The Boys Are Back - Plus a New Addition To The Team

Hello and Welcome to the Property and Lending Show 

Today Mark Kilada, Fadi Youssef and myself (KM) were joined with the newest member of the property and lending show - Peter Georgi 

If you would like to get in contact with Mark, Fadi, Peter or KM you can find them here:
Mark@powerloans.com.au

Fadi@powerloans.com.au

Peter@powerloans.com.au

hello@firstbrick.com.au

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Transcript

KM: 0:25

Podcast. We've had more comebacks than the Backstreet Boys every month. But we're back. And as always, we're with rising star mortgage Broker of the Year, mark a Lotta Entrepreneur of the Year Fetty Yusuf. And making his debut on the property and lending podcast power loan's newest and greatest, Peter Georgie. Welcome all to the podcast.

Fadi: 0:51

Thank you.

Peter: 0:52

I'm honored to be here.

Fadi: 0:55

It feels like it's been a while.

KM: 0:56

Yeah, it's been a while. Between you becoming Entrepreneur of the Year and Humanitarian of the Year and PT of the Year and what else of the year you haven't had time for us little people.

Fadi: 1:08

I'm still trying to get on the news, bro. My first brick.

KM: 1:13

We'll sort that out, bro. We'll sort that out. This is bigger than the news. Property and Learning podcast is bigger than news. We've been away for a while, but our downloads have consistently been quite high, actually. So people are still tuning in, which is great. So hopefully we'll find the time to do this consistently and bring more episodes. Let's talk about what you've been up to, bro. I know you really wanted to talk about your life and what you've been doing.

Fadi: 1:50

I thought it would be a good time to catch up, see where everyone's been in the last what has it been weeks or months we're talking about? I think it's been months.

Mark: 1:59

We haven't done it since last year, I don't think.

KM: 2:01

No, I think our last recorded I'll tell you, our last upload was March 3 this year. So it's been like four months. Yeah.

Fadi: 2:14

Well, since then we've had the beautiful Peter Gorgi come on board taking head of asset finance and equipment. I think Peter is going to take us through what he's going to be bringing in as well in regards to how we can help our customers. And I think you got married over the last couple of months as well, which kind of put a pause in the podcast and stuff and honeymoon and going to the Champions League final. How was.

KM: 2:41

Know if you think I got married, that's a problem because you were there must have been hitting the good use of it.

Fadi: 2:50

I haven't seen it since. I haven't seen Shiri since.

KM: 2:53

Me neither. No, it was good. The Champions League final was amazing. The organization was shambles. We left the stadium at midnight and got home at 04:00 A.m., so it was pretty bad getting home, but it was unbelievable experience. Yeah, it was good. Mark, do you have anything to tell your fans? Because I get emailed on the weekly like, we miss Mark. We love Mark. Where's Mark? Tell Mark to tell us about his life and stuff. So I know you don't like to talk about it, but the people want to hear about it.

Mark: 3:34

That's hard to get. Everyone wants what they can't get. Have I been up to writing loans? How are you?

KM: 3:48

The people love you, bro.

Fadi: 3:51

What about peter. What's Peter been up to?

Peter: 3:56

I've just been trying to be like Mark, man. I want people to email on the weekly after my debut. No, I guess I've just been onboarding. I've got all my financiers now. I'm accredited with all the financiers I want to be accredited with now. Just been networking a lot, ensuring that I've got a lot of contacts with mortgage brokers, financial planners, and yeah, just assisting a lot of customers with commercial and asset finance.

KM: 4:31

Do you want to actually just expand on that? We'll move on from our quick catch up there. It was very detailed stuff there. It was beautiful. Can't wait for the emails this week. But do you want to tell people what is asset finance? What do you actually do for power loans? How does it work? How can people use you?

Peter: 4:52

Yeah, of course. So I've come on board with power loans just as the head of asset and equipment finance. So basically, assets such as your cars, buses, trucks, helicopters, anything with wheels or anything with a serial number, basically, I can finance also your business equipment, things like I do a lot of cryotherapy machines, wellness machines, franchising of businesses, things like that. People looking to expand their business, finance, all that sort of equipment and assets. Been in the game for a while. Been working at banks sort of the last five years and been a finance broker for the last year or so. So coming on board just to sort of drive the asset and equipment finance for power loans is amazing. Like, it's such a good opportunity. And working with Fatty and Mark is just the biggest bonus.

Mark: 5:49

Dream come true for you.

Fadi: 5:51

It's such a sweetheart, Peter. It's such a sweetheart.

Peter: 5:55

Yeah.

KM: 5:56

How many helicopters have you financed?

Peter: 6:00

Honestly, almost one. Almost one. Someone backed out at the last minute when I was a finance broker elsewhere because someone really wanted a helicopter. Don't ask me the reason, but he really wanted a helicopter. And then I think after he heard the repayments and how much they actually are, he was a bit hesitant. But we do do helicopters.

KM: 6:24

That's like when I told you I really want a McLaren, and you said and I said, don't worry about it.

Fadi: 6:33

We always have ambitious customers that come through looking for helicopters and McLarens and Ferraris.

Peter: 6:40

Yeah, 100%.

KM: 6:43

That's great to hear. We'll probably have some specialized finance episodes regarding assets and whatnot in the future, so stay tuned to people interested in that and send in your questions. If you do have any around that we'll move into real estate and property ferdi, do you want to just tell us, I guess, what's been happening on the ground? What have you seen from your perspective regarding the market update? Are there more people applying for loans? Are there less people what's going on with the interest rate? Just general update on what's happening in the real estate space.

Fadi: 7:19

No, we're still seeing people purchasing. Obviously there's opportunity in every single market. I think that slowed down, especially if the first home buyer scheme that's come through now, which is a bit more, I guess, how do you say, lucrative to enter the market where there's no **** duty for any purchase. For first home buyers, up to $800,000, whether that's established or brand new. And now permanent residents, you don't have to be an Australian citizen, permanent residents are eligible for that as well. So we're seeing a lot of movement on that. Of course, as you're aware, we're seeing a lot of customers coming through, growing their investment portfolios, purchasing interstate, where you've been helping out with that as well. And I reckon that hasn't slowed down. Obviously, the biggest thing at the moment is the interest rates. What's going to happen next month? We saw a pause on last month's RBA. I don't know what's the predictions I'm predicting a 0.5 increase next month. To be honest, I don't think they're going to let us get away with no increases at all last month. I think they might just double up. But no, we've seen a lot of refinances come through. Mark will take us through what banks are doing to help people refinance their home loans over as well. There has been no, I guess no shortages on purchases at the moment, people coming through, everyone is still going ahead with all their plans, as we discussed here. The best time to borrow, the best time to purchase when you can afford it.

KM: 8:39

Yeah, for sure. Can you just quickly, before we move on to interest rates, for anyone that's curious, you mentioned the first home grants that have been given out or the stamp duty exemption now is up to $800,000 for brand new or existing. What was it before? So what is the difference between now and what it was before?

Fadi: 8:58

So before 1 July 2023, we saw up to 650 grand for established properties, no Stem duty, up to $800,000 for first time buyers for brand new, no Stem duty. Back then there was a buffer between 650 to 800, which we see this time around as well. So I guess the main changes are you can now purchase up to 800 for established or brand new with no stamp duty charges. Also between $800 to $1 million purchase. There is now also a discount of what you'll be receiving instead of between the 650 to 800. And you can do all these with as minimal as 5% deposit and you won't be charged any lenders mortgage insurance as well. So that's the biggest advantage of this whole thing.

KM: 9:42

And that's obviously more beneficial because as anyone that lives in Sydney would know, there's not a lot of option between 658 hundred, so they've obviously pushed that range up to 800 to a million. There's obviously a discount there, which obviously helps people get into the market, especially first time buyers. There's not a lot of option under 800 as it is in Sydney. Obviously, New South Wales is a big place, but so it definitely will help. Is there a limit to how many people can apply for this? Or is it.

Fadi: 10:11

If you're a first home buyer, you're able to apply for it. And I guess the biggest advantage is that you're also permanent residents. Before was only Australian citizens, now permanent residents of part of Australia. If you're purchasing your first home, you can purchase up to 800,000, no stem duty, up to a meal for discounted stem duty, as little as 5% deposit. But I think the kicker for me, man, this is a great opportunity because right now there's also restrictions on brand new or established. You can buy an established property up to 800,000 for no steam duty in some areas here in Sydney, as you're fully aware. And we're seeing a lot of customers taking advantage of that. And I think the market, like, there's always good opportunities in the market. I guess you just have to go see the right buyer's agent to find out where it is, basically.

KM: 10:52

Yeah, let me know if you find the good one. That's cool. We'll talk about, I guess, the most popular topic in Australian news. Not even just real estate news, just news at the moment, interest rates. Everyone's got an opinion, everyone thinks they know, or everyone's got a guess of what's going to happen, but only one person in the country really knows what's going to happen. It's not Philip Lowe, because he got kicked out. It's actually Mark Collada. So, Mark, what's going on with interest rates?

Mark: 11:30

As we've seen over what is it now, 13 months or something, they've gone up. They've only paused twice and in January there's no meeting. Every other month they've gone up. They started up going up quickly with zero point five s, and then they started going up by the zero point 25s, which they've maintained, besides the two months that they've paused. And January, as I said, where they don't meet, I always like to look at, if you type in on Google RBA rate tracker on the ASX website, they give you that the rate is going to go up in the next meeting or it's going to stay the same in the next meeting. And it's actually day by day as well, because day by day, you'll see like, once whenever the inflation, you'll see exactly what happens with the predictions the day after. So I'm just looking at it now, starting from like 7 July after they said they're going to pause, the chance that they were not going to increase was 48%. And that's been actually increasing up until the 19 July just a few days ago, where it actually hit 75% chance that they weren't going to increase again, that's now dropped to 57%. That was increasing every day until the 19 July. It's now dropped to 57% in that day, I think that's when they released the unemployment rate, which hasn't gone up. The last RBA meeting, Philip was talking about how inflation he didn't really spend too much time talking about inflation. Like, he did mention that now it's a bit more under control, it has been coming down, it's obviously still too high and the normal school there. But now he started saying unemployment needs to go up. And because unemployment rate hasn't gone up in the last recording, which was just a few days ago, I think that's why they're now predicting that there's like an even chance that they're going to go up next month. Me personally, I think they're going to go up two more times, maximum three more. I think it'll be zero point 25. We hope they don't do more than that. Hope they obviously stop before that because it's definitely already taken a toll. I mean, we have a lot of people and it's a topic what I'm going to talk about soon, but we have a lot of people stuck with their loan, unable to move due to the rates they can't refinance, so they're stuck with whatever their bank currently offers them. And as we know, new customers always get better rates than existing customers. I don't know why I'm still talking, so feel free.

KM: 13:47

I was going to ask, just to clarify, when you say unemployment needs to go up, as in more people need to be unemployed is what you're saying?

Mark: 13:55

That's what Philip Bloke was saying. So one of the measures they look at when they look at the rates is inflation. They look at unemployment as well, because as unemployment goes up, as businesses sort of get affected because of inflation and they can't sort of maintain with their staff, like paying their staff, then they tend to start letting go of people. Businesses stop reinvesting into themselves and expanding, so they're not hiring more people. So unemployment goes up, which is a sign that the economy is slowing. So it is one of the things they look at, which is unfortunate because I think last time he was saying something like when he said what unemployment rate needs to go up to when you calculate it's like an extra 160,000 or something, OD, jobs that needs to be lost. It shouldn't be a measure like I understand it's a measure to show that the economy is slowing down, but it's very unfortunate that we're kind of relying on people to lose their jobs before they're sort of going to stop increasing the rates.

KM: 14:51

Yeah, I guess you answered the question I was going to ask, why does he want it to go up? Because a lot of people won't really understand that. And it is obviously it's strange where you're saying we need people not to have jobs for the economy to get back on track. It doesn't make sense without context, but I think he explained that well, so that's cool. Fetty sorry, I muted you because there was background noise when Mark was talking. Let me unmute know. Mark's saying he expects or the forecast is saying there's potentially another two to three increases in the rates. What are lenders doing to assist customers in mortgage stress? Or as Mark termed, on WhatsApp mortgage prison? And then we'll get to what mortgage prison is.

Fadi: 15:43

At the moment like we're seeing, I think Mark will take us through in regards to lenders making it a little bit more easier for customers to refinance their home loans across with a 1% buffer. In regards to hardship, if you're looking you need to put a freeze on your loan or if you're not able to make repayments, you can always ring your bank in regards to putting freeze on our repayments for six months to twelve months, depending on what the situation is and or why you're looking to freeze those repayments. But at the moment we are finding we started off with one or two lenders trying to help customers refinance across a lower buffer rate and now we're finding lenders just following in that process in regards to making it easier for customers to refinance with a follow up buffer rate. And obviously there's a few things in policy and a few rules around that to allow that to happen. I think Mark's got that all prepared to put out there. Do you want to explain Mark there in regards to the preparing, practicing?

Mark: 16:45

So number one, what's mortgage prison? What are we talking about? So mortgage prison is it's been searched by everyone on Google recently and essentially what it is when you come to refinance, a lot of people are surprised to hear this, but the bank actually does the same assessment as if you're going to buy a property. We still like. The bank that you're moving to wants to make sure that the debt that you're getting, your current income and any rental income and any other income you're receiving can service the proposed loan, the refinance loan that they're essentially going to buy the debt from the other bank that you're currently with, plus all your current commitments.

Fadi: 17:20

If you have hex, if you have.

Mark: 17:21

Any leases, credit cards, charge cards, any home loans that's not being refinanced over, all that sort of stuff. So when we're doing that assessment, looking at the different banks calculators that they give us in order to calculate the borrowing capacity, when we do that for a refinance, a lot of the time the customers are in the red, they're in the negative, so they can't actually move. If we put the application through, it'll get declined. So we obviously don't so customers, it's almost like they're imprisoned. They're imprisoned with their current lender and they can't move. So with your current lender you can call them and say, hey, my interest rate is too high. A lot of the time they're not going to match the lowest in the market. They'll be maybe 0.3%, maybe 0.4% higher, really depends on the bank. Some banks are a lot better at retaining customers than other banks. Some banks are not good at all. So with mortgage prison, a lot of people are unfortunately overpaying on their mortgages. So having seen this going a bit back, actually, if I can go back, I think it was like November 2021, Fab, when Opera increased the serviceability buffet to 3%. So that immediately just from that decision that Opera now imposed on the banks. Every bank now adds 3% on the current rate and makes sure that your income can service or can repay the loans at that increased rate. So they add 3% on your rate. So now if your interest rate that you're getting from the bank is mid sixes or high fives, whatever it is, let's say it's mid sixes, 6.5, they don't see if you can make their repayments at 6.5%, they see if you can make their repayments at 9.5%. That's a huge difference. And so, because of that, borrowing capacity has been reduced by 40% in the last twelve months, generally speaking. Yeah, sorry, Fads, what are you going to say?

Fadi: 19:00

I was going to say and also, isn't it crazy to think like, you just talked about that assessment rate going to 3%, so what was the assessment rate prior to COVID when rates were at 1.98 2%, what was the bank, what was the assessment rate with the bank back then?

Mark: 19:15

Yeah, it's crazy. I mean, the rates got as low as 1.79 was like a lot of banks are doing it at one point. So let's say 1.79, and the banks were adding, what was it, two or two and a half percent? I think it was two and a half percent.

Fadi: 19:28

Isn't that crazy to think right now that's like triple. The sesame has pretty much tripled since COVID in regards to the borrowing. And that's why we're seeing a lot of people in this refinance prison, basically, when Mark just said it did, isn't that a little bit crazy to think that our assessment rate just a couple of years ago was below 5%, basically, and now we're seeing it like some banks have an assessment of what? Ten point 74% in some scenarios, yeah.

Mark: 19:57

What's even more concerning rate back then, if you add the buffer of 2.5, that only takes you to 4.29%, that's significantly less than current rates in the market. So people that bought a few years ago at the absolute maximum, with the lowest rate at the time, at the moment, their normal repayments are actually higher than what the bank had anticipated and calculated them on. That's why a lot of people are sort of struggling to maintain their portfolios now. The question is, what have the banks done to assist these customers that are imprisoned because of this high buffer rate? Some of the banks, despite APRA still having the 3% buffer recommended for all the banks to impose, some of the banks have turned and said, look, if we have a customer that's going to refinance their loan and there's not going to be any significant changes, they're not increasing the applicant's names, it's just the same person. And that person has good repayment history and they've been with their previous lender for twelve months and made all their repayments on time. No defaults, nothing. Credit score over 650. And there's a bit of a criteria if it makes me different, but now we can refinance them over only applying a 1% buffer. When you look at the calculator and you look at the difference between the income required now to service that same debt, let's call it 800 grand debt, for example, it's so much less. It actually has helped a lot of people be able to make sure that they're not overpaying on their debt by becoming a new customer with a new bank and getting lower repayments. So it is definitely a sigh of relief for a lot of people. This only started, by the way, a few weeks ago. So if you contacted any one of us to refinance and we're told it's really tight at the moment, feel free to reach out again. Because this was only as of a few weeks ago, the bank started doing it one by one and there is only a few in the market that are doing it, but we hope more will continue to do it. No one's doing it for purchases, it's only for refinances. And there is a limit as to how much you can cash out in the process. I think the highest from what I saw was 50 grand. Sometimes it's 1% of the loan amount. Every bank is, as I said, a bit different, but definitely reach out if your repayments have gotten out of hand, like all of us that have loans would definitely have seen if you haven't taken action in the last twelve months.

KM: 22:17

Yeah, that's very good advice because there's a lot of people who were on fixed loans and whatnot and they're going from a 2% to a five, six, 7%, so you're talking about double or tripling their repayments that they're used to. So you're definitely getting contacted and as we always say, don't wait to contact after it's changed, before it's going to change. Give your brokers some time to find you the best possible solution. Ferdi did you want to add anything to what Mark was saying there?

Fadi: 22:50

No, I think pretty well explained by Mark there. So just in regards to getting contact, like if we've contacted you or if you contacted us in the last couple of months, obviously there's been a huge improvement in servicing. I'm actually one of those customers that got advantage of about 1.98% and it's coming off next year and I've got anxiety about that. I think if I was on today's rate on my home loan, I think it's an extra $1,097 per month increase on today's rate if my home loan wasn't fixed, that's even giving me anxiety. So when customers are calling, it's like, oh, our rates coming up, what's the new rates going to be? And we tell them what the repayments are, they're like, oh, it's like triple or doubled basically what the repayments have been when they first purchased or when they locked in that rate a couple of years ago. And I think we're seeing the same thing through car loans. So again, I was just one of those lucky ducks that had a car think, what's the before I say the rate that I got, what Mark got me, actually, what's the rate today for a brand new car under a business? What's the average?

Peter: 23:55

So many different sort of rates, but I'd say the going rates like to be very safe. Let's just say seven and a half to 8%.

Fadi: 24:08

I think Mark, we're looking in Castro 3.75% think for five years, say again, more than doubled. It's more than doubled and we're feeling it everywhere. Everyone believes the homeowners interest rates, it's actually like those rates go on to everything with inflation, with car loans, equipment, finance, business loans. So we're feeling their face all over, but it hasn't stopped people from moving forward.

KM: 24:35

Yeah, I was just trying to pull up while you guys are talking about I can't seem to find an exact figure. I was trying to find the amount of mortgages that were locked in on fixed rates and when they're expiring, and I'm trying to find some data on it, and the only thing I can kind of find is that around 40% of mortgages that were fixed at the ultra low rate are coming off their fixed terms this year.

Fadi: 25:07

I think 75 million came off this year. We've got a couple more in 2024, including myself, and then a couple of more in 2025. The people that took advantage of those five years fixed rates, which I took as well, which I wish I took.

KM: 25:22

Yeah, it's a significant amount of I mean, 40% of those loans will be changing this year. So this all affects interest rates. And this is why sometimes there is a pause because you got to wait and see what happens. Because interest rate goes up zero point 25 or 0.5, you don't immediately see the effect. And because there are so many people that were still fixed on really low rates, they're not affected yet. It's a big waiting game to see what's going to happen with rates and I guess the future of the market. But I find that very interesting. It's a massive amount of people, 40% of people changing this lead. One of my loans as well is changing from two and a half I just got the letter two and a half to like 6% or something. So it's quite a big difference. So definitely speak to your brokers regarding that. And I guess with your asset finance as well, was there anything else you guys wanted to touch on or discuss.

Fadi: 26:30

Before we I wanted to know from your end we see any slowing down. I remember I think we're having a discussion the other day in regards to prices are still going up, especially in regards to interstate. I think just a couple of years ago, you started purchasing in Brisbane and Adelaide for a certain amount, and now it's just pretty much rocketed through and we can't even get in that certain amount. No more, can we?

KM: 26:50

Yeah. I mean, despite interest rates increasing, this is the problem, right? Interest rates increasing because they're trying to slow down inflation. Problem is supply levels are so, so low because if you were to sell, and we have to remember that 70% of the market is owner Occupier controlled, right? So 70% of the people who potentially may sell live in that home. So if they were to sell, they also have to think, okay, where am I going to go? Which there isn't a lot of option at the moment. And with interest rates really high, it's just seen as not a risky thing to do, but it's just more comfortable for people to stay in their homes at the moment and wait till rates come down to a more manageable level for most people. So there's not many properties for sale. And you only really need two people to push the price of a property up. Right? If you have two people looking at one house and they both really like the house, all of a sudden you're going to break whatever market value is and you're going to go above value even, you're pushing the prices up. So supply levels are so, so low. So despite interest rates going up, we're still finding extremely competitive market space, especially for our investors, where we're talking sub $800,000. It's extremely competitive. And yes, me and you were in a meeting with a client the other day, and I was explaining to them that the markets are always moving and there's always cycles. And five years ago, five, six years ago, we were purchasing in Brisbane for under$500,000, like, consistently. And at that time, people were saying, Why are you buying in Brisbane? And then eventually people started moving and started purchasing in Brisbane. And our clients obviously got the benefit of that. But very quickly, we had to find a new market for our sub $500,000 investors because these three to 500 grand properties that we're purchasing were now obviously five, 6700 grand. We've moved into Adelaide market and that market over the last three years, and that market has now pushed out. So these locations where we were purchasing, they don't exist anymore for that price point because the market is still continuing to increase and to move forward, especially in these price points. And we've spoken about it before on the pod, where typically what's going to happen is the really high net worth areas. You're talking your 5 million plus areas. There's not a lot of people that have 5 million plus to purchase a property. There's not a lot of demand there. The supply is also not a lot, but the demand is not a lot. So that area kind of gets the biggest hit. Those areas get hit first and they come down. Those are the areas that come down first and then you have your two to 3 million, or you have a little bit more people than the five mil kind of people, but still, it's not a lot of people that have that kind of money ready to purchase properties, especially at these interest rates. So these areas get affected. When you get into that 800 to 1.21.3 million. You do have a substantial amount of people that have this sort of funds in Sydney and Melbourne, especially because of wages being higher and whatnot. And so you have a decent amount of demand. And again, the supply is quite lacking. So it's almost equilibrium at the moment. And these areas are staying stable. They're not going down, they're not going up. They're pretty stable. And when the news was announcing month on month, house prices dropping, house prices dropping continuously, on this podcast, we continue to explain that Data has no contact. There are areas in Sydney that are continuing to hold stable and go up, and there are some areas going down and that number is just a broad addition of everything together. But really, when you look into markets, with your markets, there are those areas that don't really drop. And because you've got enough people in that price point, when you go into that sub market, we're talking 800, 700, 600, even 500 less, you have so many people that have access to these funds, regardless of the interest rates being high. So these areas are ultra competitive and again, there's a lack of supply. So these areas do go up. So, yeah, we're on the floor. We are competitive. We are fighting for properties. We are not getting handed properties to us. The common theme that I get when I speak to all the agents that we work with is I have no listings. Simply put, I don't have anything to sell you. We buy a lot of properties off market and we are still buying properties off market. But it's sort of like I speak to an agent, I spoke to one yesterday. We just purchased a couple of properties off him and said, hey, I got a few more clients. These are the price points. This is what came. I have zero listing, not a single property for sale, and I have nothing in the pipeline because people are just not interested in selling. So that is the biggest problem. But we have a client who just purchased in southwest Sydney for 1.5 million in this marketplace. That is a very high amount at share value. But you wouldn't think at 7% interest rates, retail rate, that they would be selling for 1.5 million in 40 km outside of the city in southwest Sydney. But that's the market at the moment. Things are not dropping. So anyone waiting for a huge property crash probably going to wait a little bit longer.

Mark: 32:19

Yeah, I was going to ask because since the beginning of the year, there's been so many clients that come through and they're sort of all so many people have come through and they're like, look, the fixed rates, everyone's saying the fixed rates are going to end in July. A lot of the fixed rates are coming off this year. Surely there's going to be a drop in Sydney after that. I'll buy my home to live in. So what do you say to sorry, the reason why I ask is because I've seen so obviously in the beginning of the year, Sydney kind of slowed. I think Feb was the slowest month or something, and then after that gradually was increasing and people are still kind of shocked as to what happened and people are still putting it down to the fixed rates haven't come off yet and they haven't felt the effects yet. And I explained to people how slow the process is. If you're unable to make your repayments and the bank possesses your house, it's such a slow process and people seem to think within a few weeks, yeah, the markets will be flooded with properties that are possessed by the property, but that have been possessed by the banks, which isn't the case. So I wanted to get your opinion on that. What do you think is going to happen?

KM: 33:27

I mean, I was also trying to find the mortgage in possession numbers at the moment, which I can't find, but the last time I saw mortgage in possession don't quote me, because this was last round of data, it was like 0.3% or 0.3. It was under half a percent. Right. So despite the interest rates increasing, and despite all these loans going from fixed to variable mortgaging, possession rates are still record low. Record low. And it's something that you said beforehand as well. Unemployment rate is very low as well. So people have jobs, people are working, and people are working multiple jobs. Employees cannot find workers, right? So unemployment rate is not only low, is that people trying to find workers can't find workers as well. So when you do find work, you're not only finding, you're also being paid quite well to do that job, which you may not have been paid before. During COVID people didn't travel, people didn't spend. So people also have massive buffers or bigger buffers than they previously had. So that's one aspect is that people have more money than they had before because of COVID that there was less spending, and also because unemployment rate is so low and people are working for better money at the moment and people are actually making extreme demands. If you forget the world for a second and I told you interest rates are 7% retail rates and inflation is 7% at the moment, and the trajectory for interest rates is on the rise. When I also told you at the same time people are refusing to go to take a job where they would have to go into the office. You'll say, well, that doesn't make sense, right? But people are also demanding work from home and people are demanding and people are happy not to take a job if they have to go to the office more than two days a week. So not only do we have these really high rates and fear and whatnot in the marketplace, people are also saying, yeah, but I'm not going to go to work because I got buffers and whatnot if I can't work from home? So we're not at a point where we're not at the Great Depression level, right? We're not where people are scrambling to find a dollar. It's actually not like that. And because of that, and like you say, when interest rates do go up or when rates go from fixed to variable, it doesn't happen the next day where all of a sudden everyone defaults. And if everyone did default, yeah, there would be a market crash. Correct. But it doesn't happen like that because you have all these other aspects that we just spoke about. So you do have buffers and people are still in good positions. Inflation is high because people have money, essentially, and people are spending money willingly. So people have money. People are spending money. So even if people went from variable to, sorry, fixed to variable rates, they have some sort of accountability or buffer zone or something that's saying to them, I'm going to be okay, and mortgage in possession rates are so small. So even with all of this, I don't anticipate the market crashing by any means. We're also now starting to allow more people into the country. We also had the pause during COVID because of it. So more people coming into the country again, more demand, more people trying to take, more people trying to purchase. So you have a high demand and a lack of or continued lack of supply. That's not increasing drastically either. You also have new government initiatives, right, like Ferdi was mentioning with the first home grants, right? So there's all of these things encouraging more spending when we're trying not to encourage spending, that it doesn't really add up for there to be any sort of huge market collapse. It's just not going to happen like that. You will get corrections and there is a difference between a correction and a market crash. And market crash, really, we're talking 10% plus drops within months. It's not going to happen. No one's house today that's worth a million is going to be worth 900 over the next four weeks or something like that. It's just not going to happen. And we can always look at history because history does repeat itself and success leaves clues and things like that. And I don't know if you guys seen the video, but it was kind of like floating around this couple that was looking to purchase a property somewhere in Sydney in like 1955 or something, and the guy came out and said, oh no, they're crazy. They want $1,000 for how many acres, right? Laughing right now, if you're that guy, you'd be very upset with yourself. Should have bought all the acres. But if you purchase today, it's going to be worth more tomorrow. And in the long run, it's going to continue to move in that trajectory. Whether I should wait six months or not, honestly, it's extremely irrelevant in the grand scheme of things. Extremely irrelevant. Especially when it comes to purchasing your own home. That is like, really the final comment. I had this conversation as well the other day with some friends. They said, yeah, but we should wait because the interest rates might come down in six months. And the thing is, if the interest rates do come down in six months, yeah, cool. It's going to be cheaper for you to borrow, but it's cheaper for everyone to borrow. So you're also increasing demand. So you're in this constant cycle where it's like, well, interest rates are up, so it's hard to get money, so no one's borrowing or less people are borrowing. But if interest rates come down, where it's going to be better for me to borrow, but everyone else is better to borrow. So it doesn't just affect one person, it's affecting everyone. And everyone kind of works in the same cycle. And that's why I will always maintain the right time to buy is when you're ready, especially if you're buying a home to live in. If this is the home you find when there's an extreme lack of supply, six months is not going to make a difference, right? Because the rates are going to change every month for the rest of our lives. There's always going to be an interest rate announcement and we're not making these decisions based off last week or the week before. So that's my response, long winded response.

Fadi: 39:40

I think we've always said on this podcast is that you just pretty much said it then once you can actually afford to get a loan again, if you get it today in six months, if the rates go down, you're laughing because you're able to service that loan at a higher amount. You're making higher loan repayments. Let's say you purchased a house at a lower purchase price as well. In six months, when the rates do come down, you already know you can be able to make that big loan repayment. It's only going to get easier for you and your property were to go up as well. So that's why, again, that conversation is irrelevant. The best time to purchase is when you're ready and you're able to service that loan.

KM: 40:16

Yeah, when we say the best time to buy is when you can afford, you can service the loan and obviously the bank is putting a buffer. But you also have your own cash reserves, right? Yeah, I definitely don't encourage people to purchase if they have $60,000 in their bank account and every single dollar is going towards that property because then you're left with nothing and anything that comes up is going to put you under stress. Your air conditioning, your investment property stops working, or the hot water system blows, or there's flash flooding randomly and you're not in the flood zone, but your house cops and whatever, or just things happen. You have a car accident, you need to fix your car, things happen. And if you don't have cash reserves, you're going to put yourself into mortgage stress. So when we say the right times, when you can afford it, affording it means, yeah, you can obviously pass serviceability tests with that buffer zone, but also you have your own cash reserves. And that's what's happening at the moment on the mass scale, because of COVID where we had two years of no spending, essentially, hence the entire economy, the state of the economy at the moment.

Mark: 41:24

If I go back, I find it so interesting that people back in 2021, when the rates were in the ones and the twos low twos, when people were so happy to spend one and a half mil on a property that's not worth one and a half mil because the rates were so low. But now that same person with that same loan is now at the 6% that you're currently at and they'd never dream of paying that price. Now, there's a saying that says you marry the property and you date the rate. And I think it's very wise, like, as in if you're going to buy a property at market value or below market value, doesn't matter of the rate, you're going to experience the capital gains over time and you're going to be well off because of that. If that means you're refinancing, if you're currently buying at a high rate in maybe twelve months time, 18 months time. 24 months time, whatever it is, if you can withstand the storm and you can service the loan with the incredibly high buses that banks are putting now, you're in a very good position, as, and in two years time, you will be on the threes and the fours that we should be expecting in our properties. Ones and twos are absolutely not normal. People should not be waiting for that. That was historically low, probably not happening again anytime soon. The threes and fours is what we should be expecting and that should be the average over the 30 year loan term that you're taking out.

KM: 42:47

Yeah, that's exactly right. It's what I just said as well, is you're not making a 2030 year decision based off the interest rate because it's going to change in that 20 time. Right. Or ten years time. So this is a nice saying, I like it.

Mark: 43:05

But the other thing I was actually going to say, sorry, is if you bought in 2020 or 2021 not 2019, 2020 or 2021, the market went up by like 30%. Everyone expected it to go down. All the economists from all the major banks saying it was going to go down went up by 30%. 20% because you bought at the time that you did. If you bought before, it got expensive before that percent increase, and now you're laughing when the market corrects itself, it doesn't go back to where it doesn't blow them out. If you look, historically, over the last years in Australia, there's only been like after being at correction we had last year, historically, it's never gone backwards twice in two consecutive years. There's no reason to think that it will continue to do that.

KM: 44:00

Yeah, definitely a good point. Because people also forget, yeah, you made 30%, Evan. It's gone down 3%. You didn't lose 3%, you made 27%. Right. Like happy days. That's a very good point. Sorry, Fetty, I keep muting you because your mic is upset. Your mic gets upset when Kalada speaks. We've gone a little bit over time. Anything else to add before we wrap this one up? Peter.

Fadi: 44:38

I was just going to say if you've tried to refinance the last couple of months and you found that a little bit more harder or you're not servicing by just a little bit to contact us or contact your broker because there are lenders now in place with that 1% buffer to make it a lot more easier for you guys to refinance. Dollar for dollar, your loan. So you don't have to feel, I guess, imprisoned, like we explained.

Mark: 44:59

Yeah, I was just going to add that if you are struggling with your repayments, the banks have plans that they will make with you personalized to your sort of cash flow position to make sure that you can maintain the property. They might just say pay, even if it's a home you live in, they might say something like, just cover the interest repayments for now. They'll make a plan personalized for you to definitely contact them earlier rather than later, because if you've sit there having default and missed repayments, then you end up copying a bunch of fees. And it's a lot better if you get in there early and do that. Definitely ask about the consequences if there's anything going on, the credit report, if this happens, all that sort of stuff. So there's no surprises. But it's definitely better to get onto it early if you are struggling, like so many Aussies are, I think it.

Fadi: 45:45

Goes down as hardship. We'll just go down as hardship. Aussle career report. Yeah. So I think definitely ask in regards to what the consequences would be, but I think from just experience, hardship will go down.

KM: 45:58

Cool as always. If anyone's got any questions or has any topic requests, send them in. Facebook, Instagram, LinkedIn, YouTube, TikTok, email Callada any time of the night. Mark is always on his phone. He'll pick up. He's extremely committed to his work and to his comments.

Fadi: 46:22

I think Mark was starting a new segment, DMs at Parallel or something like that.

KM: DMs after 03: 46:28

00 a.m Cool. It was a cool episode. Thank you to everyone for joining. Thank you and welcome to Peter to the Property and Lending podcast. We'll do an asset finance episode soon and I'll work out how to finance a Lamborghini or something. All right, thanks, guys. Talk soon.

Mark: 46:54

Thank you.