She's On The Money - Property Pressure: Buy Now Or Wait?

Episode Date: May 24, 2022

When considering purchasing property it is so easy to get caught up in media hype and fall into other people's ideas of what we should aspire to. In this episode we discuss the current state of the property market, check our values and how they align with external pressures in society. We'll give you some things to consider when deciding whether to purchase property. Do you do it now or wait to save a deposit? We’ll talk inflation, available grants, increased land value and so much more.The advice shared on She’s on The Money is general in nature and does not consider your individual circumstances. She’s on The Money exists purely for educational purposes and should not be relied upon to make an investment or financial decision. Victoria Devine and She's On The Money are Authorised Representatives of Infocus Securities Australia Proprietary Limited ABN 47 097 797 049 AFSL - AFSL 236523.See omnystudio.com/listener for privacy information.

Just before we get started, we'd like to acknowledge and pay respect to Australia's Aboriginal and Torres Strait Islander peoples. They're the traditional custodians of the lands, the waterways and the skies all across Australia. We thank you for sharing and for caring for the land on which we are able to learn. We pay our respects to elders past and present and we share our friendship and our kindness. She's on the money. She's on the money. Hello and welcome to She's on the Money, the podcast for millennials who want financial freedom. My name is Georgia King and joining me as she does each and every Wednesday is Victoria Devine. V, how are we, doll?

Hello, thanks for having me. Today we are talking buying property. V, some cold and hard stats to kick us off. I'm ready. Did you know there were almost 598,000 house and unit sales across Australia over the year ending August 2021? What? That's the highest number of annual sales since 2004, and it's a 42% lift on the annual number of sales over the previous 12-month period. That's a feisty stat, I reckon. That's pretty big.

I was trying to be cool with my language. I love it and I welcome it. But that's a lot of sales considering how expensive everything is at the moment. I'm a bit sad about it. But at the same time, it kind of makes sense. We've all heard how crazy the property market has been recently. So I think it's, yeah, I don't think it's a bad thing at the same time as being absolutely terrifying for anyone wanting to enter the market.

And I guess it's supply and demand, right? Like that's why the prices have driven so high. Gee, all of this is exactly why I thought it was super important to talk about this today. Look, today's episode is basically another pep talk from me to you and to everybody who listens and a little bit of a values check-in. It's so easy to fall into other people's value systems and then out of our own completely. It is also way too easy to buy into what the media are saying too. Please don't forget, do you remember, it was like mid-pandemic, they were like talking about how housing prices post-pandemic are absolutely going to go through the floor. It was plastered across

the front page of literally every major publication, news publication that is in the country. And then now they're like, oh, what do you mean? We didn't say that. I don't know what you're talking about. Market is wild. Millennials can't get in and they're eating too much avo toast again. Like it's just the media likes to hype things up. And at the end of the day, the market comes down to two things, supply, demand. That's it. You hit the nail on the head before. Supply is low. demand is high. We all want the same thing. We're all working towards similar goals, which shifts the price of those things up, right? And it just makes logical sense. Like things are more expensive if there's only one on offer. At the moment, cost of can of Coke, going to be the same

wherever you go because it's in abundance. Cost of a very expensive fancy bottle of Grange wine. Well, it depends where it is and how many are out there. Is it on a corner block? Like who knows, but it's one of those things where I think too often we play too much into what the media are saying, but then also take it too seriously. Like the media is there for entertainment purposes. Like obviously there's some level of truth to it, but do you really think they're reporting on housing prices because they're just so worried about your personal education, Georgia King? Well, yeah, they probably want your eyeballs at the end of the day. To sell advertising.

Oh, same page. Keep listening to our podcast and listen to our ad. So today we are going to talk about our values and how they align with external pressures in society and the media and what is happening in the market. And we're going to give you some things to consider when deciding whether you're going to purchase a property or not. Do you do it now or do you wait and save for a bigger deposit? We're going to talk about inflation, we're going to talk about available grants, increasing land value and so, so, so much more. G King, are you ready? Love it. It's been a while since you and I have done a property pod V, so I am quite excited for this to pepper my questions your way. It's almost like we stopped

doing property podcasts when we got our own property podcast. On that V, is the property playbook coming back anytime soon? It'll be back second half of this year, but don't tell anyone I told you. Fabulous. Okay, let's begin today's potty by discussing a few common catchphrases or myths. Avocado. If you like. Well, yes. Myth. I want you to respond to the following. Here we go. Okay, I'm ready. Rent money is dead money. No, it's not. It's lifestyle expense. Brilliant. the Australian dream. No, sir, not a thing. Whose dream? Your dream? The Australian dream. What about Georgia's dreams? What about her dreams, man? You look pressed. We will take this offline later. But in the narrowest sense, the Australian dream is literally the belief

that in Australia, home ownership can lead to a better life and is an expression of success and security. Owning property at the end of the day is not security if it messes over your finances and rent can often be better in some personal circumstances. I think it's quite interesting as well, because, you know, we just talked about having your own values and aligning to your own things. And then we're like, but it's the great Australian dream. Like, let's just stick to our own dreams, not like the great Australian or great American dream. Like, unfortunately, everything in the entire world has changed since that was the reality. And we can't expect the values of somebody in the literal 50s to be guiding what we want today.

Vee, what is the current state of the market like? Is it still pretty grisly for prospective buyers? It's not that bad. Look, it's pretty grisly. In fact, I attended an auction last weekend, last weekend, a couple of weekends ago, and the house that was being auctioned off, which was around the corner from my parents, and obviously we were all pervy, went $400,000 over what they said it was going to go over. Like let's contextualize that for a moment. That's literally someone else's house. Like somebody paid for an entire other house. They were like, it was so nice. I needed to buy it twice. Like insane to think. Obviously it was a bit more pricey. Like that's why we're there because we're all pervy. But $400,000 over what

it was worth. Like that to me sounds insane. So they did say that the property market would actually end up bottoming out, but it hasn't happened yet. It is actually starting to boom. In fact, in the quarter up to December 2021, so the last three months of last year, the weighted average of the eight capital cities residential property price index rose 4.7% that quarter and rose 23.7% in the last 12 months. That means property in general, gee, increased by 23%, which pretty good investment if you have the ability to actually get into that investment asset class. The total value of residential dwellings in Australia rose $512.6 billion to $9,901.6 billion this quarter. And the mean price of residential dwellings actually rose

$44,000 to $920,100. Like that is so far out of the scope of so many people's budgets. It's not funny. Like let's break this down a little bit more, Jay. You want to buy a million dollar property. Great. That seems like a wild number, but in most capital cities, a million dollars is the mean, right? You want a full 20% deposit? How long is it going to take you to save $200,000? The rest of my life. Yeah, but like that's just it. It's so far out of touch with what is actually achievable, especially when the average salary is $82,000 a year in Melbourne. Like $82,000, what can you save each and every single month? Maybe if you're lucky, you're saving like $2,000 on that salary, that's assuming that you don't have any dependents, no personal debt and

the ability to save, which is a privilege that is denied to many of us. So many of us have financial commitments or think about the amount of people who are in our community who have to spend money on medical expenses and medications. And it's just so crippling to me mentally to look at that and go, that's just so unachievable. It is extremely intimidating looking at that as someone who's not yet in the market, V, and we've spoken about this on the podcast before. And I mean, I don't think we've spoken about this in probably six months or so, you and I, I mean, on this podcast. And the fact that the numbers are still so far out of reach, that that house went $400,000 over reserve, it's not encouraging.

But the fact that people have that disposable capital, you just look at it and you're like, what? That's insane. Who has that? Because it's obviously not first home buyers. No, absolutely not. And I'm assuming, I don't know this for sure, but I'm assuming that the property that I saw go $400,000 over was bought by a developer because it looked like, you know, it was down in my parents' place near the beach. And it looked like one of those properties that they'll probably stick two townhouses on and disappoint every other resident in that suburb, you know? So it's, it makes sense, but it's just really, I guess, disheartening to see

as somebody who, you know, I run this community and I want all of you to be successful. And so many of you have the value of purchasing a home it breaks my heart to think that you know you're not going to achieve your goals but at the same time it doesn't necessarily mean that you're behind financially and I'd hate for you to think that oh my gosh if I can't achieve this goal I haven't been able to make it or I'm not successful because that's not the case at all. I think we've defined success based on somebody else's history and now owning property is more of a luxury than a necessity or a hygiene factor as it used to be in the same way that you joke about you know owning a yacht. Like it might become the norm to not be able to afford it. And there are actually

lots of cities around the world where owning property, that's not normal. Like you look at New York, basically nobody there who is living there lives in a property that they own because they genuinely can't afford it. So it might be becoming our new norm. And that, you know, it's disappointing when accessibility was so accessible historically, but I just, yeah, it breaks my heart a little bit. But let's get into a little bit of the background of what has actually been happening up until now. And I've got a few dot points. So let me run through those for you, J. King. First things first is that housing turnover, which is the annual amount of homes that are for sale as a percentage of the total dwellings that exist, trended lower

from late 2015 as credit and lending conditions ended up tightening. You know how we had the Royal Commission and we looked into it and therefore it was harder to get a home loan. And then housing affordability became more challenging and transaction costs like stamp duty actually became increasingly expensive as prices rose. Then national turnover reached a record low in June 2019, when only 3.7% of Australian homes transacted over the year. Since the credit policies have now loosened and mortgage rates have now reduced to record lows, thankfully, this has encouraged Australians and, you know, our community to participate in the housing market, which has been good. So it's not as though it's just like the last 12 months that

have been hard. It's actually been the better part of seven or eight years. And then to add insult to injury, a higher rate of household savings since March 2020 has boosted consumers deposit levels, which is really good, but it's also boosted their mortgage serviceability, which means they're overpaying for property because they just want to get in. While government incentives like the stamp duty concessions that are currently on offer and deposit guarantees have also supported demand. So it makes sense that people are trying to pay more for properties because they're like, wow, I've got this extra cash holder that I've saved over the penny D and now I want to put it towards a house. And if there are enough people doing that,

that's obviously going to boost prices up and change the way, you know, supply and demand works. And then by the end of August 2021, housing turnover had risen to 5.6%, which is the highest rate since December 2009. So all of this basically is saying that it's not slowing down, unfortunately. Sorry, sorry, sorry. But imagine if just not eating Smash Diver was actually the answer. That podcast would have been like three seconds. So, V, riddle me this.

Through the pandemic or the panini, as you're still trying to push that and coin that, and I love that and I respect that. You don't, though. There's not a lot of respect at this table right now, Georgia. Through the pandemic, a lot of people lost their jobs. they took pay cuts. They were greatly impacted financially. It follows, as the media assumed, and we all assumed that the market would crash. I just don't understand why it's gone up. I guess,

as you just outlined, like supply and demand and all of these different things have happened, but I'm just confused as to who is buying these homes. Look, I think that we really need to look at, you know, what happened during the pandemic in a little bit more black and white terms. I think the media really played into what we visually saw as the pandemic because if you look at it yes thousands of people lost their jobs I am not underplaying that there was job seeker there was job keeper like this was hot on either politicians minds it was on the media like that's what we were talking about because the media didn't have heaps of other content to push but also those stories are far more interesting than you know Victoria Devine who got to work

from home and now just couldn't go to the office and I think that there are so many stories similar to mine where you know and I feel massive guilt for that because I'm like far out like I you know and I tried to do as much as I could but I was okay through COVID and arguably was in the incredibly privileged position of being able to save a little bit more during that period of time because I wasn't paying for parking wasn't catching the train you know I wasn't having to put fuel in my car because I was working from home and the type of job I have is online or in your ears Georgia. And it meant that I got to work from home. But that privilege wasn't something that everybody experienced. And the fact that so many people were, you know, unable to work doesn't

take away from the fact that there were so many people who just had corporate jobs who, you know, maybe were planning on buying a house in the next five years. Their additional savings meant that they were able to buy it three years early. So I think once we weren't stuck in our homes anymore, people were like, do you know what? I've got so many different values now. I think there was a massive increase in the amount of people who were like, no, I actually do want to buy a house. I didn't think I wanted to. Now I do. I don't want to live in an apartment. I want space. I want land. And that seems to be for a lot of people buying property far more preferable. People are now buying further out, pushing out regional property prices because they're like,

now I can work from home, G. I've learned so much about it. So I think that as much as we visually see so many people who had suffered through that and like there's no downplaying that, it's absolutely messed up. When it comes to the property market, there are so many people who are first homebuyers or second homebuyers or even third homebuyers who got to sit in that little white collar bubble where they weren't actually financially impacted in any way, shape or form. In fact, they were benefited, you know, not in general, because I think it played on everybody's mental health, but financially benefited from staying home. Yeah, right. It disproportionately impacted the lower income workers.

disproportionately so and it's so unkind and so unfair and I do think we should have done so much more but unfortunately I'm not a politician but what I can do is look at what economists are saying and how that's working and basically what happened is there were just a whole heap of people who were saving a whole heap of money and even if they weren't saving money they were just coasting along and still able to buy so people who were lower income earning or you know front-facing or didn't have white-collar jobs ended up suffering far more than those of us who were you know in jobs where we were very lucky to be able to carry on business as usual from home. Okay, well said there, V. With this increased value of property pretty much across the board,

that means then that land is going to also be higher in value at the moment, yeah? Yes, in general, across the board. So when you have a look at land, and I mean, there is obviously always the risk of buying overvalued land, you need to look at a few things. So you need to look but one, how long you're willing to buy it. And it goes back to our friend Warren Buffett's quote that you said on another podcast very recently. If you wouldn't consider holding it for 10 years, you shouldn't hold it for 10 minutes. I think the same applies for property as well. So you don't actually want to look directly at the price and be like, oh my God, that's going to go down $20,000 or $30,000 in the next few years. You actually need to look at it over the long term

and go, well, what's this going to be worth in 10 years? What's my actual intention on purchasing it. And I have lots of conversations with my clients about this because so often they go, V, when's the best time to buy property? And the answer to that question is when you are personally ready. It's not when the market is ready. It's not when the market is low. It's not when the market is high. It's actually when you personally have the financial stability to service a loan and actually take that on with minimal risk. So from my perspective, I have told clients before, buy in the peak of the market. Are you saying you're ready right now? yep, great. No problems. Let's go. Because even if you are paying $20,000 or $30,000 over what

you feel like it should be worth, you're securing the asset that you wanted for the long-term and that's going to pay off over the long-term. So from my perspective, like there is a risk of buying overvalued land, but the real question is like, how long are you planning on buying this? And should you really be buying an asset that you're planning on disposing of after two or three years? Like, is that actually a good idea for you in your personal situation? Maybe it is. I don't know. But at the end of the day, land value is always going to be higher because it has far more potential and ability to grow assets essentially than an apartment. As in you can like add more value to a piece of land than you can add to an apartment.

You can add more value to a piece of land and you actually own it. And there's no like other tenants or other people to take into consideration when making that decision, unless you're buying like subdivided land and there might be a body corporate if there's three or more properties, but let's not get into that. So it's interesting to actually see how it's valued, but essentially if you're buying a block of land, it's you and only you, G King, who makes the decisions about that block of land pending council approval, obviously. But if you went and bought a one bedroom apartment in the Melbourne CBD, like really, how much can you sell that for when there's such a saturation of similar offerings on the table at that point in time

to your offering? Does that make sense? So like there's volume, but then there's also the inability. You can't just put another bedroom on. What are you going to do? Knock into somebody else's kitchen? Yeah. Like rude. Don't do that. It's rude. It is illegal, but like mostly rude. Really interesting there, V. I feel like that's a question that I hear a lot is why, because people kind of know anecdotally that buying an apartment isn't as financially beneficial as buying a home, but they can't necessarily put their finger on why. It's land. Yeah. The answer is always land. Yeah. It comes back to land. And like, I mean, at the end of the day, it's also not a bad thing to buy an apartment. And, you know, I've done some research and there's a lot to say that buying land

in a not very well-developed suburb or a suburb that doesn't have access to good infrastructure or has no real capital growth potential is worse than buying an apartment in a really high yielding area if it's an investment because you could lease it out. Like there's obviously pros and cons to both. And like, you know, if you asked someone who grew up in the fifties, they'll be like, buy land, son. Like, that's a good idea. That's the only way. And you go, well, it's not the only way, but what I want is to be educated and understand why one might be valued more than the other and then make an educated decision as to which is most accessible for me and which is going to work for my situation. For a lot of us, an apartment might be the perfect fit. It's not

to say it's bad. There's just a number of things that I would take into consideration. And if that's a decision that you personally are making, there's an entire episode on the property playbook about land versus apartments. So go and listen to that because I've got a few tickets on myself. I think that's a pretty good podcast as well. A lovely little plug there. We are going to go to a quick break now, guys. But on the other side, we will be talking about inflation, lenders, mortgage, insurance, and plenty more. So please don't go anywhere. Straight back into it, Vicky D. I'm ready. A lot of people at the moment are talking about LMI.

LMI. LMI. LMI. LMFAFO. No. Okay. LMI. Party ruckus in the head. Okay. Moving on. LMI. Let's talk about it. What is it? Lenders Mortgage Insurance. Please do not be deceived. If you are in the position where you've been speaking to a broker, which you should have done, you should not be organizing a loan on your own because I just feel like having a professional on your team is going to put you in the best possible financial position. But if you're talking to your broker and they're like, look, are you going to consider LMI? It's not an insurance for you. It doesn't protect you. Gee, you've got to pay for it because it protects the lender. It's lender's mortgage insurance that they're basically asking you to take out because you're not paying a full

deposit. And when we say full deposit, it means that you're not paying that full 20% that most banks ask for when it comes to mortgages. And did you know there are actually a fair few people who don't actually have to have a full 20% deposit, like dentists and doctors and accountants? Like, they can actually get home loans without having to pay a full 20% because they have, like, a fancy profession. So, if that's you, talk to a mortgage broker sooner rather than later because they can work that out for you. So fancy, right?

I did not make the cut because financial advisors, not nearly as legitimate as an accountant, just so you know. But essentially, LMI, it's the lender taking out an insurance policy against you for the risk of not recovering the full outstanding loan balance if you, GK, can't pay all your mortgage back, which makes a lot of sense as to why they would want it. But let's do a little example. So as I said before, if you're borrowing more than 80% of the purchase price, so you don't have the 20% deposit, that's the flip side of the coin, you're going to need to usually pay LMI, except if you're a fancy pants. To calculate an LMI premium, it's so simple, G King. It's not

actually. You can just Google LMI calculator and then your state and it will come up and you can just do it yourself. But to summarize it, you're going to multiply your LMI rate by your loan amount. So if you want to buy a house G that's worth, let's say $500,000, the bank is typically going to make you pay that 20% deposit. So of $500,000, that would be $100,000. But let's say you've only saved 50 grand. You're like, look, I have 50 grand, but I really want to get into the property market. And you've got sufficient income. So they're like, look, looking at your income, you can pay back that mortgage. You might be able to get LMI and actually take out this insurance, pay 50 grand, which is half the deposit that you would have usually required. And then they

would lend you the $450,000 that you would need to purchase your home. So G, you've got your $50,000 deposit, right? And you need to pay LMI on a $500,000 property. You're going to end up in Victoria, I have calculated the costs to be $12,192. You would then need to pay $1,373 in government fees. There's like a few optional costs that I would recommend budgeting into that. So I'd probably budget about $1,000 for a conveyancer and then maybe like $400 to $600 for a property inspection. You know how I always talk about building and pest inspections being really important. And then because you are purchasing under $500,000, so you're taking your $450,000 loan, you don't have to pay any stamp duty at this point in time, which is very

sexy. Whereas if we compare that and you're buying the million dollar property, because that seems to be the average here in Melbourne and in Sydney, and you've got $100,000 in savings, you'd actually pay $55,000 worth of stamp duty and then $43,798 in LMI. And then you'd have $2,500 worth of government fees. And then from my budgeting or high level budgeting, you still have like legals and conveyancing at $1,000 in property inspection between 400 and 600, right? So the amount is massive and LMI can obviously creep up. But the thing about LMI is so many people scoff and go, oh my God, Victoria, I'm not going to pay $43,700 in LMI. That's insane. And you go, yes, but like, what does it mean to you to be in the market earlier? And would you pay that amount of

money to not have to spend the next, you know, 10 years potentially saving up another $100,000 to have that full 20%. Like, is this worth it for you? And at the moment, if you see, you know, doing some not so complex, but quite straightforward calculations, we've seen over the last 12 months, we said it earlier, 23% property growth, 23% return on a mortgage, which on average at the moment is 2.5%, that's pretty good numbers. So I feel like too many people look at LMI and go, oh my gosh, I'm never going to pay that. It's a waste of money. Whereas some other people look at it and go, no, that's the cost of me getting in the market today. And I can make money later down the track and I can make it back and it might be okay. For some people, it's just far

more feasible because that LMI, you don't have to pay it upfront. It can actually be rolled into your mortgage, which means that paying it off is much easier than often saving for a lot of people because mortgages often act as like a forced savings plan in a way. I'm not here saying that, oh my gosh, you absolutely should be paying LMI or not, because to be honest, it's personal preference. Like it makes me feel arguably quite uncomfortable paying for something that, you know, Steve and I could save for. And if it took us a little bit longer, which it did, G, to save for a property, that's what we wanted to do. But as a financial advisor, if I weigh up the pros and cons, there are absolutely circumstances where for clients paying LMI was absolutely in their

best interests. And then there were circumstances where I'm like, no, mate, your cashflow is so good, just save for a few more months and you won't have to pay it. So it's really, really personal. But if I was you and I was thinking about using LMI, I would be Googling an LMI calculator and how that works in my particular state. Most banks have them, so use whatever one works best for you. What if you're someone, V, who only has, say, a 5% deposit available to them and they're not on a cracking salary, say they're beneath the national average, would you say that lender's mortgage insurance is not a good option for them because it's just providing them with a mortgage that they can't necessarily afford? Or would they not be given

that anyway? No, you can absolutely do it with a 5%. It depends on what bank you're going to as well. And to be honest, this is where the best port of call is going to be a broker, not a financial advisor. So a mortgage broker is going to go, yeah, all right, G, if you've got 5%, these are the banks that will lend to you. These are the ones that won't. Like mortgage broking can actually be relatively complex, especially when it comes to the semantics of one, the loan, but then two, the loan functionality, like do you want offset or redraw? How do you want it to work? Are you buying the property outright for yourself or you're buying it in a trust like what does this actually look like for you and then to add insult to injury

it's obviously far harder for people who are self-employed or have just started their own businesses to get loans and there are far less banks that are willing to lend to you in that situation as well so it can be really frustrating and that's why I think getting involved with a mortgage broker even if you're not ready to buy I think is really smart because I've had a couple of clients and I keep saying clients G because I have a mortgage broking company now and spoiler we are having two very gorgeous women join the team as of the 1st of July who I can't wait to introduce to you so I have had clients come to me G and go oh my god V I wish I'd spoken to a broker earlier I have been busting my life away trying to save for another two years when I could have

just paid LMI and I worked it out that would have been better for my situation so it all depends on what, you know, circumstances you're in. But I genuinely believe in having a chat with a broker earlier and establishing that relationship up front. Like we've spoken about it before on the podcast, but I think when was the last time we spoke about the hour of power, George King? Would have been like- It's been a while. It's been a while, but that still exists. You're bringing it back? No, it's still been, it's been back for months. It never went anywhere. I just stopped talking about it. But the hour of power essentially is this hour where you get a dedicated hour with

mortgage broker to sit down, do your serviceability, do a savings plan, organize your budget, organize your cash flow to make sure that you're in the best possible position to purchase a house without feeling like you're overwhelmed or just trying to get that 15-minute free conversation with a broker. They'll actually sit you down and be like, all right, this is exactly the plan you need to follow to get into your first home. This is what we can do and this is how we can do it. But the hour of power is basically like the spoon-fed version of getting into your first property with a broker on your team, but you do pay for that session. And I think that is absolutely worth its weight in gold. Like everyone who's done it has always said like, I am shocked that this is

so good. But back to your question before, when you were saying, can you get in with 5%? Yes, you'll just pay more LMI. So on that $500,000 property, instead of paying that $12,000 in LMI, you'll now pay $16,000. So it makes sense, right? Not too shabby. Not too shabby, according to G. Okay, good rundown of LMI there, V. Let's move on, though, and chat about guarantors. Oh, the privilege is showing from the worst. Exactly right. It is a bit of a schnobby one. What are your thoughts on guarantors? And also, can you explain them for anyone who's not across the... Okay, so first things first, we have an entire episode. This is just like a property playbook

pitch, right? Telling you how good the property playbook podcast is. But there's an entire episode on guarantor loans and how they work. But summary is a guarantor loan works as a way to get you into the property market sooner. And you might need a smaller and in some cases, no deposit at all if you have a guarantor that has enough equity in their property. A guarantor, usually a family member here in Australia, it usually has to be like a mom or a dad. It can't be a sibling or an aunt or an uncle or even a friend who is really kind. That can't work. It has to be a family member and they offer up the equity in their own home as additional security for your loan. So it might be, you know, 100% security if, you know, they are boomers and bought their house

for the $22,000 in 1968. Now it's worth $3 million. But a guarantor is essentially going to guarantee that you'll pay the money back because as much as they're offering up their equity, they're also putting on the table that if Georgia King doesn't pay off her loan, they'll take the brunt of that and take over the repayments before they have to recover it from somewhere else. So it is a lot of responsibility and you do need to think about it. A guarantor loan is a privilege that most people don't actually have but if you're in the lucky position of having it please don't feel guilt. Like this community is not about going oh my gosh I can't believe they had it so easy because you never know somebody's circumstances and just because

they had the property thing down pat does not mean their entire life is sorted on the flip side And this community is all about lifting everybody up. So like I want to celebrate if you've got a guarantor loan, even if it's not something that's completely accessible to me. I think it's important to understand it, but I do feel like there has been some very unnecessary commentary recently about people calling other people who have guarantor loans entitled or it was easy for them because just because the deposit part was skipped does not mean that paying off a mortgage for anyone is easy. So to summarize all of that, a guarantor can be a very good way to get into the market. Again, it means that you do have to have a parent in your life that is financially

secure enough to be able to offer that up. It does mean that they can't sell that property while being a guarantor. But the cool thing that I think a lot of people don't realize about guarantor loan is they're not the guarantor on that loan forever. They're the guarantor on that loan until you pay enough off to meet the deposit, and then they can be released as a guarantor. So I've seen a lot of people, especially my clients, who get guarantor loans create like a little contract with their parents to say, all right, in two years, once I've paid down X amount, you can be released as a guarantor because the parents are like, look, I just don't want this going on forever because I might need to retire or I might want to access the equity for my own

wealth creation. So I think that that's pretty cool. But then the other important thing to note is that the guarantor has absolutely no requirement to make any repayments on that loan on your behalf. But if you're not able to make repayments and the bank's been chasing you, the lender will then turn to the guarantor to make repayments, which kind of makes sense because they said G King was good for it and then maybe G King was being a bit naughty. So they're going to go to the person who said she was good for it. But in this way, it is completely possible to get a home loan, even when you have a small or maybe even no deposit. There are also lots of first home buyer schemes floating around at the moment, aren't there, Bea? Oh my gosh, so many. And if

you are a first home buyer and you have not been looking at these schemes, please do. I know a lot of people don't realise that they might be eligible, but you totally are. But essentially, four major national government schemes. And at the beginning of the financial year of 2022-2023, the government is planning on providing a total of 50,000 places each year under the various schemes. The first one is the First Home Guarantee, which used to be called the First Home Loan Deposit Scheme. And right now they have 35,000 places each and every single year available. And it allows first home buyers with deposits as low as 5% to qualify for a home loan without having to pay that pesky LMI. So if you have 5% deposit, you won't have to pay that, what was it, $16,000

in LMI if you're paying for a $500,000 property. So essentially, the government will act as the mortgage insurer. For example, if a borrower provides a deposit worth 5% of the property value, the government's actually guaranteeing 15% of that property value, making the risk to the lender exactly the same as if the borrower provided a 20% deposit. It's kind of cool. There you go. Very neat. The next is the family home guarantee, which is a little bit more niche. There are only 5,000 additional places a year under the family home guarantee from the 1st of July 2022 to the 30th of June 2025. So it hasn't even started yet. It's coming up in July. This is an initiative that

exists to help eligible single parents with dependents purchase a family home sooner, which we love. And under this scheme, single parents can buy a home with only 2% deposit without having to pay LMI. How good's that? That's pretty good. There's obviously so many more semantics to these that you need to consider and obviously can't purchase over a certain amount. but like if you're a single parent saving up 20% is a ridiculous thing to think you could do in your own lifetime whereas you might actually have the cash flow to afford a mortgage you actually just don't have heaps of free cash flow to save up enough for a deposit and that could be usually the big hurdle that you're looking for so I don't know I really like that one the next one

is the regional home guarantee double the places so 10,000 places under the new regional home guarantee from the 1st of October this year to the 30th of June, 2023. So this scheme is going to be open to first home buyers and anyone who has not owned property within the last five years, which is an interesting, I guess, addition to that guarantee. And the legislation for that is currently still pending. So we're not sure if we'll get that one, but we will know very soon and is very likely to pass. Otherwise, I wouldn't have bothered to mention it. G King on the pod. Brilliant. And then the next is the first home super saver scheme, which as you guys know, I think is a pretty good money win. The first home super saver scheme, if you haven't heard

about it before, allows first home buyers to save their home deposit for their first home inside their super account, which means that you get to take advantage of concessional tax rates, right? So as we know, tax rates inside superannuation are 15%, but most of us will probably be paying 32 and a half cents on the dollar for tax. And that means that you get a pretty good rebate. So under this scheme, the government has increased the total amount of savings borrowers can release from super from $30,000, which was over two years, to $50,000 over three years, which I think is far more, I don't know, that just makes a lot more sense to me, G, because who in their right mind in Melbourne or Sydney only has $30,000 for a home deposit?

You'd be buying a tent in the woods. But my calculations are that if you're in the situation where you're making use of the $30,000, not the $50,000, only because I have the $30,000 example in my head, If, gee, you were on a $70,000 income and you were planning on saving, you know, over three years for a home deposit and wanted to get to about, you know, $30,000, if you did that inside superannuation on a total of like $30,000 by contributing $15,000 each financial year, after three years, you would have saved $6,210 more than a standard saving account. If it was in your super. If it was in your super instead of if it was in your savings account. so to me that makes a lot of financial sense to consider it if you're planning on buying your first home there are obviously a few caveats like you can't pull it out without proof that you are

purchasing a property and there's a higher marginal tax rate if you do pull it out so you can't just like whip it back out without you know giving them some money but if you're planning on purchasing a property and hypothetically if it was coming up to the end of a financial year you could dump money into superannuation, if it was aligned to your values, in the middle of June and then the same in the middle of July and make both financial years and then buy a house within a few months. So technically, if it's pre-June right now and you're listening to this podcast, you can actually make use of both of those $15,000 amounts before the end of this actual calendar year. Little hack. Little hack if you wanted to do it, only from experience, my love.

Very good. My second last question for the day. All right, I'll allow it. Let's talk about the word on everyone's lips, inflation. Oh, that is not what I thought you were going to say. But yeah, let's talk inflation, my love. At the time of recording, inflation sits at 3.5%. Eww. And the RBA doesn't expect it to fall back within its 2% to 3% range until the middle of next year. We've talked inflation on the show many times before, but for anyone who's new to the show or

wasn't listening. Can you please give us a little recap as to what it is? It was you who wasn't listening. You've nailed it. Yeah, exactly. It's been literally three years, G. It's been literally three years. I'll get there one day. But inflation is essentially how much things increase in price. So the cost of the goods and services that you purchase on a daily basis, G, and how much they increase over time. And obviously the best example of this is the McDonald's 20 cent cone, or George, you're younger than me, so you reckon it's the McDonald's 50 cent cone. But what are they now,

like a dollar or something? Ew. I remember when they were, were they $2 for a little while there? Who knows? Audacity. Don't like it. But essentially, it's how much goods and services increase over time. And you would have heard this, like the amount of people saying, oh my gosh, well, in my day, I bought my first house for $14,000. Yeah, okay, Paul, sit down. It's now worth $2 million. And I am not getting into the semantics of this argument just because you could afford it. But it's important to understand because the most well-known measure of inflation that is not a McDonald's 20 cent cone is the consumer price index weighted average of the price of thousands of different goods and services that are commonly purchased by households,

which are then grouped into literally 87 different categories like meals out and takeaway food and women's clothes and domestic travel. And that's how we get to CPI. So I've probably said that in passing before, but essentially CPI is Consumer Price Index. And then the two largest items in CPI are the cost of purchasing newly built dwellings and rent, go figure, which collectively make up about 15% of the index. So essentially, that is what inflation is and how it is calculated and why it is calculated. And TLDR, it is how much things increase each year in price. And how does that impact the homebuyers market? It means houses are going to increase each year in line with how much things are increasing

in price in general. Things are more expensive. Things just get more expensive. And we should have seen this coming because inflation has been happening right under our noses for our entire lifetimes. Can you give us just a quick little like inspo for anyone that's not in the home market yet, but wants to be one day, but is still just feeling hopeless? Honestly, I think it's one of those things that is still being worked out. I completely understand how disheartening it is when we talk about property and it feels entirely inaccessible. But I think it's also about embracing how much positivity and how much good is coming out of 2022 as well, right? So you might not be able to afford a home, but we now have the ability to travel the entire world. While my grandmother, she never got that opportunity.

you know like I feel like we are so connected and technology has advanced and there are so many different things in this world that are gorgeous and lovely and we should be embracing I think that too many times we weigh our self-worth on whether we can afford a property or not and that's a really ridiculous measure of how good we are in this world so from my perspective property means absolutely nothing it's actually about your wealth creation journey and what you're doing to save and invest and create a life for future you. And if that involves property, fantastic. If it doesn't, whatever. But it also can feel really terrible, G, if you just can't get into the market. E.g. me. All right. But talk to a good broker. I think that's it. Okay. Go to our website.

Introduce yourself to Kate or Nikki. Both of them are absolutely brilliant and will put you in the best possible position. Perfection. All right. Let's go through the disclaimer. Who am I? What do i do g king and go the advice shared on she's on the money is general in nature and does not consider your individual circumstances she's on the money exists purely for educational purposes and should not be relied upon to make an investment or financial decision and we promise victoria divide is an authorized representative of in focus securities australia propriety limited abn at 47097797049, AFSL 236523. We will see you on Friday.

See you, friends.