Property Hub - Investment Insights & Inspiration - Realty Talk: Fast bridging loans + New builds in the burbs + Rising rates

Episode Date: February 11, 2022

Buying a home during the boom continues to be challenging, particularly if your purchase relies on the sale of your current house. No one is interested in the subject to sale conditions. To get around this, emerging lender Techlend is disrupting the bridging loan space with a new solution that can be preapproved in an hour! So to continue our discussion on this lending innovation in the second part of our 2 part feature, the CEO of Techlend Aaron Bassin completes the picture. A lot of property industry commentators slam the idea of investing in new build homes in new fringe suburbs.    Is this criticism well-founded or perhaps misguided?  We discuss that with the CEO of The Property Mentors, Luke Harris. And with so much scare-mongering hitting the news about rising interest rates recently, the show closes with Bushy balancing the books by exploring if and when rates will rise and what it means to you. RealtyTalk is your trusted voice for property investment and Australia’s most popular online property show.  RealtyTalk is brought to you by Realty, Australia’s leading search and social property distribution platform that helps investors like you beat the crowd, giving you the earliest access to property opportunities, listings, and insights. Check out Realty. RealtyTalk is hosted by top property investment expert, author, and founder of KnowHow Property, Bushy Martin. Find out how Bushy’s KnowHow team helps investors unlock freedom with finance and property here, and check out Bushy’s podcast Get Invested.  RealtyTalk is supported by BMT, a company that helps property investors save thousands of dollars each year by maximizing tax deductions from investment properties. Find out more.See omnystudio.com/listener for privacy information.

Welcome to Realty Talk, the show that brings together the country's most authoritative and respected property experts. Follow us on all the socials and subscribe for updates and exclusive offers. Realty Talk is powered by realty.com.au, connecting buyers, sellers and agents differently. Hi and welcome to Realty Talk, the longest running property show in Australia. I'm Bushy Martin from KnowHow Property Finance, and we've got more great info to share with you in this week's episode. If you're trying to buy your new home, but it's subject to selling your existing place, Techland's new one-hour bridging solution eliminates the headaches, so CEO Aaron Basson joins us for part two of our special feature.

A lot of property industry commentators slam the idea of investing in new-build homes in new-fringed suburbs. But is this criticism well-founded or perhaps misguided? To answer this, we're joined by the CEO of The Property Mentors, Luke Harris. And with so much scaremongering hitting the news about rising interest rates recently, I close off the show by balancing the books with a detailed exploration of if and when rates are on the rise and what this means to you. We've got a lot to unpack, so let's get underway. Greetings and welcome. Now, as many of you may know, buying a home in the current boom market

is proven to be very challenging, particularly if the purchase of your new home relies on the sale of your current house because selling agents and vendors just aren't interested in subject to sale conditions. So the only way around this is to employ bridging finance, which is a temporary loan that allows you to finance the purchase of your new property until you sell your current home. The bridging finance with the traditional banks is a complex, difficult, and often very time-consuming process. So how do you get around this? Well, this is where new emerging non-bank lender TechLend comes to your rescue with a new bridging loan that can be pre-approved in just 60 minutes. So to continue our discussion on this lending innovation in the second part of our

two-part feature, we're joined again by the Chief Exec of TechLend, Aaron Basson. So welcome back to Realty Talk, Aaron. Hi, Bushy. Thanks. Glad to be back. Yeah, great to have you back on again. So for those that haven't had the benefit of enjoying part one, let's start with a quick refresher on what Techland Bridging is and how it differs from the traditional bank alternatives. Yeah, so Techland is a non-bank, an Australian non-bank that specializes only in bridging finance. We use technology to provide our customers and our brokers with the best customer experience possible and that's largely because we're so quick and what Techland does is we enable a borrower to buy a new home before they've sold their existing home and so we our

product is an interest-free bridging loan for the first three months that allows that customer to purchase that home their dream home broker gets paid customer settles in the new loan and once they sell their house they pay back that loan yeah great there's a quick in and out loan and process so so i would i guess aaron given you know that tech land is is new in the in the game getting the word out must be your biggest priority and i would imagine that working with finance brokers must be a key focus so how does tech land work with the broking fraternity yeah brokers are an essential part of our organization you know 60 percent of all mortgages in australia are originated through a broker it's a fantastic service for clients

who are looking to to to get a mortgage the challenge though is when it comes to the bridging space there aren't many solutions for brokers and for customers and so it's bridging traditionally hasn't been a strong product that brokers are able to offer to their clients and you know you gave an overview of some of the challenges earlier on so we have an accreditation process with with all of our brokers something that every broker would be very familiar we are regulated as by ASIC as a lender and so so the brokers and so we go through a robust um but simple accreditation process and once a broker is accredited which will happen the day that they apply it's very quick as well um you're a broker is able to start offering a product to

their clients um and it's all done electronically online simple application process that takes just a few minutes to create for uh for for a broker's client and we do all the heavy lifting you know the technology allows us to be really smart and efficient with our broker's time. Brokers have a lot of clients and, you know, they're busy individuals and we respect that. So we try and make their life and our customers' lives as easy as possible. And that in some times, in some cases means less touch points, less paperwork, less questions. You know, we're trying to be really focused at what we do and we are constantly improving our product to make sure that it's the best bridging product in market my co-founder is actually a mortgage broker

so nick jacobs he is being recognized the past three years as a top underwriter in the country top 30 in origination volume as an individual so with his insight we've collaborated on the product that we've created it's an innovative solution that meets the needs of of everyday brokers i love it i love the ease and speed with which it sounds like you everything you do has that approach at tech land so how's the response been from the brokers to date then yeah it's been amazing i mean we are also a direct to consumer business but 40 of our loans to to date have been through brokers um and it's it's it's obviously as a as a young uh new business it's been slow getting it off the ground um and uh the brokers that do use our services they're

coming back they they have really positive feedback a bridging loan is not your everyday mortgage so the volume is obviously a lot less but now they have a solution where they don't need to turn away that customer. We pay an upfront commission with no clawback on the day that the loan settles. It's a fantastic proposition. Traditionally, you'll go to the bank, they'll claw back the commission for the amount of the refinance or the restructure of the end debt. You have to wait one or two months until they start paying your commission. We pay a fair and reasonable upfront fee on the day the customer's loan settlement and there's no clawbacks ever. so it's just the win-win for for everyone involved yeah brilliantly thought out and

love the way you're making it easy for brokers to take advantage of your fantastic product there so do you work with any other partners in the property space or have ambitions to moving forward yeah absolutely so we also have referral agreements available with non-licensed brokers so or non-licensed partners so uh those would be real estate agents for example or accountants or solicitors who have clients that uh they know require a bridging loan and specifically the the real estate agent is one of our key other partners you know we're there to help them close the sale on the purchase on the sale of the property um so you know their client doesn't need to be worried about the subject to finance clause we're there to help them uh the real estate

agent is also able to incentivize the vendor to take the property off market because we can move so quickly uh you don't need to wait for auction put in the offer that you want because you know techland has your back uh so there's a lot of clever strategies that um borrowers uh looking to leverage our product with you know their brokers and their real estate agents in this entire ecosystem so yeah it's it's been working uh really well we've got ambitions to um to partner with aggregators so that we can have a bit of a wider reach um that will come in time at the moment uh any broker that wants to work with us if they complete our you know five minute accreditation process um you know we're able to work with them yeah love it love it well uh thanks

again for sharing this market changing bridging finance revolution aaron and thanks again for your time on the show today. Thank you very much. Well, the message here is clear. If you're a home buyer looking to buy now and sell later, or a finance broker who's looking to assist more of your clients to queue on more properties more easily, reach out to Aaron and the team at techlend.com.au. You're watching Realty Talk, your trusted voice for all things property. Successful property investment is a game of finance. Do you have the right team and the right game plan realty talk is brought to you by know how property more than mortgage brokers bushy martin and his team of investment architects set you up with a sustainable strategy structured

to lower your costs tax risk and stress while increasing your capacity for growth know how has helped over 1900 homeowners and investors secure more than 800 million dollars in property wealth. So get set to live more, work less and live your legacy. Want to know how to invest in your freedom? Visit knowhowproperty.com.au. Hi and welcome. Now, it's fair to say that over the years, a lot of property industry commentators have slammed the idea of investing in new built homes in new fringe suburbs. But is this criticism well-founded or perhaps even misguided? To delve into this, we're joined by the CEO of The Property Mentors, Luke Harris, who's recently published his second book, Property Fit, that shows you how to get your property portfolio in shape for

financial freedom. So welcome back to the show, Luke. Thanks, Bushy. Great to have you. Awesome, mate. Thanks for having me. Yeah, look, I'm really looking forward to digging into this subject because like you, I think new builds really do have their place with the right strategy. So So getting straight into the meat of the subject, when considering new suburbs on the fringes of a capital city, are they good or bad in your opinion? Well, it's an interesting question. Good and bad.

They can be good if they fit part of your long-term strategy, bad if you don't get the right property. But that applies to all properties, right, as you would know. So there's good and bad properties everywhere and new builds are no exception to that. However, there are plenty of good opportunities if you know what you're looking for. yeah totally agree so what are some of the benefits of building in new suburbs versus

buying an existing property there's two benefits obviously as an investor one of the big benefits is you're getting a warranty with the home everything's new uh and that means little repairs and maintenance to do for the first five to ten years or more if you look after the property you can stretch that out for for 15 years or more before there's any significant maintenance to do But also there's substantial tax benefits that are on the table for property investors here in Australia. So they're worth taking advantage of. And the reason I love new builds is because obviously

when you've got a new property that's giving you a good rent because it's a good condition, it's got dishwashers and air conditioning and all of the things that tenants want these days, but it's also giving you good tax benefits, it means the whole process itself is actually easier. It's more palatable for investors that are getting started in property so if you've got an older property that's constantly repairs and maintenance the roof collapses you've got a tree root to go through pipes believe me i've had many of those

over the years um plumbing failing taps need replacing then every month your cash flows jumping up and down like whereas with new builds you can often get a more consistent experience and because of that the experience of investing in property for a lot of investors excites them to do the next one whereas if you have a bad experience on your first one or two you're not likely to do it again are you spot on i know from personal experience like because i'm a big advocate of new builds if it's done properly uh from a cash flow affordability perspective the reduction in stamp duty costs initially but also the tax depreciation benefits allow you to use the negative gearing benefits to actually create a positive cash flow

result that means that from respect of holding that property long term it has no serious impact on your salary savings or your lifestyle so that endurability factor which is really important in terms of lasting the distance with property really comes to the fore when you look at the new build option. And we've also found through our property management team as well is that tenants often stay longer in a newer build because they're more comfortable with the things that they've got in the house the shower the taps the the hot water system everything works the garage door works they don't have any problems and when people don't have problems with the property that they're living in they're less likely to chop and change where they're living so the property management

team absolutely love new builds also they do a defect inspection one of our senior property managers did an inspection recently on a new build that was handed over to us she took 1200 photos of the property so we've got a very detailed report as to the condition of the property and obviously any defects were reported back to the builder and fixed before the tenant even moved in yeah beautifully said well as an investor yourself luke how do you pick a potential growth area when there's so much new construction planned on the fridges of our capital cities as you know there's there's so much construction and obviously being from victoria yourself you see the suburbs just exploding the outer suburbs especially over the last 10 years or so

one of the suburbs that we recently secured for our members in 2019 actually I bought one there myself was a growth suburb in the southeast of Melbourne and we actually looked up the plan 2050 report which was put out by the state government and it was put out a few years back and that showed where the government was trying to plan the population growth now looking at this state government level document allowed us to drill down to a council level and look at what the councils were doing with that document and what their own planning schemes allowed for but also allowing for infrastructure spend such as freeways and shops and schools and where these things were positioned now at the time that we bought into the this particular suburb i bought

a townhouse there for 499 000 and recently had a value at 700 000 so that was 2019 to 2021 two years not a bad outcome and some of our members have bought down there had the same experience one of the things that we looked for at the time though was that the majority of that suburb was house and land packages and house and land packages as far as the eye can see what there wasn't much of was townhouse development and with roughly 90 percent of the suburb being house and land a very small percentage less than 10 was actually townhouse development and obviously that was a niche in the suburb and obviously when we're looking at an area that is predominantly owner occupied when you're looking at an affordability play obviously townhouses were

well and truly in demand and we've seen that with the price growth in the last couple of years and I think the longest we've had one of those townhouse on the market for rental is probably about six days so obviously that research made sense for us one of the things that we look for is obviously some scarcity with what we're buying we also want to make sure that we're not in a in a development with 5,000 um you know 5,000 pieces of the same thing and I think for me personally a lot of people say well I don't want a townhouse because there's 50 of them in the project uh but they're more than happy and same thing with an apartment don't want to buy an apartment because there's 100 of them in the building um they want to go buy a house a land

package and there's five and a half thousand of them in the suburb they all look the same um I guess the the thing is in a um in a master planned estate if you're getting into a townhouse estate often they are actually um a body corporate control which means that the the look and feel and the gardens and all those things will be maintained for years to come whereas uh sometimes buying house and land you don't get to choose who your neighbors are and they might paint the house bright pink for example not a bad color really you could uh use the color off the front of the book even that's uh yeah we're looking for looking for that scarcity factor really yeah and scarcity is a and also plan committed infrastructure so that you're going into an area

and knowing what the future is going to look like and getting there before it happens. But as you say, make sure you're not in an endless flow of ongoing develop or land where it's going to dilute the scarcity and therefore the growth potential. So I love that, mate. So if I'm in a position where I'm a little bit conservative and I'm a bit scared of the build process and I don't want to build,

I just want to buy something and rent it out without a hassle why don't I just go and do that well look a lot of the time people will want something finished they don't want to go through the build process but what that means is they're buying a second-hand property so you need to look very closely I'm not going to give any tax advice of course but look very closely at the tax rules around buying a brand new build and a finished property as to whether it's been lived in or sold before but the difference obviously when you're buying house and land and often townhouses can apply in the same way is that you purchase the land you pay stamp duty only on that land which can save tens of thousands of dollars and then obviously you have a build process to go

through for people that are a little bit worried about the build process or what's involved they don't want to communicate with builders I understand that believe me you know a lot of people don't love dealing with builders there's some great ones out there mind you but it really a lot of the build process is managed for you so as an investor we've got a lot of our members that actually work with our mentors once you've secured your land and your build contract the builder largely takes over and does all of the work we've got a lot of interstate investors that haven't had to see the site and have to do site meetings and have to communicate with the builder once everything's in the contract the type of construction then you can appoint a building

surveyor or somebody to go and a building inspector to go and look at the property for you very small cost and they can do all of that work from start to finish and you'll find most builds these days are all inclusive carpets blinds letterboxes clothes lines everything's included so you really don't have to do anything so the build process as such is probably a bit more of an emotional thing than an actual physical thing that you have to do yeah i totally agree if you've got the right team on your side independently keeping the builder honest and you're looking at fixed price contracts that are controlling the time the quality and the cost there's a real benefit in being able to lock down the cost of a property today for the cost of a deposit that for

a property that's not finished for maybe 12 months and you've got a free ride on the capital growth that's likely to occur during that period so I totally agree with you mate that's some I really want to thank you for sharing these quite refreshing alternative views to investing in new builds, Luke. And thanks again for your time on the show today. Thanks, Bushy. Appreciate your time. Well, as I've always said, you need to dig deeper than the headlines. So just because some industry players poo-poo new build property, perhaps because they've got vested interests elsewhere, doesn't mean that a well-structured and well-located new build property isn't a

good investment, particularly if ongoing cashflow affordability is important for going the distance to achieve your long-term goals. So if you want to learn more about new building investment strategies, grab yourself a copy of Luke's new book, Property Fit at propertyfitbook.com.au where he actually dedicates an entire chapter to this approach.

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full financial year deductions. Call BMT on 1300 728 726 today for an obligation free quote. Welcome. The honeymoon period of record low interest rates is coming to an end with more than half of economists predicting interest rates are going to rise this year. Really? This is just one of a bunch of scaremongering media headlines that's occupied our eyes and ears over the last few weeks. So-called self-proclaimed experts have been grabbing headlines with stories of gloom and doom on the interest rate front, following concerns over increases inflation and the ending of quantitative easing through bond buying, which is really just code for printing more money. Unfortunately, I think the only thing that's overinflated

are the media's egos and interest rate claims. It feels like with every new year, there's a new fear to keep us both nervous and anxious. The last two years have been fear factory paradise, with the endless COVID variants providing never-ending fuel for the far-reaching fear fire. And now that the pandemic appears to be almost under control, as we've almost run out of variant names in the Greek alphabet, the next thing to keep us all nervous is to focus our fear on interest rate rises and potential crashing property prices. Unfortunately, most predictions and forecasts revolve around the so-called science of explaining tomorrow why the predictions made yesterday didn't come true today. So I want to balance the books by having a look at what's

really likely to happen with interest rates this year, what impact it'll have on you, and what, if anything, you need to do or to think about. So are interest rates likely to rise? Well, the answer is yes. Unfortunately, it's not a matter of if, but the real questions are around when and by how much and how often. Let's start by looking at the worst, best and likely scenarios. The worst case being reported by some self-proclaimed media gurus and has been actually priced in by futures markets is that rates will rise by about 1% by the end of the year, with the first increase in the cash rate from 0.1% to 0.25% occurring as early as May, and then rising bimonthly over the course of the year up to 1% or more. Now remember that the cash

rate is generally roughly 2.5% below actual home loan rates. So this is going to mean that an increase in average variable home loan rates will go up from about 2.5% up to about 3.5% over the course of the year, which doesn't actually sound like much over the course of interest when you look at things in history. Now, the best case on the other hand is that the Reserve Bank Governor will stick to his guns when he repeatedly stated over the last couple of years since the start of the COVID crisis in his forward guidance that rates are going to remain on hold until 2024 at least. Now, the likely case is probably going to be somewhere in between. In my humble opinion, rates are going to remain where they are until at least late this year

and will only then rise marginally and slowly depending on the impact of a bunch of economic variables and uncertainties. Now, what's this based on? It's not based on gut fuel or reading the tea leaves or trying to be a sensationalist headline hero, but actually listening to recent real comments by the person who's actually in charge of making cash rate decisions. And that's the Reserve Bank Governor, Philip Lowe. Having listened in full to his year ahead speech that he made on the 2nd of February, he made it very clear that the Reserve Bank is in no hurry to increase interest rates. So let me share with you his key statements that helped me draw this conclusion. Governor Lowe started with shared optimism when he said that our economy

has weathered the pandemic much better than was expected, job growth is strong and unemployment is low, household and business balance sheets are generally in good shape, and wages growth is picking up. Now these are very positive and welcome developments. But here's his scene setter where he said, at the same time though, the country faces challenges. The pandemic's not yet behind us. And the sharp pickup in inflation in some parts of the world, particularly in the United States, has added a new element of uncertainty to the outlook. It then goes on to talk about our continued recovery, where he said, while Omicron has delayed the recovery of the Australian economy, it hasn't derailed it. That recovery is being underpinned by a number of

factors. These include household balance sheets that are generally in good shape, with households having accumulated more than $200 billion in additional savings over the past two years. And according to other data, the average homeowner is about 45 months ahead in terms of their repayment. So a pretty good situation. Now, Governor Lowe went on to say that an upswing in business investment is also underway, and there's a large pipeline of residential building to be completed over the next year or so. Macroeconomic policy settings are also supportive growth, with governments planning significant infrastructure spending and monetary policy is very accommodative. Australia hasn't experienced unemployment rates this low

in the past half century. And the last time we had the unemployment rate below 4% was way back in the early 1970s. Now, all of this is very positive news. Let's now turn to the subject of inflation or rising prices, which is sparking the media's negative pessimism on interest rates. Because the RBA governor said that the pickup in inflation reflects both the strength of the economy, the strength of the economic recovery, and here's the real crux of the matter, the significant disruptions on the supply side. Now, as we all know from our high school economics, the cost of anything or the value of anything is the balance between supply and demand. And over the last two years, we've seen a massive increase in demand from all of

the stimulation money that's been poured into the system, while world supply has been strangled to dribble due to COVID transportation restrictions and slowdowns. Now, Governor Lowe then went on to say headline inflation in particular has been boosted by the 32% increase in petrol prices over the past year, along with the 7.5% increase in the cost of constructing new homes. Looking ahead, we expect underlying inflation to increase further over coming quarters, largely reflecting the ongoing difficulties on the supply side, including currently for Omicron. And again, here's the kicker when he said, as these problems are resolved, some moderation in inflation is expected. Now, this suggests that the current kick in inflation is only temporary as a result

of abnormal supply and demand conditions created by the global pandemic. He then expands on this further when he said, on the inflation and wages fronts, there are also a range of significant uncertainties. There's that word uncertainty again. These partly stem from the uniqueness of the period in which we're living. Over the past two years, there's been very strong demand for goods globally, just at the time that the ability of the economic system

to produce and distribute goods has been impaired. In other words, what he's saying here is that there is a significant temporary demand with limited ability to supply. Governor Lowe then went on to say that this strong demand colliding with impaired supply means higher prices and higher published inflation. Goes without saying. It's still unclear as to whether and at what pace the demand for goods will normalise as infection rates decline. There's also uncertainty, and again, there's that word uncertainty, as to how quickly the supply and distribution problems will be resolved. He then reinforces the potential temporary nature of recent inflation rises when he concluded,

we can't rule out the possibility that some of the recent price increases are reversed as a more normal balance between supply and demand is re-established. In any case, for inflation to be sustained at current rates, the prices of many goods would have to keep increasing at their current rates, not just settle at higher levels. All of this means that there are significant uncertainties as to the persistence of the recent price pressures. He then makes a very critical conclusion. The point here is that there are many unanswered questions. We're unlikely to know the answers quickly. There are many moving parts on both the demand side and the supply side of the economy and it will take time for these various issues

to be resolved. This is relevant to the board's deliberations about monetary policy. Now my obvious reading of this is that the RBA is in no hurry to make any knee-jerk changes to temporary disruptions until things settle down sustainably. He then turns his attention to ongoing Reserve Bank monetary policy and he said the cessation of our bond purchases, which is called quantity of easing, does not represent a tightening of monetary policy. And drilling down into rate expectations,

he clearly says the decision to end the bond purchase program does not mean that an increase in the cash rate is imminent. and with this background RBA Governor Lowe finally addressed interest rates where he stated as I've said on previous occasions the board will not increase the cash rate until inflation is sustainably within the two to three percent range and a big emphasis on that word sustainably and he went on to explain that the actual rate of inflation is relevant as are the trajectory and the outlook. So too is the breadth of price increases and the factors that are driving them. Based on the evidence we have, it's too early to conclude that inflation is sustainably in the

target range. In terms of underlying inflation, we've just reached the midpoint of the target range for the first time in over seven years. And this comes on the back of very significant disruptions in supply chains and distribution networks, which would be expected to be resolved over the months ahead. It all comes at a time when aggregate wages growth in Australia remains low and is at a rate that is unlikely to be consistent with inflation being sustained around the midpoint of the target range. As I discussed earlier there's a range of significant uncertainties here that will take time to resolve. We're in the position where we can take some time to obtain greater clarity on these various issues. The board is prepared to be patient, and again I

underline that word patient, as it monitors the evolution of the various factors affecting inflation in Australia. It then says we have scope to take the time to distill the balance between supply and demand in the economy. Over the course of this year we'll be watching how the various supply side problems resolve and the effects on prices. We'll be watching consumption patterns and whether they normalise. We'll also be looking for further evidence that labour costs are growing at a rate consistent with inflation being sustained within the target range. We expect this evidence to emerge over time, but it's unlikely to do so quickly. So what's the very clear take-home message from the RBA Reserve Bank Governor's speech? Well, the Reserve Bank is going

to be in no hurry to raise interest rates anytime soon until they're confident that the underlying inflation is sustainably in the 2% to 3% range, which means consistently over time, not just the one-hit wonder that's just occurred. So why keep interest rates low with the outlook so positive? Well, the RBA governor put forward two very clear reasons. Firstly, while the Reserve Bank has an optimistic outlook for the year ahead, there's still a great deal of uncertainty around what the year is going to bring. The bank wants to make sure that economic gains are locked in before it takes its full-off accelerator. The costs of overheating the economy are actually relatively minor compared to what could happen if it hit the brakes by raising rates too early

and a new COVID variant tips the economy back into recession. Secondly, the current big handbrake is that wage growth remains weak. The economy won't be on a stable upward trajectory until wage growth picks up from its historic lows. And although the RBA expects wage growth to lift, it believes it'll be quite a while yet before it climbs above the minimum of 3% needed to keep inflation within the target band. Hence the reason why I believe that the RBA's cash rate and related home loan interest rates aren't likely to go anywhere at least until late this year and potentially well beyond.

And in the federal election that's going to be added in in the first half of the year and ongoing potential COVID variant responses, you can be confident that rates are likely to stay where they are. and there are also some other underlying reasons why rates aren't likely to increase fast as revealed recently by respected economic commentator Alan Kohler the reality is that the last rate increase occurred way back in November 2010 that's over 11 years ago and since then, over 1.1 million first-home buyers, many whom have borrowed to the max, have only seen

rates decrease. And during this decade of cheap low-rate money, our appetite for debt has increased substantially, with the debt as a ratio of income climbing from 0.6 in 1991 to 1.8 in 2021. That's an increase of three times the debt to our income. And even more interestingly, when the last rate rise occurred in 2011, the average mortgage was around about $360,000 with repayments at approximately $2,700 a month based on variable rate home loans at the time with a rate of about 7.5%. Now, the average mortgage today has almost doubled to just over $600,000. and if home loan rates increased over the next few years

back to that 7.5%, which is actually the average home loan rate if you look at history over the last 30 years, which would mean that repayments would increase to over $4,400 a month. That's quite a significant increase in repayments of over $1,700 a month. Now, the service is increased

without affecting your lifestyle. Your taxable income would have to increase by about $35,000 gross per year, but the average annual wage increases over this last 10-year period has only gone up about $13,300 since 2010. So this increased debt burden to you and I, together with the massive debt that the government has taken on during COVID to stimulate the economy,

means that it would be very difficult and actually very risky for the RBA to normalise interest rates at historic average levels, for the app, creating major economic challenges to household spending and general economic confidence. This would be a recession in the making, and hence my belief that low rates are going to be with us for quite some time yet. So in my opinion, we can all calm the jets on interest rates going through the roof in the short to medium term. But one thing's for certain, the next move in interest rates, when it eventually does occur, will be up. And the banks may decide to lift their variable home loan rates marginally independent of the RBA,

just as they've done with fixed rates in recent terms. Although recent downward movements in variable rates would tend to discount this. So what, if anything, do you need to do about the future prospect of raising rights, regardless of when it actually happens? Well, the answer is always, it depends. It depends on your situation and your risk appetite. Now, I'm always a believer in planning for the worst and then expecting the best. So if you're a current homeowner who's looking to minimise your home loan repayments, I'd suggest sticking with discounted variable rates, but make sure you talk to a savvy mortgage broker to ensure that you've got the lowest cost loan. As an example, our know-how finance team is saving borrowers anywhere between $400 to $1,200 a month just simply by refinancing.

Now, if you're a home borrower who can't deal with uncertainty, then I'd suggest splitting your loan by fixing part of your loan, even though fixed rates are considerably higher than variable at the moment, but leave an amount variable so that your offset account still operates and you're still able to make extra repayments because most offset accounts cease to function when you fix the rate. If you're a renter who's looking to become a potential home buyer start paying notional rent at the level of a high mortgage with the extra going into a savings account to ensure that you'll be comfortable affording the increased repayments when you buy a home and at the same time you'll actually be increasing your savings deposit. And finally, if you're a property investor, make sure you reach out to a savvy mortgage broker to ensure that your loan structure and loan costs are minimised

while still preserving maximum tax deductibility and minimising the risk. In summary, the next move in interest rates is likely to be up, but it's not likely to be by much and not for some time yet. So stop listening to the mass hysteria media and always get your information straight from the horse's mouth, not a whispering wall. That's more food for thought. I'm Bushy Martin from Know How Property Finance. Stay tuned for more. Well, that brings us to the end of this week's show. A big thanks to our special guests, Aaron Bassam and Luke Harris. And to make sure you don't miss another episode of Australia's longest running and most popular online property show, subscribe to Realty Talk now. You can get it on Apple Podcasts, Google Podcasts, Spotify,

YouTube, or wherever you choose to listen. And make sure you sign up on the realty.com.au homepage to get every episode in your inbox every week. And while you're there, make sure you check out one of Australia's most extensive range of properties for sale from over 7,000 agents nationally. Thanks again to realty.com.au and BMT Tax Depreciation for their ongoing support. I'm Bushy Martin from Know How Property Finance, and I look forward to seeing you again next week. Miss something in this week's show or want to catch up on past shows? Do it anytime at realty.com.au where we connect buyers, sellers and agents differently. Thank you.