan repayments.
12:40
Speaker 1: The monthly costs, it'd be like, or the running costs, yeah.
12:43
Speaker 2: Exactly right. So that's our contribution towards the investment. That's
12:47
Speaker 2: our cash contribution. Let's say that costs us after tax
12:51
Speaker 2: $ 20, 000 a year. So if we hold that property for
12:54
Speaker 2: 10 years, we're putting $ 200, 000 or 20 years, $ 400, 000. So
13:00
Speaker 2: if I've contributed $ 400, 000 over 20 years, what is my return?
13:04
Speaker 2: And so what we can then work out is if
13:06
Speaker 2: we sold the property in 20 years time, we paid
13:08
Speaker 2: capital gains tax, selling costs, repaid the loan, et cetera,
13:12
Speaker 2: what percentage return did I achieve by investing? And when
13:17
Speaker 2: expenses were, they used to be, but pre-pandemic, about 25%
13:22
Speaker 2: of gross rental income. So if you're property was generating
13:27
Speaker 2: $ 30, 000 or let's say $ 40, 000 to make the math simple,
13:30
Speaker 2: your expenses are going to be about $ 10, 000 a year.
13:33
Speaker 2: These are the things like maintenance, managing costs, insurance, these
13:38
Speaker 2: sorts of things. So when they were 25%, my internal
13:42
Speaker 2: rate of return if I held the property for 20
13:44
Speaker 2: years achieved 7% growth and the average interest rate was 6.5%.
13:48
Speaker 2: My internal rate of return is 13.5%. So that means
13:54
Speaker 2: that because I've been putting in $ 20, 000 a year, I've
13:57
Speaker 2: essentially earned on that $ 20, 000 13.5%, which I think everyone
14:01
Speaker 2: would agree is really good and compares favorably against other alternatives,
14:07
Speaker 2: such as making additional super contributions or investing in the
14:10
Speaker 2: share market. You're probably not going to achieve 13.5%. Now,
14:13
Speaker 2: I've got to be clear, it's not about property, it's
14:17
Speaker 2: about gearing. That's why we've got the 13.5%. It's not
14:20
Speaker 2: because property is so fantastic, it's because we borrowed the
14:24
Speaker 2: entire capital contribution at the beginning. So if I change
14:27
Speaker 2: those numbers and instead of assuming 25% for costs, I
14:31
Speaker 2: assume 35% for costs. So that's what it is now.
14:34
Speaker 2: About 35% of gross range of income should cover your costs,
14:38
Speaker 2: excluding land tax and excluding interest. Well, the internal rate
14:41
Speaker 2: of return drops from 13.5% to 12.8%. So it's 0.8
14:43
Speaker 2: of a percent, which isn't, I mean, it's reasonable, I think.
14:50
Speaker 2: but it's still worthwhile, right? Borrowing to invest in property
14:53
Speaker 2: is still worthwhile despite the higher costs. And this analysis
14:58
Speaker 2: just proved to me yet again that it's all about
15:01
Speaker 2: capital growth. It's our assumption, so I've made assumptions 7%
15:04
Speaker 2: over the long term, which is really the median house
15:07
Speaker 2: price return over the last four decades in Australia. So
15:10
Speaker 2: it's not, I think it's a reasonable assumption. That's the
15:13
Speaker 2: key number here is buy a property that over many decades,
15:18
Speaker 2: not the next 12 months or the next five years,
15:21
Speaker 2: over many decades, is going to generate a really good
15:24
Speaker 2: quality return.
15:26
Speaker 1: And part of your message really is that despite all
15:28
Speaker 1: our obsessions with costs and taxes, et cetera, and they
15:33
Speaker 1: have increased, it's the interest rates that really is the variable.
15:37
Speaker 1: It's the key variable. And so a drop in interest
15:40
Speaker 1: rates from here would be very, very useful, obviously, on
15:43
Speaker 1: that basis, in terms of everything, in terms of all
15:46
Speaker 1: your numbers, including your entire rate of return. It's the
15:49
Speaker 1: key number to watch. Okay, that's very, very interesting. And also,
15:53
Speaker 1: you mentioned a couple of things there about the sheer
15:56
Speaker 1: scale of inflationary costs on the investor and how much
16:02
Speaker 1: things had lifted over the period. Did you say that
16:05
Speaker 1: the cures of CPI was 17% over four years?
16:10
Speaker 2: Yep, and that's just general CPI. And we know that
16:13
Speaker 2: things have increased a lot more than that, James.
16:15
Speaker 1: Yeah, yeah. But that's why... The other thing that you,
16:19
Speaker 1: a partial capital growth, the other key feature I'm sure
16:21
Speaker 1: our listeners think about is rent and offsetting to some
16:26
Speaker 1: degree those higher costs that you mentioned. What was the
16:30
Speaker 1: rent increase? What was the rental income increase over that
16:34
Speaker 1: same four years? 32%.
16:38
Speaker 2: But insurance is up 20%, council rates up 30%. Again, interest,
16:42
Speaker 2: which will be probably 90% of your holding costs, has
16:46
Speaker 2: doubled over that time. So investors are still worse off.
16:50
Speaker 2: They haven't passed on the full cost increases on to renters.
16:54
Speaker 2: But I think the other thing I would say is
16:56
Speaker 2: the starting point four years ago, pre-pandemic, the starting point
16:59
Speaker 2: interest rates were relatively low. They were below long-term average.
17:05
Speaker 1: They were the lowest they'd been for a generation or whatever. So, folks,
17:09
Speaker 1: it's clear, obviously, inflation and costs are a real factor
17:11
Speaker 1: for investors. It is clear that they have gone up
17:15
Speaker 1: and you're holding costs as an investor have gone up.
17:18
Speaker 1: The key message from Stuart's work was that the variable
17:20
Speaker 1: that really matters is interest rates. It matters more than
17:24
Speaker 1: virtually all the others put together, doesn't it?
17:27
Speaker 2: Capital growth is the number one, capital growth, and then
17:30
Speaker 2: interest rates. Now, we can't alter interest rates. We're price
17:34
Speaker 2: takers there. We can't impact that. We can try and
17:37
Speaker 2: impact capital growth by, you know, first making sure we
17:41
Speaker 2: buy a high quality property at the beginning and then potentially,
17:44
Speaker 2: you know, looking ways to improve its value over time.
17:48
Speaker 2: So that's the one that I would be focusing on
17:50
Speaker 2: as an investor. And if I'm a new investor, that's
17:53
Speaker 2: probably the best lesson I can learn today before I
17:56
Speaker 2: actually buy the property is to realize I need to
17:58
Speaker 2: buy something today so that in 30 years time, the
18:01
Speaker 2: average growth rate has been above seven or above 7%.
18:05
Speaker 1: And as you say, they're doing comfortably above that. Or
18:09
Speaker 1: as my old friend, the property developer always used to say,
18:11
Speaker 1: you make your profit when you buy. Okay, we'll take
18:14
Speaker 1: a break and we'll be back in a moment. Hello
18:28
Speaker 1: and welcome back to the Australian's Money Puzzle podcast. James
18:32
Speaker 1: Kirby with Stuart Weems. on the show today, regular guest.
18:36
Speaker 1: There was one other thing I wanted to talk to
18:37
Speaker 1: you about before we go to questions, Stuart. When we
18:40
Speaker 1: stand back from it over a long period of time,
18:42
Speaker 1: three things really matter. What was the property you bought?
18:46
Speaker 1: What was the interest rate you paid? And what was
18:48
Speaker 1: the capital growth you got? And we just said at
18:52
Speaker 1: the start of the show, 17 months in a row
18:54
Speaker 1: now of consecutive price increases, 8% or 9% last 12 months.
19:00
Speaker 1: And the forecasters which is never an easy task, but
19:04
Speaker 1: the forecasters say 2% to 5% growth this calendar year.
19:10
Speaker 1: That's hot off the press from Proctrack this week. 2%
19:13
Speaker 1: to 5% growth this calendar year. That seems a little
19:18
Speaker 1: bit on the low side to me. What do you think?
19:21
Speaker 2: That's national, right?
19:22
Speaker 1: 2% to 5%? National dwelling value. I mean, it's all averages, okay?
19:27
Speaker 1: But we know that inflation is 4%, right? Inflation is 4%.
19:30
Speaker 1: And they're saying property is 2% to 5%. If it's
19:33
Speaker 1: on the wrong side of the floor, no one's making
19:34
Speaker 1: any money.
19:35
Speaker 2: Yeah. Well, they've probably been pulled back by Sydney and
19:39
Speaker 2: Melbourne because if you look at CBA's forecasts, they forecast
19:43
Speaker 2: this calendar year and next for Brisbane, Adelaide and Perth
19:48
Speaker 2: to be the standout capital city. and Melbourne and Sydney
19:52
Speaker 2: to underperform. And if it's a weighted average, which it
19:57
Speaker 2: probably is, given the median house prices in Melbourne and Sydney, well,
20:01
Speaker 2: certainly Sydney are much higher, then the relative underperformance pulls
20:05
Speaker 2: those figures back. I would say, I would say forecasters,
20:09
Speaker 2: what does Buffett say? Forecasters will fill your ears, but
20:12
Speaker 2: never your pockets. And I would say, look, as someone
20:16
Speaker 2: that's been in this space for a couple of decades,
20:19
Speaker 2: I would say that the banks and most economists have
20:23
Speaker 2: been absolutely terrible at forecasting property price movements to the
20:29
Speaker 2: point where really when I read a forecast, I think
20:32
Speaker 2: to myself, okay, well, I know it's not going to
20:34
Speaker 2: be that. I They're probably good at forecasting what's not
20:37
Speaker 2: going to happen. So, and the other thing I would
20:40
Speaker 2: say is who cares?
20:41
Speaker 1: Well, you said a few minutes ago, you're assuming 7%, right? Long-term.
20:44
Speaker 2: Yeah.
20:45
Speaker 1: Yeah.
20:45
Speaker 2: And I don't, I don't care. I know it's not
20:47
Speaker 2: going to happen uniformly.
20:48
Speaker 1: Of course. I know we're going to go.
20:49
Speaker 2: Through periods of my research highlights that every market moves
20:54
Speaker 2: through a flat period and then a growth period and
20:56
Speaker 2: then another flat period, another growth period. So it's two
20:59
Speaker 2: distinct cycles. I know what's going to happen. I don't
21:01
Speaker 2: really care. I just want to buy something that's above average,
21:04
Speaker 2: better than average, and something that has the attributes that
21:08
Speaker 2: are going to continue to push that price along over
21:11
Speaker 2: many decades. If I get 0% this year or 10%, whatever.
21:15
Speaker 2: It doesn't worry me.
21:17
Speaker 1: It doesn't worry you, as long as you can manage
21:19
Speaker 1: the holding costs, which is what we were talking about earlier.
21:22
Speaker 1: And the key variable on that is rates. No one knows,
21:25
Speaker 1: as you say, forecasts, no one knows. And isn't it
21:28
Speaker 1: amazing that when we started the year, those to-do forecasts
21:32
Speaker 1: were saying that rates would drop this year. Some people
21:35
Speaker 1: were saying rates would drop several times this year. You
21:38
Speaker 1: can't find someone who says rates will drop this year anymore.
21:41
Speaker 1: They're pushing it out to next year. The truth is, A,
21:45
Speaker 1: no one knows. B, the nearest thing to somebody knowing
21:48
Speaker 1: is how much people are putting on the line, betting
21:50
Speaker 1: in the money markets. Money markets are bang on 50-50.
21:54
Speaker 2: Yeah.
21:54
Speaker 1: So really, we're at a point where it's wide open,
21:57
Speaker 1: isn't it, really? Being honest about it, rates could go
22:00
Speaker 1: in any direction, possibly do nothing. I think the money markets,
22:03
Speaker 1: the money markets have been right. The money markets were
22:05
Speaker 1: totally right during COVID. You know, even when the RBA
22:09
Speaker 1: was saying, no, we're not hiking till 2024, the money
22:13
Speaker 1: markets still baked in these hikes.
22:15
Speaker 2: And it was kind of, I was puzzled at the
22:17
Speaker 2: time thinking, well, what does the money market know? Because
22:19
Speaker 2: the person in control is saying, Distinctly, we're not hiking,
22:23
Speaker 2: but they were right. And if you look at them today,
22:27
Speaker 2: they're baking another rate increase this year.
22:32
Speaker 1: So, folks, follow the money. To the extent that anyone
22:36
Speaker 1: knows anything, the people who are actually putting their money
22:38
Speaker 1: on the line say there could be a rate increase
22:40
Speaker 1: this year. Who knows? Except to say that we have
22:47
Speaker 1: now got a sort of, not a stable rate outlook,
22:51
Speaker 1: but The prospects are that rates won't move as often
22:54
Speaker 1: as they have been moving. Obviously, they had nowhere to
22:57
Speaker 1: go but up in the last six years or so.
23:01
Speaker 1: And hopefully, Stuart, what we have really is a period
23:04
Speaker 1: where it's normalized in that rates will be flying well
23:08
Speaker 1: in advance. And if we have a move in either direction,
23:11
Speaker 1: it's going to be a quarter of a percent. We're
23:13
Speaker 1: not going to get any structural change in how we
23:16
Speaker 1: do our numbers looking out.
23:18
Speaker 2: And the silver lining, James, my gut feeling, so obviously
23:21
Speaker 2: we need June quarter CPI. That's going to be the
23:25
Speaker 2: deciding factor. My gut feeling is we'll get a rate
23:28
Speaker 2: hike in August. And the silver lining might be if
23:31
Speaker 2: we do get a rate hike in August, I think
23:34
Speaker 2: that'll be probably enough to pop the balloons. And if
23:37
Speaker 2: we do, I think the chances of then getting a
23:40
Speaker 2: rate cut early next year are much higher.
23:43
Speaker 1: Okay.
23:43
Speaker 2: Because I think that will really scare the market. I
23:46
Speaker 2: think that will– discretionary spending is already down. You notice
23:49
Speaker 2: that at restaurants, and you can get a seat at
23:51
Speaker 2: a restaurant on a Saturday night now easily. Couldn't do
23:55
Speaker 2: that even three months ago.
23:57
Speaker 1: It's a narrow indicator, but I reckon you're on the
24:00
Speaker 1: road there. Yeah. On my side, I think they won't
24:02
Speaker 1: do anything. I don't think they'll do anything for six
24:06
Speaker 1: months or so. But who knows? We're all entitled to
24:08
Speaker 1: an opinion. We'll take a short break and we'll have
24:10
Speaker 1: some really good questions, specifically on property and property investments
24:14
Speaker 1: in a minute. Hello, welcome back to the Australian's Money
24:24
Speaker 1: Puzzle podcast, James Kirby. wealth editor at The Australian, talking
24:28
Speaker 1: to Stuart Weems, who is, of course, a property expert, author, podcaster,
24:35
Speaker 1: contributor to the wealth section of The Australian, and on
24:38
Speaker 1: the show today answering all sorts of questions. Okay, we
24:42
Speaker 1: might get you to read the first one, if you like.
24:45
Speaker 2: Absolutely. So, Phil asks a property tax question for you.
24:50
Speaker 2: I recently bought and rented out my first investment property.
24:54
Speaker 2: It's a regular brick bungalow built 50 years ago costing
24:57
Speaker 2: me $ 530, 000. I'm interested to know whether it's worthwhile to
25:02
Speaker 2: consider getting the expense of a depreciation schedule, which he
25:06
Speaker 2: expects to pay around $ 500 for. What are the benefits
25:10
Speaker 2: where the property is simple and doesn't have many expensive features?
25:15
Speaker 1: Great question, Phil. This is never advice for everybody. It's
25:18
Speaker 1: only information. And I don't know what you're going to say, Stuart.
25:22
Speaker 1: But I would say, hey, if you've never done a
25:24
Speaker 1: depreciation schedule, spend money, see what you get. First time anyway.
25:31
Speaker 2: So there's two types of depreciation that you can claim
25:35
Speaker 2: on an investment property, a residential investment property. Capital works
25:40
Speaker 2: or capital allowance. Capital works really relate to the actual dwelling,
25:45
Speaker 2: the construction itself, the buildings. Typically, you can depreciate a
25:51
Speaker 2: building over 40 years, so 2.5% per year straight line
25:54
Speaker 2: over 40 years. So if the dwelling is older than
25:58
Speaker 2: 40 years, chances are there's no depreciation left because you
26:01
Speaker 2: can get a quantity surveyor and what they have to
26:03
Speaker 2: do is estimate the cost, not the replacement cost, but
26:06
Speaker 2: the cost it would have taken to build or construct
26:10
Speaker 2: that home, say, in the 80s or 70s, whatever it was.
26:14
Speaker 1: Is there no depreciation on an ongoing basis, even if
26:17
Speaker 1: it's 40 years old?
26:18
Speaker 2: Well, they would argue that the building is fully depreciated.
26:21
Speaker 2: You know, the last 40 years we've depreciated. So then
26:24
Speaker 2: the question is, when was it constructed? Was it less
26:27
Speaker 2: than 40 years ago? Well, there might be some depreciation left.
26:30
Speaker 2: Or was it renovated, extended, anything like that over the
26:35
Speaker 2: last 40 years? If it was, there could be some
26:38
Speaker 2: depreciation left. The second one is capital allowances. And this
26:42
Speaker 2: changed back in May 17 in the federal budget in 17.
26:47
Speaker 2: Capital allowances really relate to things that won't last forever
26:51
Speaker 2: and can be removed from the property. Curtains, flooring, kitchen appliances,
26:57
Speaker 2: these sorts of things. You can only claim, unless you
27:01
Speaker 2: own that property before May 17, if you bought after
27:04
Speaker 2: May 17, the only capital allowances you can claim is
27:07
Speaker 2: what you spend on the property. So again, if you
27:10
Speaker 2: have replaced some of these items since you've owned it,
27:15
Speaker 2: and if you purchase after May 17, then there may
27:18
Speaker 2: be some depreciation there. What I would suggest to Phil
27:24
Speaker 2: is probably give one of these depreciation report providers a call.
27:28
Speaker 2: You can give them the property address. They might ask
27:30
Speaker 2: you a few questions about the property, and they will
27:33
Speaker 2: give you their best estimate of what depreciation might be
27:36
Speaker 2: left in terms of annual depreciation, and that'll tell you
27:39
Speaker 2: whether it's going to be worthwhile for you.
27:41
Speaker 1: Yes, I have found them to be really okay. And
27:43
Speaker 1: I can remember one time on one property, I can't
27:46
Speaker 1: remember when or why, they actually said, look, don't get
27:49
Speaker 1: a report. They actually said, you know, I think in
27:53
Speaker 1: your case, it said, don't bother doing it. So as
27:56
Speaker 1: a general observation to all the films out there, check
27:58
Speaker 1: it out. See if they think it's worth it. They'll
28:01
Speaker 1: give you a sort of off the shelf estimate pretty fast.
28:04
Speaker 1: And if you've never done it before, certainly it's worth
28:08
Speaker 1: exploring because you may find that you have a few
28:11
Speaker 1: grand that you can use as a tax deduction there
28:14
Speaker 1: if they find anything at all. All right. Andrew says,
28:19
Speaker 1: James Gerrard, our regular guest on the show of financialadvisor.com.au,
28:25
Speaker 1: who often hosts the show, he recently mentioned that a
28:28
Speaker 1: lot of superannuation funds will do an inspecific transfer when
28:33
Speaker 1: moving from accumulation to retirement. Is this the most common approach?
28:36
Speaker 1: I've heard conflicting advice and have been told that many
28:39
Speaker 1: funds will rather sell down positions and rebuy as part
28:42
Speaker 1: of a move to the retirement phase. And of course,
28:45
Speaker 1: The other dimension to this is property and in-species transfer.
28:51
Speaker 1: First of all, could we explain to everybody what an
28:54
Speaker 1: in-species transfer is, Stuart? And could you explain whether there
28:58
Speaker 1: is a difference in dealing with property or with shares
29:02
Speaker 1: and how they treat it? Sure.
29:05
Speaker 2: So in-species transfer, I mean, if you're going to transfer
29:08
Speaker 2: between two accounts, you And so most people with superannuation
29:12
Speaker 2: would call that a rollover, you know, moving between funds,
29:15
Speaker 2: for example, or moving from an accumulation account into a
29:18
Speaker 2: pension account with the same fund or a different one.
29:21
Speaker 2: You can either do that in two ways. You can
29:23
Speaker 2: sell all the investments and just transfer the cash. Or
29:27
Speaker 2: you can keep the investments and just do an off-market
29:30
Speaker 2: transfer of those investments from one account to the next account.
29:34
Speaker 2: We call that an in-specie transfer because you're not exiting
29:37
Speaker 2: the market. You're not changing the underlying investment. All you're
29:40
Speaker 2: really doing is moving it from one account to the
29:42
Speaker 2: next account. Now, the critical question here is from one
29:48
Speaker 2: account to the next account, does the superannuation trustee change?
29:52
Speaker 2: Because if the trustee changes, it's a change of beneficial ownership.
29:56
Speaker 2: It will trigger tax. But if the trustee is the same,
30:00
Speaker 2: There's no tax. So that's the key question here. And
30:05
Speaker 2: then the second question is, what type of super fund
30:08
Speaker 2: do you have? Because if it's a unitized super fund,
30:11
Speaker 2: like all the industry super funds are, bad luck. Your
30:13
Speaker 2: tax is taken out every day. They calculate the tax
30:17
Speaker 2: on the unrealized gain and subtract it from your account,
30:19
Speaker 2: subtract it from the unit price, essentially. So if you're
30:23
Speaker 2: in an industry fund, this is not going to apply,
30:25
Speaker 2: this option. But if you're in a RAP platform, it
30:29
Speaker 2: could apply. And we use Macquarie and NetWealth, for example.
30:33
Speaker 2: I know that we can do an in-specie transfer and
30:35
Speaker 2: not trigger a capital gains tax. The key question, as
30:38
Speaker 2: I said, if you're on a RAP platform is work
30:40
Speaker 2: out who the trustee or ask who is the trustee
30:42
Speaker 2: for the super product, the pension product, I should say,
30:45
Speaker 2: versus the accumulation product. And maybe I'll explain what is
30:49
Speaker 2: the benefit. Why would you do this, James? Actually, before
30:52
Speaker 2: I get there, let's talk about property because if you've gone.
30:55
Speaker 1: Yeah can i just put in and say on the
30:57
Speaker 1: property fund so let's say i have an investment property
31:00
Speaker 1: like field there and he had these he had his
31:03
Speaker 1: property and it was worth 540 and i said you
31:06
Speaker 1: know what really i should have had that in my
31:07
Speaker 1: super fund can i put it in my super fund
31:11
Speaker 1: and does that work on in that same methodology in species.
31:15
Speaker 2: No you can't you can't transfer residential property into super.
31:18
Speaker 1: Um that's I've had an investment property and I didn't
31:23
Speaker 1: buy it in super and I decided I wanted to
31:25
Speaker 1: swing it into my super. Is that an in-species transfer?
31:28
Speaker 1: And can I do it in any fund or is
31:30
Speaker 1: it only self-managed super?
31:32
Speaker 2: So I should have used another word. You can't transfer
31:35
Speaker 2: a residential investment property into super. You can potentially transfer
31:38
Speaker 2: a commercial property into super from your personal name or
31:42
Speaker 2: from another entity into your super.
31:44
Speaker 1: Or investment property of any description.
31:46
Speaker 2: No, no, no, no. Not if it's a residential property.
31:49
Speaker 1: I can transfer a factory, but I can't transfer a house?
31:52
Speaker 2: Yes.
31:54
Speaker 1: Yes.
31:54
Speaker 2: So they call that business real property. That's the definition.
31:58
Speaker 2: So there's a specific exemption for business real property. I
32:02
Speaker 2: guess it's to help people that are self-employed that want
32:04
Speaker 2: to go and buy their business premises and so forth,
32:06
Speaker 2: put it in super. Makes a bit of sense. But
32:09
Speaker 2: if I've got a normal residential investment property, I can't
32:12
Speaker 2: put that into super. I can buy it into super initially,
32:15
Speaker 2: of course, but I can't put it into super.
32:18
Speaker 1: You can buy it, but you can't transfer it in. Oh, yeah.
32:20
Speaker 1: It is loaded against us. It really is.
32:23
Speaker 2: You can't transfer it in.
32:24
Speaker 1: Okay. I have to take a deeper look at it. So,
32:27
Speaker 1: in specie, just across in general, Andrew, so listeners understand,
32:32
Speaker 1: it's the transfer within the super system of an asset.
32:37
Speaker 1: And what happens is that if you said, I have
32:40
Speaker 1: my CommBank shares, and they're worth 100 grand of my super.
32:43
Speaker 1: And I want to move to another farm. Then they
32:45
Speaker 1: do an in-species transfer. Is that if they don't sell them,
32:48
Speaker 1: they say they're worth X. And we can move them
32:51
Speaker 1: across at X because we know their precise value. Is
32:53
Speaker 1: that isn't the simple part.
32:55
Speaker 2: Spot on. And let's think about what the benefit is here, James,
32:58
Speaker 2: because it's huge. If you bought those, if you held
33:01
Speaker 2: those CBA shares, let's assume you bought it at IPO,
33:05
Speaker 2: like in the 80s or something, where they sold for
33:08
Speaker 2: $ 3 or $ 5 or something like that.
33:10
Speaker 1: What are the hundred? Yeah, now they're $ 130.
33:13
Speaker 2: 130. If you moved those assets and it was a
33:18
Speaker 2: change of trustee, you're going to be taxed in super
33:21
Speaker 2: first on the gain and then that money is going
33:24
Speaker 2: to be moved across. Whereas if you don't, if you
33:28
Speaker 2: aren't taxed on the in specie transfer, that gain, even
33:30
Speaker 2: though you made it many, many years ago when you're
33:33
Speaker 2: in accumulation, it disappears, right? There's no capital gains. So
33:38
Speaker 2: if I'm, let's say I'm really, I'm 30 years, I'd
33:41
Speaker 2: love to be 30 today. If I'm 30 today, I'm
33:43
Speaker 2: going to have super for another 30 years. If I
33:46
Speaker 2: go and buy an ASX 200 index, I can potentially
33:49
Speaker 2: buy that index, hold it for the next 30 years,
33:51
Speaker 2: not make any changes, which wouldn't be a bad idea,
33:54
Speaker 2: by the way. And if I then in specie transfer,
33:59
Speaker 2: my total gain over that time, capital gain, of course,
34:02
Speaker 2: I've been taxed on the income, but the capital gain disappears.
34:05
Speaker 2: It's really valuable, particularly if you've got a lot of
34:08
Speaker 2: unrealized gains in super or if you're young. But having
34:13
Speaker 2: that flexibility to be able to do that in-species transfer
34:16
Speaker 2: and not be taxed is very valuable for superannuation investors.
34:20
Speaker 1: So keep that in mind, everybody, including Andrew. It is
34:24
Speaker 1: a really good methodology. On the flip side, make sure
34:28
Speaker 1: that you never get caught having to pay tax on
34:31
Speaker 1: something you didn't have to if it was possible to
34:33
Speaker 1: do an in-species transfer. That's the real lesson here. Okay,
34:37
Speaker 1: final question from Glenn. who seems to be a dad
34:41
Speaker 1: worried about his son.
34:44
Speaker 2: And he must be a dad from your neck of
34:45
Speaker 2: the woods, James, using the term lad. He says, my
34:48
Speaker 2: lad and his.
34:50
Speaker 1: Is that a boomster or a Scottish or Irish? Yeah, probably.
34:53
Speaker 2: My lad and his fiancée just managed to reach their 20%
34:56
Speaker 2: deposit and avoid LMI, lender's mortgage insurance, buying a first home. Brilliant.
35:03
Speaker 2: Since interest rate increases, like many of the generation, they're
35:06
Speaker 2: only just getting by. My advice was to ask for
35:09
Speaker 2: a better interest rate and also shop around. But he's
35:12
Speaker 2: saying that existing first home buyers with less than 20%
35:16
Speaker 2: equity will need to pay for lender's mortgage insurance. Essentially,
35:21
Speaker 2: the lender's mortgage insurance government guarantee is no longer available
35:25
Speaker 2: to him. And he believes it's also not able to
35:28
Speaker 2: transfer it to another lender. Is this true? In the meantime,
35:33
Speaker 2: what's the general advice that you have for his situation?
35:38
Speaker 1: Okay, well, about the government guarantee scheme, which is what
35:43
Speaker 1: it is. So, of course, you can go in under
35:46
Speaker 1: that scheme. You put a deposit down and the government
35:48
Speaker 1: will cover up to, I think it's 15% of your 20%.
35:55
Speaker 1: And then you don't have to pay lenders mortgage insurance,
35:57
Speaker 1: which is something of a, well, it's a debatable cost
36:00
Speaker 1: at the best times. But here's the thing. You ask
36:02
Speaker 1: if it's transferable. No, it's not. You ask if it's
36:05
Speaker 1: not available to him. Well, how it works is they
36:08
Speaker 1: have a batch. And I think it's something in the
36:10
Speaker 1: order of 10,000 to 20,000 spots in that program. And
36:14
Speaker 1: within that, they have limits on regions and they have
36:18
Speaker 1: limits on single moms who are given a certain quorum
36:22
Speaker 1: of it. So there's only so much information. And then
36:25
Speaker 1: they close it up each year and then they open
36:26
Speaker 1: it again. That's generally how it works. So, yes, if
36:29
Speaker 1: your son did miss it, it doesn't mean that they
36:31
Speaker 1: would miss it the next time around. But that's how
36:34
Speaker 1: it works. It works in batches. Yeah, that's the scheme.
36:38
Speaker 2: Yeah, so I did a bit of research on this.
36:40
Speaker 2: And if the gentleman just Googles Housing Australia First Home Guarantee,
36:45
Speaker 2: you'll find the web page. Uh, there is a, um,
36:51
Speaker 2: an information guide, a PDF information guide on that webpage
36:54
Speaker 2: actually says you can refinance the loan if you want to,
36:58
Speaker 2: but there has to be another participating lender. Um, and
37:02
Speaker 2: there's plenty of majors and all the big four on the,
37:05
Speaker 2: you know, participate actually ANZ is the only one that doesn't,
37:09
Speaker 2: but there's a whole bunch of other lenders, certainly enough
37:11
Speaker 2: lenders in order to shop around. So you can refinance
37:16
Speaker 2: even if you still need that government guarantee if it's
37:19
Speaker 2: another participating lender. But the other thing, James, is if
37:22
Speaker 2: you go and call the bank and ask to speak
37:24
Speaker 2: to retention. So what I would be doing is call
37:26
Speaker 2: the bank, say, I need to speak to retention because
37:29
Speaker 2: I'm just about to sign what's called a discharge authority
37:32
Speaker 2: because I'm going to refinance.
37:34
Speaker 1: These are powerful words, Glenn. Remember them. Just say it
37:37
Speaker 1: once more, Stuart, because it's so powerful, this.
37:39
Speaker 2: Just tell them, I'm about to sign a discharge authority.
37:41
Speaker 2: It's important to use the right terminology, discharge authority, because
37:45
Speaker 2: my mortgage broker is just going to refinance me to
37:47
Speaker 2: a new lender. But I just want to speak to retention.
37:49
Speaker 2: Every bank has a retention team. I want to speak
37:52
Speaker 2: to retention to see if there's anything you can do
37:54
Speaker 2: to help.
37:55
Speaker 1: Yeah, that is fantastic. I have used that. You told
37:58
Speaker 1: me about that years ago. I did it. Then I
38:01
Speaker 1: wrote several articles about it. They went crazy online. Never
38:05
Speaker 1: forget it, folks. It's so good. Because the person at
38:08
Speaker 1: the other end of the call center just goes, oh
38:10
Speaker 1: my God, this person knows what they're talking about. A
38:13
Speaker 1: mortgage discharge form and put me onto retention. Yeah.
38:16
Speaker 2: Okay.
38:17
Speaker 1: Sorry to interrupt you. And then, and then.
38:20
Speaker 2: That's okay. Here's the kicker. Whether your LVR is loan
38:25
Speaker 2: to value ratio is 95% or 5%, there's very little
38:29
Speaker 2: chance of retention ever picking that up. And I would
38:32
Speaker 2: bet that their systems aren't even good enough to flag
38:34
Speaker 2: that it has a government guarantee against it as well.
38:38
Speaker 2: So chances are you don't need to worry about it.
38:40
Speaker 2: Chances are you can make the call and you can
38:42
Speaker 2: shop around, you can find the lowest interest rate, you
38:44
Speaker 2: can call your existing bank back and say, hey, I'm
38:47
Speaker 2: going to refinance to this institution. I'm just about to
38:49
Speaker 2: sign the paperwork. What can you do?
38:52
Speaker 1: Who knows?
38:53
Speaker 2: I don't know. I mean, discounts are based on loan value, right?
38:56
Speaker 2: And first home buyers, typically, they have relatively low loan amounts,
39:00
Speaker 2: which means they're not going to get maybe the best discount.
39:03
Speaker 2: But I'm pretty sure you'll be offered something and there'll
39:06
Speaker 2: be some interest rate saving there. And it's a good
39:09
Speaker 2: thing for people to understand that even if they feel
39:11
Speaker 2: like they wouldn't even qualify to refinance, you know, say
39:15
Speaker 2: they borrowed two or three years ago and they just
39:17
Speaker 2: wouldn't requalify maybe because a change of situation or anything
39:20
Speaker 2: like that, you don't need to worry about that. They're
39:22
Speaker 2: not smart enough to ask the question, would we approve
39:24
Speaker 2: the loan or would another lender approve the loan? They
39:27
Speaker 2: just want to retain the business.
39:28
Speaker 1: They want to retain the business. They don't want their
39:32
Speaker 1: book to shrink. It's very simple. All this discharge of
39:36
Speaker 1: horsey put me through to retention. Don't forget those lines, folks.
39:40
Speaker 1: They are very, very good. And I can tell you
39:42
Speaker 1: on first hand that they work. They worked for me. Okay, terrific. Hey,
39:46
Speaker 1: Thank you very much, Stuart. That was great. Very, very interesting.
39:49
Speaker 1: Isn't it amazing how the property market moves under our
39:52
Speaker 1: feet and we think we're on top of it and
39:54
Speaker 1: then something happens? I think today's show really shows that
39:57
Speaker 1: whole issue about the mortgage extensions. If you are a homeowner,
40:00
Speaker 1: it's there. If you want to do it, if you're
40:02
Speaker 1: going to do it, have a plan. Keep in mind
40:04
Speaker 1: as an investor that your holding costs are higher than
40:08
Speaker 1: they were a few years ago. There's no twice about that.
40:10
Speaker 1: Inflation has really pushed things up. The key figure is
40:13
Speaker 1: interest rates. That's the one that's going to move for you.
40:15
Speaker 1: Capital growth and interest rates, so important. And also on
40:18
Speaker 1: that broader issue of refinancing, you actually have some... The
40:23
Speaker 1: banks have actually become more competitive, believe it or not.
40:26
Speaker 1: It is true that they will give you better terms
40:28
Speaker 1: if you know how to play the game. And part
40:30
Speaker 1: of that is the language which we discussed today. Terrific, Stuart.
40:34
Speaker 1: Thanks very much.
40:35
Speaker 2: Thanks, James. Fun as always.
40:38
Speaker 1: Great to talk to you. We'll have you on again soon.
40:40
Speaker 1: And do keep the questions coming, folks. The Money Puzzle
40:43
Speaker 1: at theaustralian.com.au. Talk to you soon.