Property Hub - Investment Insights & Inspiration - Realty Talk: Fixed Rate Cliff Facts + Avoiding The Cliff + Price Guides

Episode Date: March 25, 2023

This week the show resembles a scene from the movie ‘The Great Escape’ because it’s all about breaking away from Mortgage Cliffs, avoiding becoming a Mortgage Prisoner, and negotiating your way out of trouble.  Everywhere you turn, everyone is talking about the imminent ‘Fixed Rate Mortgage Cliff’ – so what’s all the fuss about?  Eliza Owen from Core Logic joins us to demystify the fiction with the facts and to unpack what impact, if any, it will have on you and property. Bushy then reveals what action you can take to avoid and minimise the pain of colliding with the fixed rate cliff, as well as what you need to do to prevent becoming a mortgage prisoner. And to round out the show, Kevin Turner talks to Buyers Agent Cate Bakos in the first of our special series on Negotiation, with a look at how seriously should you consider Agent’s price guides? RealtyTalk is part of the Property Hub podcast channel, your home for property investment insights, inspiration, and stories from Australia’s top property experts, investors, leaders, and analysts. Subscribe now to get every RealtyTalk episode delivered to you each week for free, and also get full access to Get Invested, the leading podcast for Australians who want to unlock their full ‘self, health, and wealth’ potential and get inspired by the stories of investors, founders, and entrepreneurs. Subscribe to RealtyTalk on the Property Hub channel: Apple Podcasts | Spotify | Google Podcasts | Email Property Hub is a collaboration between Bushy Martin from KnowHow Property, Kevin Turner from Realty, Andrew Montesi from Apiro Marketing and Apiro Media, and Australia’s largest independent podcast network DM Media. Business and partnership enquiries: [e-mail] 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 this week's Realty Talk show. Your property hubs go to home for property investment insights, inspiration and stories from Australia's top property experts, leaders and analysts. I'm your anchor, Bushy Martin from KnowHow Property Finance, and this week's show resembles a scene from the old movie, The Great Escape, because it's all about breaking away from

mortgage cliffs, avoiding becoming a mortgage prisoner, and negotiating your way out of trouble. It seems like everywhere you turn, everyone's talking about the imminent fixed-rate mortgage cliff. So what's all the fear and the fuss about? Eliza Owen from CoreLogic joins us to me demystify the fiction with the facts and to unpack what impact of any it's going to have on you and property. I then reveal what action you can take to avoid and minimise the pain of colliding with a fixed rate cliff, as well as what you need to do to prevent becoming a mortgage prisoner and to reduce your monthly costs substantially. And to round out the show, our founder Kevin Turner talks to Buyer's Agent Kate Bacos in the first of our special series on negotiation

with a look at how seriously you should consider agents price guides. Now before we get underway if you're enjoying the show I want to thank you for tuning in and I need to ask you a small favor that's going to have a big impact because we really need your help in order to continue to attract great guests and enjoy great conversations by hitting the like button as well as the subscribe button wherever you're listening to or watching the show because we're on a mission to get to 1 million subscribers in order to continue to attract the best of the best and by helping me to help you together we're going to help those that are less fortunate that have no voice and have no choice because for every new subscriber together we're going to save lives because we'll

donate a day's worth of life-saving water to families in Tigray, Ethiopia. So do everyone a massive favor and make a difference by taking the couple of seconds to subscribe now. And make sure you also sign up on the realty.com.au homepage, where you'll also get a free copy of my award-winning book, Get Invested, just for making the effort. We've got a stack of actionable property insights to unpack. So let's get on with the show. deductions. Call BMT on 1300 728 726 today for an obligation free quote. It seems that everywhere we currently turn, the mainstream media is talking up fear about the imminent fixed rate cliff or mortgage cliff as one of the biggest potential risks to housing

market values and overall stability in the times ahead. So what's all the fuss about? And does the fear actually marry up with the facts? Well, to help you better understand what it actually is and what it means to you, we're joined by the Head of Residential Research at CoreLogic, Eliza Owen, who's recently completed a detailed paper on the subject, including must-know facts and information that'll help you to put the cliff into context. So, welcome back to the show, Eliza. Great to be here. Thanks for having me. Great to see you again. Now, I'm going to start off with the bleeding obvious question. what is the fixed rates cliff or mortgage cliff that everyone's been referring to?

The fixed rate cliff is a bit of a hangover from a period of ballooning in fixed rate borrowing that we saw in the Australian mortgage market. It was an unusual time where we saw the introduction of a temporary term funding facility, which really lowered bank costs. We saw the underlying cash rate dropped to the floor at 0.1% and signaling from the RBA that the cash rate wouldn't be moved higher for a very long time. So that gave banks the confidence to drop their fixed-term rates to very low levels, as low as averaging 1.95% on a three-year term or less in mid-2021. Now, historically, Australia has been a very variable rate sort of borrowing country. We've only seen on average about 20% of borrowing for housing go out on fixed terms.

But that got as high as 55% at its peak in mid-2021 to the point where we now have this very large pool of outstanding fixed mortgage lending. So the RBA reporting from earlier this year suggests about 35% of outstanding mortgage debt is now fixed and most of that was only on two-year terms. So that means if all of that peak borrowing was happening in 2021, here we are two years later, the majority of outstanding fixed rate debt is expected to expire over the course of this year. And so all of that borrowing is going to be repriced and it's going to be repriced at a much higher rate because we've seen a record increase in the rate hiking cycle as well. Yeah, and consequently a massive jump in repayments from the fixed rate term to the current variable rate if that's the way they end up going. That's right. So we've done a little bit of analysis on this, suggesting if you took out one of these fixed term rates in mid-2021, what would your borrowing rate look like now compared to when it expires? So those figures are suggesting, say for those who borrowed in May last year, an average fixed rate of about 1.95%, and that goes up to a rate of about 5.5%.

based on current average rates. This is for owner-occupiers, by the way, and factoring some of the recent interest rate increases we've seen. So when an average home loan taken out back then, and remember the additional risk is that property prices were rising at the time, so average debt levels were starting to rise, the implication is about $1,000 more per month that you'll have to spend on your mortgage repayment based on those increased interest costs. Yeah, it's a pretty big jump. Well, look, in your research, you've identified sort of five key things that we need to know about the looming loan expiries. So I'd want to dig into these a bit if we can. I want to start off with when will the pain be felt most

acutely and more importantly, probably why? So we see it really hitting from April this year, going through towards the end of this year. That's because that's when your average home loan sizes started to increase substantially. It's when fixed rates were hitting their lowest level. So you're going to get the kind of biggest sticker shock. And it's also where we start to see the portion of expiries increasing as well. So for, you know, not an unsubstantial number of households, there's going to be that sticker shock experienced from April through towards the end of the year. Yeah, now we spoke briefly just off air about the serviceability challenges that are also hand in hand with rate increases. You've got any comments on that, Eliza?

The serviceability buffers that were in place at the time when these loans were taken out was about three percentage points. So banks, as a rule, were advised to assess on three percentage points above the product rate. So some banks were assessing on more anyway, an internal floor rate if it was higher. But part of the risk associated with only having that 300 basis point buffer is that the cash rate increases we've seen have now gone beyond 300 basis points, 325 basis points through to February, and we're likely to see another 25 basis point hike through March as well. So in a sense, we're getting beyond that serviceability buffer, and that could create additional risk for households in terms of servicing their repayments. Yeah, good call. Now,

there's been a lot of focus on the fixed rate cliff by the mainstream media in particular, but it'd be interesting to look at what's been happening in the variable rate world and what has that taught us in recent times? Well, yeah. I mean, the most obvious place to start with assessing the risk here is how do households cope with rising interest rates? And the good news is we have a pretty big sample of how that works, because if 30% of mortgage lending is fixed, that means that 70% is variable and has already been exposed to most of the interest rate rises that have come through the cycle so far. Has the housing market collapsed?

No. As a matter of fact, we see that people are still putting savings into offset and redraw facilities as a portion of their monthly housing payments, noting that that has come down. It got to highs of around 35% when interest rates were very low. We've now seen the savings buffers flow come down to about 16%, but there is still savings going in, not to mention the buffers that have been built up. So, really, we're seeing variable borrowers start to dedicate more of their monthly housing costs towards interest and less towards redraw and offset. We have not seen an influx of distressed sales hit the market.

And even though it's very lagged and will take a while to show up in the data, through to the end of September, we've only really seen the portion of loans falling behind on payments come down to recent lows. So, you know, there's no indication that there's a disaster in the variable borrowing environment. Having said that, there's no doubt that people will be finding it tougher to service their home loans now than they would have at the beginning of last year. And there are some additional risks that even variable borrowers haven't been exposed to just yet, like an increasing unemployment rate, which is synonymous with cash rate increases. and the fact that there are probably a few more rate rises to come through this year. But on balance, we think that households have dealt with interest rate rises quite well so far and there's a lot that they can do before having to resort to a distressed sale. Yeah, awesome.

So starting to look forward a little and getting out your crystal ball here, Eliza. What do potential variable rate movement options look like in the short to medium term? and like your thoughts on what impacts are they likely to have, if any? Well, this is a really good point and sort of one of the points that we highlight in our research on this as well, is that if you've got most of your borrowers on variable, more of your borrowers converting to variable, the good thing about that is that variable rates go up,

but they also go down. So we anticipate just from what the major banks have been forecasting what the RBA has been forecasting, that the cash rate could actually peak over the course of this year. Now, three of the four major banks are suggesting that we've probably got a couple more rate hikes to go, which will take us to a peak of 4.1%. CBA is the only bank really holding firm at this stage at 3.85%. So at the end of the day, that means that towards the end of the year, and again, CBA highlighted that they believe the RBA will have to start cutting the cash rate towards the end of the year in order to avoid a recession, that means that variable

borrowers could start to enjoy some discounts again in the interest rate towards the end of the year. Yeah, very good call. Now, we've sort of covered the borrowing side of the equation. Let's look at the equity piece for a minute if we can, because I'd like to see what effects of any softening property values and shrinking equity likely to have. So I guess the first thing to say, is that it's a very mixed picture. Broadly across Australia, we estimate that housing values would have to fall another 13% in order to get back to where they were at 2020 or the onset of COVID. So this means that even for recent buyers, there's probably still a very decent equity buffer there, especially when you consider most borrowers go in with a positive at least 20%. This was echoed

by the RBA who estimate that only about half a percent of housing loans would currently be in negative equity based on the changing valuations of homes in this rising interest rate environment. Now, it's true that as interest rates continue to rise, we could expect some more downward pressure on property prices. So, the portion of loans that fall into negative equity could increase. But even then, the RBA said that if property values fell a further 10%, that portion of loans in negative equity would probably only expand to about 1% of home loans. So I don't want to underplay the financial stress and the risk that some households face. This is not going to be a comfortable time. But in terms of the broader systematic stability in the housing

market it's not under threat in the current period that we're going through yeah not very well summarized there then if we sort of look at this in combination in terms of all the factors we've spoken about then when are we likely to see the flow on impacts that we've been discussing do you think so i guess what we're seeing in the arrears rate data is um it's very lagged you know The official publication of data that gives us a good understanding of the loans that are falling behind on payments or in mortgage arrears, it's published on a quarterly basis by APRA. And their latest publication is to the end of September last year. So we're not really getting a sense of the full extent of rate rises in that publication. um and on top of that you're measuring it by 90 days past you or more so so on top of the data

needing to factor in all of the rate rises that have taken place um it also needs to be factoring in that additional 90 days so it might not be for i don't know another six maybe even nine months before we start seeing a substantial reflection of the current environment in that arrears data. And I guess, you know, there are some higher frequency publications out there which try and measure mortgage stress, but that's a pretty hard thing to measure, right? It can be a very subjective thing, especially when you're talking about higher income households. And we know that, for example, higher income households are generally concentrated in the mortgage market than in, say, the rental market. Especially if you're on a higher income, you might be paying

60, 70% of your income on your housing costs, which is a lot, but you can still get by and you can still have quite a comfortable life while building up your wealth in this asset over a long period of time. So from a data perspective, it is a bit of a black box and it's a hard one to, I think, get a good pulse on. Yeah, good read. And I think the reality is that most Australians would live on baked beans and dog food if they had to just to maintain the roof over their head by paying the mortgage. So I think the, yes, we won't have the discretionary spend and a lot of the luxury items will probably start disappearing. But I'm a bit old and crusty, Eliza, and I've been around a fair while. And every time we go through these tight times, people just pull their belts

in and still keep paying the mortgage. So, yes, there will be some that's affected, and as you well said, we won't be lightening that because the impact is definitely there and anyone with a home loan is going to be affected by the amount of money left in their pocket to spend on other things. But, look, I really appreciate you coming out of your busy schedule to share that with us today, and really thanks for setting the record straight to some degree based on the actual data, Eliza,

and thanks for your very generous time on the show today. Oh, well, thank you for having me. Excellent, Eliza. Well, if you want to read Eliza's fixed rate cliff report in full, just click on the link in the show notes or jump on corelogic.com.au and jump on the News Research tab and look for the report Five Things to Know About the Fixed Rate Cliff. Well, as you can clearly see in here, despite the continued barrage

of fear fuel gloom and doom being peddled on a lot of the nightly news services, the data clearly confirms that the vast majority of Aussie homeowners are actually well positioned financially to weather the rising rate storm with a low likelihood of major flow-on effects in the housing market. So stay with us because after a short break I'll be back to unpack what this all means to you and most importantly what you can do about it to significantly reduce your costs, minimise your risks and maximise your ongoing opportunities. Keep watching your Property Hub's Realty Talk, your go-to place 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. KnowHow has helped over 1,900 homeowners and investors secure more than $800 million 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. If you've listened to my enlightening chat with Eliza Arne from CoreLogic and RealtyTalk, you'll now have a better understanding of the fixed rate mortgage cliff and its flow-on effect on property because it's clear that the hysterical headlines and negative news about the subject

are overblown and the property world as we know it isn't going to end as a result. But one thing is clear, rapidly rising interest rates are causing your loan repayments to double or more since they started increasing in May last year and for the large number of you who were smart enough to fix your property loans when they were at their lowest level ever, your loan repayments are going to jump up substantially when your fixed rates expire and are already doing so those of you who are on variable rates. Now this will potentially mean that your repayments have or will increase to over two times what you've become used to paying in recent years, which is likely to reduce and bite into your discretionary lifestyle spending where more of your hard-earned

pay ends up in the bank's pockets. As an example, if you were smart enough to fix your rate for one, two or three years at or around 2%, on the average $600,000 home loan, when your fixed rate expires, your loan will automatically roll over to your bank's variable rate that's likely to be around 4% or more, meaning your monthly repayments will jump up by nearly $1,400 a month on a principal on an interest basis. And if your property loans are around $1 million, then your repayments would increase by nearly $2,300 a month. Now, you may be thinking that you can just refix your loan for another two to three years and that's the end of it. But what you may not realise is that fixed rates are now considerably higher than the discounted variable rates being offered. So

you're likely to pay a considerably higher repayment premium if you decide to refix. And while we're talking about your decision to refix or go variable, I suggest you don't try and make the decision based on whether you'd be better off financially and try and beat the banks by fixing the rate. The banks have smarts and resources way beyond our capability, and history shows that you normally lose out financially if you try to fix to save money. Your decision to go fixed or variable should be driven more about your need for certainty and your sleep at night factor.

if you want surety and consistency about your repayments and what they're going to be then fix your loans but if you're happy to go variable then you'll generally be better off and by going variable you also enjoy the added benefit of accessing and utilizing your fully transactional offset account if you've got one that has the power to save you thousands of interest and shave years off your loan term if you use it properly conversely the majority of banks turn off offset accounts for the period that your loan's fixed. So when and what can you do about the cost of rising rates? Let's start with the when question because in my mind this is the most pressing question requires your urgent focus and action if you haven't already done something about your home

and property loans. Now don't be lulled into a false sense of security thinking that your fixed rate doesn't expire for months yet, so you don't need to do anything about it. I caution you very strongly against this. Pick up your phone and talk to a savvy mortgage broker now so that you know well in advance what your options are and when you need to act. Why do I stress this? Because you may not be aware that with every rate rise, your borrowing capacity and loan serviceability reduces accordingly. So what I can hear you thinking, well, here's the kicker. On an average $600,000 home loan for the average borrower, for every 1% rise in interest rates, your buying capacity reduces by roughly $100,000. And your loan servicing reduction gets worse, the larger

your loan or your loans are. Now, since April 2022, rates have risen over 3.5% and may rise over 4%, which means that the borrowing capacity for an average home loan is reducing by around $350,000 to $400,000 or more. Again, I can hear you thinking, so what? I'm not borrowing any more money, Bushy, so it doesn't affect me. But what you may not know is that every time you try to refinance or even make a simple switch from principal interest to interest only, or from fixed to variable and vice versa, most banks will re-look at your ability to service the existing loan based on your income liabilities and your borrowing capacity at the time. And given the rapid rate rises, there's now a good chance you won't be able to refinance even if you want to

because your borrowing capacity and loan serviceability have dropped to a level that's below your current loan size, which means that you may already be or about to become a mortgage prisoner where you no longer have the loan servicing horsepower to refinance your loan and you're now stuck with the bank that you're with and may be forced to accept your lender's much higher standard variable rate when your fixed rate expires and automatically reverts to a variable rate. Now this mortgage prisoner predicament may also be exacerbated by the softening in property values that's occurring in many areas as demand dries up and buyers purchasing power shrinks from these borrowing capacity reductions. So on top of reduced borrowing

capacity limitations, if the value of your property has fallen, and we're seeing a lot of bank valuers being ultra conservative and pessimistic in downgrading valuations on properties to reduce the bank's risk, this may mean that you end up in expensive lenders mortgage insurance or LMI territory, if the balance of your loan now exceeds the 80% loan to valuation ratio threshold. and this not only means that you have to add thousands to your loan to cover the extra cost of the LMI, but it also means that your interest rate is likely to go up even further as banks now determine the interest rate they offer you based on the level of LVR risk. So the lower the loan to valuation ratio, the lower the rate you pay. In addition, if you now end up in LMI territory due

to softening property values, the level of refinancing loan assessment becomes much more onerous and much more restrictive. So bringing this all together, you have an ever-shrinking window of opportunity to do anything about the mortgage cliff or to refinance to reduce your costs. So at the very least, you need to call a savage finance broker now to understand what your options are and how long you have to do anything about it before you become a mortgage president where you're stuck with high variable rates and you have no choice. Let's now turn to the question of what you can do about the approaching fixed rate mortgage cliff or your rapidly rising repayments. What are your options, actions and implications to minimise your costs

and risks? The reality is that there's a raft of things you can actually do, so I'll go through them in order of priority based on the actions that will give you the biggest buck for your bank. And no prize for guessing that your best option will be to look at refinancing your loan or your loans to other lenders with lower costs and higher borrowing capacities, as there's roughly a 50% variation across the banks in terms of how much they'll actually let you borrow. Unfortunately, the longer you stay with your bank, the less likely they are to look after you, and you end up paying a loyalty tax because lenders will drop their pants on rates and costs to secure new borrowers to the bank, but they won't pass on the same offerings

and discounts to existing customers. Go figure. So you end up paying more the longer you're with your bank unless you're constantly asking them to sharpen their pencils. And even then, you generally don't get what new bank customers are offering. But the other reality is the bank's loan volumes are all down and not much new loan business is being written, which means that many of the lenders are now aggressively looking to do two things. firstly to retain their existing clients and secondly to bait and switch new borrowers across from other competing banks. Now both of these are potentially good for you if you act quickly. At the time of this recording many banks are still offering cash back payments in the thousands to

new borrowers if you're prepared to refinance your loans to them. For example many banks are still offering anywhere between $1,500 up to $4,000 as a cash payment incentive for you to refinance to them. Now, let me share the recent experience of a couple, Peter and Vanessa, who refinanced their home and investment property loans recently. Not only did they reduce their repayments by hundreds of dollars a month, which is pretty much equivalent to getting a free pay rise of over $13,000 a year, but their savage mortgage broker from KnowHow Property Finance was able to refinance their home loan to one bank and their investment loans with another bank.

And as a result, each bank paid them $4,000 for the privilege. So they were able to reduce their repayment costs as well as get $8,000 in cold hard cash in their hands, which they used to pay for their new carport. Now you could use these refinance cashbacks as a saving buffer in your offset account to effectively reduce the balance of your home loan. Or you could do some home improvements,

enjoy a holiday, buy a new TV or put a deposit on a car. It's totally up to you. But it's rare that you get good money for nothing. And some banks will even pay cashbacks to existing customers to retain their business if you utilise a good mortgage broker who knows how to make this happen. But these cashback refinance incentives are diminishing and aren't likely to last much longer. So again, don't delay, make a call today to explore your options. And while we're talking about it, don't get sucked in by what I like to call shagulator loans, where a bank will offer what appears to be a very cheap rate, but what isn't emphasised is that this is only for a very short period of time before it reverts to a high rate, and not a lot of more noises made about the

additional fees and charges that end up making the loan actually more expensive overall. So these loans look cheap but end up shagging you later. Again, a good mortgage broker will help you to see the wood from the trees on all of this. Now, if you're already too late to refinance because your borrowing capacity has reduced too much, all is not lost. You can still get your savage finance broker to negotiate with your bank on your behalf to get them to try and match competitors' offerings or at least reduce your interest rate costs. And some brokers have even manage to get cashbacks of anywhere between $1,500 to $2,000 with some banks for existing customers in order to retain your business. And if you don't know a good broker, then you can try

and ring your bank yourself to get them to shave your rate. But make sure that you name a competing bank and their rate offering in order to get them to sharpen their pencil. This is something you should be doing every 12 to 18 months anyway in order to avoid paying the bank loyalty tax that I mentioned earlier so make sure you're constantly having a lend of your lender. Now regardless of when your repayments increase act as if they've already increased and start putting the extra that would be needed to service a higher loan rate into a savings or offset account now so that you get used to what this means to your spending and you're building up a savings buffer that's going to help you cover your increased repayment costs in the future. Now beyond refinancing or

renegotiating, there's still plenty you can do to reduce your monthly costs. So here's more top tips for savvy savers. Start by making sure you completely pay off your credit cards every month to avoid paying exorbitant interest on your outstanding balance that can be as high as 24%. Or better still, kill and cancel your credit cards and just use a debit card where you can only spend the cash that you have. Consolidating high-interest debt like credit cards, personal loans, car loans, etc. by paying them out and then rolling them over into your home loan may also reduce your regular repayment costs considerably if you've got enough equity in your properties. But I caution you to be careful with this as you may end up paying a lot more in interest

for these items if you end up paying them off over the 30-year term of your home loan. and just like we discussed in with your options around refinancing or renegotiating a home loan you can apply the same approach to comparing and reducing your power water gas mobile and internet providers including insurance and private health providers this has the potential to save you more hundreds of dollars a month then review your other regular automatic subscriptions Consider your Netflix, Stan, K.O., Prime, Apple, Foxtel or Spotify monthly memberships. Do you really need them all? Because they all add up.

Do a review of all your monthly subscriptions and memberships and reassess what you use and what you can live without. Again, this could save you heaps. In a similar vein, some subscriptions offer a discount when you pay annually instead of monthly, like insurances, etc. So you can save when you pay up front. Then comes your buy now, pay later plans. Pay them out and cancel them.

These schemes often make you feel that things are more affordable than they actually are, letting you to spend more money than what you can actually afford. Remove this temptation and the ease to spend unnecessarily. Next comes less tapping and more cashing. How much do you tap your credit or debit card every week? It can add up very quickly without you even noticing. Go back to basics and set a limit on how much you're prepared to spend on groceries,

eating out, coffees, and grog, et cetera. Then take it out in cash, and when it's gone, there's no more to spend until your next pay. And if all of this is still not enough, ask for help. If you're having trouble meeting your loan repayments, contact your bank. Lenders have hardship teams whose job it is to help you keep your roof over your head if you run into financial trouble for a period.

With their agreement, you may be able to defer or capitalise repayments, set up payment plans, switch from principal and interest to interest-only payments for a period to shave in excess of 30% off your monthly repayments, or even extend your loan term to reduce your repayment levels. Banks don't want to force you to sell your home as everyone loses in this situation, so if in doubt, reach out and don't suffer in silence. Remember that a combination of small changes can have a really big impact over time, especially when you use multiple strategies like refinancing, cost reduction and saving. But regardless of your situation or circumstance, the most important thing you can do, whether you're still on a fixed rate or variable,

is to pick up your phone and call a savage mortgage breaker for a no-obligation chat right now. so that you're crystal clear on what choices you have and how long you have to make them. Because if you leave it much longer, you may end up not having a choice at all. Now, to help with all of this, we've put together a quick and easy to use checklist. So just email me at bushey at knowhowproperty.com.au

and we'll send it straight to you. And before I close, I need to reinforce that what I've been sharing with you today is just general information. and doesn't in any way, shape or form constitute financial advice. So before you do anything, make sure that you pursue professional guidance from licensed advisors that take into account your specific situation, your needs and your risk appetite.

That's my penny's worth for your thoughts. So keep watching and listening for more. As one of Australia's most outstanding buyers agents, Kate Bakos has a wealth of knowledge and experience when it comes to helping families secure their dream home or the perfect property to add to their investment portfolio. So who better to talk to about successful negotiation? And this time I talk to Kate about how seriously we should consider price guides. That in just a moment. Property depreciation is the natural wear and tear of a building and its assets. Property investors can claim depreciation as a tax

deduction each financial year. Depreciation is a non-cash deduction. This means you don't need to spend any money in order to claim it. On average, BMT tax depreciation find residential investors almost $9,000 in first full financial year deductions. Call BMT on 1300 728 726 today for an obligation-free quote. Okay, first up, Kate, welcome. The first in our negotiation series. Looking forward to talking to you. How are you?

I'm well, thanks, Kevin. I'm looking forward to this too. Yeah, me too. Okay, so how seriously should we take those price guides? They're becoming more and more common, aren't they? They are indeed. Now, price guides are a really difficult thing for a lot of buyers to navigate because they vary.

They vary from city to city, agent to agent, agency to agency, campaign to campaign. So my important tip with price guides is not to assume that there's a rule of thumb that you can apply to all of them. You've actually got to ask some questions and understand what sort of campaign you're dealing with. Because there are different price guides, aren't there? There are some that say, you know, between $400 and $420, or they might say offers over $420. It's difficult to navigate that. I would think that if you're talking about offers over $420, you would never think of making an offer at $410 as an example, or would you?

Well, not necessarily, but sometimes. So discounting, when you've done your homework and you know roughly where the market value should sit for a property, that might be comparable sales analysis or other methods that you've applied. If you feel that you are able to make a really keen offer that's lower than where you think its market value sits, you need to have a bit of a basis for doing that. So it might have been on the market for a long time, or you think it's been incorrectly priced. If it's a newish listing though, you wouldn't be doing that. Certainly if you've got competition and you can sense it, or if you've got one opportunity to put in an offer, you need to do your homework to

know where you think the property's value really sits and have a bit of an idea about the background and the length of that campaign. I sometimes think this is my thinking here, and I'd be appreciative of your guidance, but I think sometimes when a property has a price guide on it, you're better off approaching it as if it's an auction where there is no price. And don't be guided by the price guide because that really is,

well, sometimes it's an indication the property could be overpriced and the agent's not quite sure. So therefore, as an example, and correct me if I'm wrong here, If a seller wants, say, $700,000 and the agent thinks it might be worth $650,000, the agent would be trying to get the price guide certainly down under $700,000. In a lot of cases, you're correct. Now, price guides have legislation governing them in our states and territories. So for any buyers in their particular state or territory, they need to know what the rules are there. and let's talk about my local market as a good example which which I think your point is is

perfectly suited to we have a lot of auctions in Melbourne and often we find that our auction price guides are under quoted or they're they're a little bit shy of where the vendor would like to be or in some cheeky cases they're a lot shy and if you're reliant on that guide you might be making a mistake if you're looking to put in a pre-purchase pre-auction offer or if you're going to auction and you're prepped with the wrong budget. It's a minefield because you know there's legislation that says that agents can't lowball and if they do and they're found out later they can pay the penalty for that. That's right and it's a difficult situation particularly in my state because if a vendor states their reserve on the day of auction that can sometimes be a

surprising figure for the agent. They're not necessarily prepared for the vendor to name their price at the level that they do. Obviously, some agents know what price expectation their vendors have all along, but auctions can be really tricky. And then we look at a private sale campaign or a post-auction campaign if it's been a pass-in. The price tag then that's advertised is likely to be representative of what the vendor would be happy with. So you might then think about strategically going in a tad under there, but you need to understand how many other potential buyers are on the property already? How will the agent be dealing with competitive offers? And are they applying a one opportunity type of outcome for the buyers so they get one chance to put in their

best and highest? Or are they offering a transparent negotiation where they'll go backwards and forwards? If you don't know the answer to that question, you shouldn't be thinking about framing an offer yet. Yeah, I have heard that when an agent lists a property and they put it on one of the portals, they're required to give some kind of a price range, which is not going to become public, but that helps in the search criteria. So if you're searching around 500 to 600,000, if that property has been put in there by that agent, it will come up. And sometimes that's a way of finding out what that price range is by searching high and low. And when it drops out of the search, you know that it's not in that certain price range. It's a good little tip. We

often have a look at where it sits on the search engine as well. Excellent, Kate. So the bottom line, how seriously should we take them and what should we do? Well, we should understand them before we try and take them seriously, understand what sort of campaign it is and what sort of quoting regimes that particular agent or agency have had in the past. But in particular, when you know your values, when you've done your comparable sales analysis yourself, you'll have a much better idea of what the real price should be. Kate Bacos is my guest. And next time when we come back and talk to Kate, we're going to talk about the other vexing problem that buyers have and even sellers have too, and that is competitive offers. Kate Bacos is a Buyers Agent at Melbourne. She's

my guest in this special series. Kate, look forward to seeing you next time. Me too, Kevin. And that brings us to the end of this week's show. Another big thanks to our guests, Eliza Rowan and Kate Bakos. And before we go, make sure you don't miss another episode of your Trusted Voice for All Things Property by subscribing to the Property Hub on your favourite podcast player now, where you'll also enjoy the Get Invested podcast delivered to you each and every week. Thanks again to Realty.com.au, BMT Tax Depreciation, Apiro Marketing, DM Media and Southern Cross Oz Stereo for their ongoing support. I'm Bushy Martin from KnowHow Property finance and along with kevin turner and the entire property hub realty talk team we thank you for

getting invested in yourself by investing in us and we 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