1 00:00:09,680 --> 00:00:12,960 Speaker 1: Hello, and welcome to the Australians Money Puzzle podcast. I'm 2 00:00:13,039 --> 00:00:17,040 Speaker 1: James Kirkby. Welcome aboard everybody. If you're an active investor 3 00:00:17,079 --> 00:00:19,480 Speaker 1: of you're an active property investor in particular, I imagine 4 00:00:19,480 --> 00:00:21,759 Speaker 1: you're starting to think about rates and where they're going 5 00:00:21,840 --> 00:00:25,000 Speaker 1: because folks, the next time, they're going to move upwards. 6 00:00:25,680 --> 00:00:28,720 Speaker 1: And you can see that consensus now building. It was 7 00:00:28,840 --> 00:00:32,360 Speaker 1: like a marginal a couple of economists on the far 8 00:00:33,080 --> 00:00:36,440 Speaker 1: end of the spectrum, like HSBC saying it two weeks ago. 9 00:00:36,520 --> 00:00:38,960 Speaker 1: You're starting to see Warren Hogan other people like that 10 00:00:39,040 --> 00:00:42,959 Speaker 1: starting to say it now. Everything leads to a suggestion 11 00:00:43,120 --> 00:00:45,440 Speaker 1: that with inflation where it is, rates are going to 12 00:00:45,479 --> 00:00:48,319 Speaker 1: go up. So big question what do you do? Do 13 00:00:48,400 --> 00:00:50,879 Speaker 1: you fix? Because to fix would seem to be the 14 00:00:50,920 --> 00:00:53,160 Speaker 1: sensible thing. If this is as low as they're going 15 00:00:53,159 --> 00:00:56,200 Speaker 1: to be, why wouldn't you fix? Well, I've got some 16 00:00:56,440 --> 00:01:00,560 Speaker 1: very interesting work I put across my debt by our 17 00:01:00,600 --> 00:01:03,280 Speaker 1: guests this morning, and we're going to talk about that. 18 00:01:03,360 --> 00:01:05,600 Speaker 1: We're also going to talk about these new lending limits, 19 00:01:05,640 --> 00:01:07,679 Speaker 1: whether they will affect you, and a few other key 20 00:01:07,720 --> 00:01:11,480 Speaker 1: factors for you. My guest is Stuart Beams of pro 21 00:01:11,520 --> 00:01:14,440 Speaker 1: solution and man for all seasons when it comes to 22 00:01:14,440 --> 00:01:16,680 Speaker 1: our property and finance, I say, how are you Stuart? 23 00:01:17,200 --> 00:01:18,959 Speaker 2: Oh, I'm excellent. Thanks for having me back. 24 00:01:18,920 --> 00:01:21,560 Speaker 1: James, great to have you back a regular on the show, 25 00:01:21,600 --> 00:01:23,520 Speaker 1: of course, and all our listeners know you quite well. 26 00:01:23,920 --> 00:01:27,520 Speaker 1: I most recently, in terms of fixed rates, I think 27 00:01:27,560 --> 00:01:31,840 Speaker 1: it was about a month ago I did something for 28 00:01:31,920 --> 00:01:33,959 Speaker 1: the simple reason that I thought it was the perfect 29 00:01:34,000 --> 00:01:36,919 Speaker 1: time to do this and put forward the questions should 30 00:01:36,920 --> 00:01:39,160 Speaker 1: you start to fix I put it forward about a 31 00:01:39,240 --> 00:01:44,000 Speaker 1: month ago when nobody had touched fixed rates for years, 32 00:01:44,040 --> 00:01:48,160 Speaker 1: the consumers and similarly the banks had some of the 33 00:01:48,160 --> 00:01:52,200 Speaker 1: fixed below variable. Of course, logic would suggest economic logic 34 00:01:52,240 --> 00:01:54,040 Speaker 1: would suggest that if rates are going to go up, 35 00:01:54,160 --> 00:01:55,760 Speaker 1: then the fixed rates are going to start going up. 36 00:01:55,760 --> 00:01:57,840 Speaker 1: And guess what, They've been going up ever since. Week 37 00:01:57,880 --> 00:01:59,960 Speaker 1: by week we see them sort of creeping up along 38 00:02:00,360 --> 00:02:03,480 Speaker 1: in the banking system. But you've done I've never seen 39 00:02:03,520 --> 00:02:05,960 Speaker 1: this ever, and I've watched this area a long time, 40 00:02:06,000 --> 00:02:09,000 Speaker 1: because obviously the banks are going to do this. No 41 00:02:09,160 --> 00:02:11,399 Speaker 1: bank economist is going to do the exer you've done 42 00:02:11,400 --> 00:02:15,519 Speaker 1: for us. But you had a look at fixed rates 43 00:02:15,560 --> 00:02:19,040 Speaker 1: over twenty years twenty years folks twenty to two twenty, 44 00:02:19,639 --> 00:02:23,680 Speaker 1: and you wanted to see basically, would the investor win 45 00:02:23,800 --> 00:02:27,280 Speaker 1: or lose? Probability of gain probability of loss. What did 46 00:02:27,280 --> 00:02:29,440 Speaker 1: you find out? Well? 47 00:02:29,480 --> 00:02:31,560 Speaker 3: I found out that were you know, Well, I found 48 00:02:31,600 --> 00:02:34,000 Speaker 3: out what I expected was that, you know, borrower is 49 00:02:34,240 --> 00:02:37,639 Speaker 3: probably most likely worse off by fixing. So here's the 50 00:02:37,720 --> 00:02:40,000 Speaker 3: numbers over that period of time. And let me explain 51 00:02:40,040 --> 00:02:42,680 Speaker 3: the period of time because the data set that the 52 00:02:42,840 --> 00:02:46,840 Speaker 3: RBA tracks begins in nineteen ninety, so we've got thirty 53 00:02:46,840 --> 00:02:50,840 Speaker 3: five years of data there. But I think comparing interest 54 00:02:50,919 --> 00:02:54,519 Speaker 3: rates in too nineteen ninety compared today isn't a good 55 00:02:54,880 --> 00:02:59,840 Speaker 3: or fair comparison, mainly because mortgage margins have changed. So 56 00:03:00,240 --> 00:03:03,359 Speaker 3: mortgage margin, there's the bank's profit, gross profit, if you're 57 00:03:03,400 --> 00:03:06,320 Speaker 3: like when they give your mortgage is just slightly less 58 00:03:06,320 --> 00:03:09,880 Speaker 3: than two percent today. Early nineties it was close to three. 59 00:03:10,400 --> 00:03:12,760 Speaker 3: So of course it's going to look worse off because 60 00:03:12,760 --> 00:03:16,400 Speaker 3: the market's got a lot more competitive. Also, the last 61 00:03:16,400 --> 00:03:19,080 Speaker 3: five years, as we know, included a period of you know, 62 00:03:19,200 --> 00:03:21,480 Speaker 3: a lot of interest rate increases off the back of 63 00:03:21,480 --> 00:03:24,720 Speaker 3: a zero rate setting. So I thought that's and that's 64 00:03:24,840 --> 00:03:27,959 Speaker 3: problem unless we have another pandemic Touchwood, that's probably not 65 00:03:28,000 --> 00:03:28,680 Speaker 3: gonna happen again. 66 00:03:29,040 --> 00:03:30,560 Speaker 1: Just to fill in listeners, what you're saying is that 67 00:03:30,600 --> 00:03:33,320 Speaker 1: periods where the rest were just bizarre that there were 68 00:03:33,480 --> 00:03:37,560 Speaker 1: zero basically post twenty twenty, you've studiously avoided that to 69 00:03:37,600 --> 00:03:41,880 Speaker 1: give us a clear look at twenty years. So straight up, 70 00:03:42,200 --> 00:03:46,480 Speaker 1: what's your probability of beating the banks if you fix 71 00:03:46,680 --> 00:03:50,320 Speaker 1: and what are the bank's probability of beating you? 72 00:03:51,560 --> 00:03:54,720 Speaker 3: So it's about thirty seven percent probability over that twenty 73 00:03:54,760 --> 00:03:58,560 Speaker 3: year period of being better off, and the average or 74 00:03:58,680 --> 00:04:02,920 Speaker 3: mean that you were better off was point three six 75 00:04:02,960 --> 00:04:05,320 Speaker 3: of a percent, so about a third of one percent, 76 00:04:06,400 --> 00:04:09,480 Speaker 3: whereas the probability of a loss you're being worse off 77 00:04:09,520 --> 00:04:12,120 Speaker 3: as a fixed rate borrower sixty three percent, of course, 78 00:04:12,920 --> 00:04:15,640 Speaker 3: but the average loss was point seven of a percent, 79 00:04:15,720 --> 00:04:19,760 Speaker 3: so twice as much as the potential of gain. So 80 00:04:19,839 --> 00:04:22,279 Speaker 3: the way that average result then is a loss of 81 00:04:22,600 --> 00:04:25,800 Speaker 3: about a quarter of a percent. You just not it's 82 00:04:25,839 --> 00:04:28,320 Speaker 3: just not worthwhile. And it kind of makes sense, James, 83 00:04:28,360 --> 00:04:30,919 Speaker 3: because really it's not the banks coming up with fixed rates, 84 00:04:31,000 --> 00:04:33,760 Speaker 3: it's the money markets. They go out and borrow for 85 00:04:33,800 --> 00:04:36,480 Speaker 3: three years, they add their margin, they relean to you. 86 00:04:37,200 --> 00:04:41,320 Speaker 3: So by accepting a fixed rate, what you're doing is 87 00:04:41,880 --> 00:04:44,680 Speaker 3: taking the opposite view of the market. And the only 88 00:04:44,720 --> 00:04:49,159 Speaker 3: exception to that might be one year fix rates, because 89 00:04:49,200 --> 00:04:51,839 Speaker 3: what banks will sometimes do is use them as a 90 00:04:51,839 --> 00:04:55,039 Speaker 3: hook to get new customers, and they might decide to 91 00:04:55,080 --> 00:04:57,479 Speaker 3: take a much lower margin, or not much lower, a 92 00:04:57,560 --> 00:05:00,000 Speaker 3: lower margin on a one year rate on the whole 93 00:05:00,000 --> 00:05:02,400 Speaker 3: hope that they retain you as a customer, you know, 94 00:05:02,480 --> 00:05:05,160 Speaker 3: after that one y fix rate ellapse. But except for 95 00:05:05,320 --> 00:05:08,120 Speaker 3: those very short term fixed rates, if it's just about 96 00:05:08,160 --> 00:05:09,960 Speaker 3: long term fix rates, they're driven by. 97 00:05:09,800 --> 00:05:12,159 Speaker 2: The market and market expectations. 98 00:05:12,200 --> 00:05:15,320 Speaker 1: So most rates, most of the time fixed rates. Your 99 00:05:15,440 --> 00:05:18,119 Speaker 1: contention over that twenty year period, which is a long time, 100 00:05:18,560 --> 00:05:21,080 Speaker 1: is that you're going to lose most of the time. 101 00:05:21,080 --> 00:05:22,799 Speaker 1: You are not going to do better if you fix, 102 00:05:23,200 --> 00:05:27,720 Speaker 1: and the statistics are there to prove it. Okay, do 103 00:05:27,800 --> 00:05:31,040 Speaker 1: you think we can take that twenty year period as 104 00:05:31,080 --> 00:05:34,960 Speaker 1: representative and reliable going forward? Look? 105 00:05:35,000 --> 00:05:35,440 Speaker 2: I think so. 106 00:05:35,520 --> 00:05:37,360 Speaker 3: And the thing we've got to remind ourselves is that 107 00:05:37,480 --> 00:05:40,800 Speaker 3: interst rate expectations can literally turn on a dime. We've 108 00:05:41,160 --> 00:05:44,200 Speaker 3: we've got to remind ourselves of this. Like, Okay, at 109 00:05:44,200 --> 00:05:47,120 Speaker 3: the moment. The retrick is that interest rates are sort 110 00:05:47,120 --> 00:05:50,360 Speaker 3: of on hold. In fact, just before we start this record, 111 00:05:50,480 --> 00:05:54,000 Speaker 3: A and Z's come out and taken removed its forecast 112 00:05:54,080 --> 00:05:56,839 Speaker 3: of an interest rate cut. They think the cash rates 113 00:05:56,839 --> 00:06:00,560 Speaker 3: on hold at three point six percent. But we could 114 00:06:00,600 --> 00:06:04,720 Speaker 3: wake up tomorrow and the tune has changed and they'll 115 00:06:04,920 --> 00:06:06,960 Speaker 3: be talking about interestrate cuts and so forth. So the 116 00:06:06,960 --> 00:06:09,640 Speaker 3: first thing, as borrow is we need to be careful 117 00:06:09,720 --> 00:06:13,080 Speaker 3: not to be too reactive to the commentary of the day, 118 00:06:13,080 --> 00:06:16,840 Speaker 3: which is why I think this analysis is quite valuable 119 00:06:16,880 --> 00:06:21,159 Speaker 3: because it helps us make better longer term decisions. And 120 00:06:21,200 --> 00:06:23,240 Speaker 3: then the other thing, James, is we're going to start 121 00:06:23,279 --> 00:06:28,560 Speaker 3: thinking about the other considerations, like attaching an offset account. 122 00:06:28,600 --> 00:06:30,520 Speaker 3: Most banks don't allow it to have an offset account 123 00:06:30,560 --> 00:06:33,360 Speaker 3: attached to a fixed rate loan. Most banks limit the 124 00:06:33,400 --> 00:06:36,760 Speaker 3: amount of extra repayments. It can lock you into a 125 00:06:36,800 --> 00:06:40,080 Speaker 3: bank and you're not able to necessary refinance, or if 126 00:06:40,120 --> 00:06:42,000 Speaker 3: a bank's going to give you a better valuation, you've 127 00:06:42,000 --> 00:06:44,039 Speaker 3: got to potentially break that fixed rate. 128 00:06:44,040 --> 00:06:47,960 Speaker 1: So you could be up for some extra fees or 129 00:06:48,240 --> 00:06:50,160 Speaker 1: deaf fact or penalties if you fix. 130 00:06:50,000 --> 00:06:54,919 Speaker 3: It overwhelming that's right, and they're unascertainable because It just 131 00:06:54,920 --> 00:06:57,919 Speaker 3: depends on what interest how interestrates changed between when you 132 00:06:57,960 --> 00:07:00,280 Speaker 3: fix and when you want to break it. But I 133 00:07:00,320 --> 00:07:04,440 Speaker 3: think the overwhelming data suggests that the probability of you being. 134 00:07:04,240 --> 00:07:05,839 Speaker 2: Better off is pretty slim. 135 00:07:06,360 --> 00:07:09,000 Speaker 3: And notwithstanding that, you lose a lot of flexibility by 136 00:07:09,000 --> 00:07:11,320 Speaker 3: fixing your rate. I had to look at the best 137 00:07:11,360 --> 00:07:14,760 Speaker 3: times to fix over the last thirty five years. Of course, 138 00:07:14,840 --> 00:07:17,480 Speaker 3: there's no surprising. The best time was late twenty to 139 00:07:17,520 --> 00:07:20,880 Speaker 3: early twenty two, when, of course fixed rates were sub 140 00:07:20,920 --> 00:07:23,400 Speaker 3: two percent at times three year fixed rates, and that 141 00:07:23,480 --> 00:07:27,440 Speaker 3: was part of obviously the RBA's response to COVID is 142 00:07:27,480 --> 00:07:27,840 Speaker 3: get that. 143 00:07:27,960 --> 00:07:29,880 Speaker 1: And a lot of people did fix. At that time, 144 00:07:30,080 --> 00:07:32,080 Speaker 1: it was up to forty percent of our new loans, 145 00:07:32,240 --> 00:07:34,640 Speaker 1: wasn't it. So you know, people are pretty wise to this. 146 00:07:35,320 --> 00:07:39,440 Speaker 1: Thinks it's obviously a bargain. Yeah. Was there any other 147 00:07:39,480 --> 00:07:40,320 Speaker 1: time that it was good? 148 00:07:40,840 --> 00:07:41,080 Speaker 2: Yeah? 149 00:07:41,120 --> 00:07:43,280 Speaker 3: And in the end, during that time, of course, you know, 150 00:07:43,400 --> 00:07:46,920 Speaker 3: most recently the average profit was between two to three 151 00:07:46,920 --> 00:07:49,520 Speaker 3: and a half percent, So people have had good experiences 152 00:07:49,560 --> 00:07:52,800 Speaker 3: with fixed rates. The only other time, James, was early 153 00:07:52,840 --> 00:07:56,000 Speaker 3: two thousand and five to mid two thousand and six. 154 00:07:56,400 --> 00:07:58,720 Speaker 3: Probably some of our listeners would be even too young 155 00:07:58,760 --> 00:08:02,440 Speaker 3: to remember that time. But interest rates were relatively high 156 00:08:02,520 --> 00:08:06,320 Speaker 3: at the time. It was pre PREGFC, and what was 157 00:08:06,440 --> 00:08:10,600 Speaker 3: unexpected was how aggressive the RBA was going to be 158 00:08:10,920 --> 00:08:14,280 Speaker 3: around that time in terms of increasing interest rates, and 159 00:08:14,480 --> 00:08:17,440 Speaker 3: variable rates got to just shy of nine percent at 160 00:08:17,440 --> 00:08:17,760 Speaker 3: the time. 161 00:08:17,800 --> 00:08:19,920 Speaker 2: So if you think veriable rates are high today. 162 00:08:19,840 --> 00:08:23,840 Speaker 1: That's right because we were rolling up on a spectacular market. 163 00:08:23,840 --> 00:08:25,920 Speaker 1: Of course, that the share market hit its peak in 164 00:08:26,000 --> 00:08:28,320 Speaker 1: two oh seven, folks, November two or seven, and took 165 00:08:28,360 --> 00:08:31,640 Speaker 1: ten years to return to that. Now, Stuart, I've never 166 00:08:31,640 --> 00:08:34,640 Speaker 1: seen anyone do this exercise. It doesn't take a genius 167 00:08:34,679 --> 00:08:36,280 Speaker 1: to figure out that the banks aren't going to do 168 00:08:36,360 --> 00:08:40,200 Speaker 1: it and circulate it. Why would they? But here's something 169 00:08:40,600 --> 00:08:43,360 Speaker 1: there has often been work would suggests that if you 170 00:08:43,600 --> 00:08:47,360 Speaker 1: do nothing but fix all your life, you just turn 171 00:08:47,440 --> 00:08:50,240 Speaker 1: over five year fixer, three year fixed back to back 172 00:08:50,360 --> 00:08:52,640 Speaker 1: and you stick to that principle all the time, that 173 00:08:52,679 --> 00:08:56,040 Speaker 1: would even up wins and losses. Have you any sense 174 00:08:56,080 --> 00:08:58,439 Speaker 1: of that whether that stacks up? 175 00:08:59,040 --> 00:09:02,320 Speaker 3: This data would suggest not because the weighted average result 176 00:09:02,559 --> 00:09:05,440 Speaker 3: is a loss of a quarter of percent, and it doesn't. 177 00:09:05,520 --> 00:09:07,880 Speaker 3: It doesn't stand to reason either, James, because if I'm 178 00:09:08,000 --> 00:09:10,280 Speaker 3: de risking by fixing. So if I'm not going to 179 00:09:10,320 --> 00:09:13,240 Speaker 3: take the interest rate risk, there's always a margin, there's 180 00:09:13,240 --> 00:09:16,120 Speaker 3: always a cost for that, just like any insurance. And 181 00:09:16,160 --> 00:09:20,000 Speaker 3: really fixing your rate is important if you aren't in 182 00:09:20,040 --> 00:09:24,600 Speaker 3: a position to be able to whether any higher interest rate. 183 00:09:24,640 --> 00:09:27,240 Speaker 3: So if your financial position is such that you need 184 00:09:27,280 --> 00:09:29,920 Speaker 3: to fix to give yourself certainty, then that's fine, that's 185 00:09:29,960 --> 00:09:32,960 Speaker 3: a complete, completely valid reason to do it. But if 186 00:09:33,000 --> 00:09:36,000 Speaker 3: you're playing the interest rate market, chances are that you're 187 00:09:36,000 --> 00:09:38,439 Speaker 3: not going to be better off. And I think you know, 188 00:09:38,480 --> 00:09:40,520 Speaker 3: if you look at those two times twenty twenty and 189 00:09:40,559 --> 00:09:44,240 Speaker 3: then two thousand and five, I think in both situations 190 00:09:44,360 --> 00:09:47,560 Speaker 3: it was not foreseeable that fixed rate borrowers at that 191 00:09:47,720 --> 00:09:51,760 Speaker 3: time we're going to be so much better off. Something 192 00:09:51,840 --> 00:09:56,160 Speaker 3: unexpected happened, a GFC and a surprise interest rate hike 193 00:09:56,280 --> 00:09:57,520 Speaker 3: by central banks all. 194 00:09:57,440 --> 00:09:58,120 Speaker 2: Around the world. 195 00:09:58,679 --> 00:10:01,520 Speaker 3: So if your strategy is premised on this idea that 196 00:10:01,960 --> 00:10:04,080 Speaker 3: you know that this whole thing's going to come out 197 00:10:04,080 --> 00:10:06,240 Speaker 3: of nowhere and you're going to be better off, you know, 198 00:10:06,320 --> 00:10:08,760 Speaker 3: that's a risky proposition. I think I go with the numbers. 199 00:10:08,760 --> 00:10:11,680 Speaker 3: I always go with the evidence, and the overwhelming evidence 200 00:10:11,720 --> 00:10:13,000 Speaker 3: says no, don't fix. 201 00:10:13,280 --> 00:10:15,720 Speaker 1: And I suppose one fascinating thing of it was even 202 00:10:15,720 --> 00:10:20,280 Speaker 1: when you win, you win less if you lose more, right, 203 00:10:20,320 --> 00:10:22,320 Speaker 1: but if you win less, which was yeah, that's right, 204 00:10:22,400 --> 00:10:25,400 Speaker 1: extremely interesting. I'll come up. Okay, I mean, I say, 205 00:10:25,400 --> 00:10:27,320 Speaker 1: I haven't seen anything like it, and have you ever 206 00:10:27,360 --> 00:10:31,000 Speaker 1: seen a report of this nature apart from your own work? 207 00:10:32,600 --> 00:10:34,800 Speaker 3: Now, I haven't, which is the reason why I did it, 208 00:10:34,800 --> 00:10:38,080 Speaker 3: because I've done a similar analysis over the years, but 209 00:10:38,240 --> 00:10:42,000 Speaker 3: not to the extent that I've delved into it in 210 00:10:42,040 --> 00:10:44,960 Speaker 3: this most recent time. But it's something I'll keep watching 211 00:10:45,040 --> 00:10:47,400 Speaker 3: and keep updating. But it doesn't surprise me Jane's At 212 00:10:47,480 --> 00:10:51,439 Speaker 3: least it gives us parameters to make better decisions rather 213 00:10:51,520 --> 00:10:55,600 Speaker 3: than necessarily being overwhelmed by the retrick that might be 214 00:10:55,640 --> 00:10:59,000 Speaker 3: present in today's market. And quite often people make financial 215 00:10:59,040 --> 00:11:00,880 Speaker 3: decisions out of, you know, fear or emotion. 216 00:11:01,480 --> 00:11:02,760 Speaker 2: So if all the noises, oh. 217 00:11:02,760 --> 00:11:05,240 Speaker 3: Interest rates are going to arise, I better fix because 218 00:11:05,240 --> 00:11:07,319 Speaker 3: I fixed in twenty twenty and it really worked well 219 00:11:07,360 --> 00:11:07,600 Speaker 3: for me. 220 00:11:08,160 --> 00:11:11,480 Speaker 2: Just be careful. That's not an evidence based decision. Evidence 221 00:11:11,480 --> 00:11:13,600 Speaker 2: based decision would say don't fix. 222 00:11:13,679 --> 00:11:15,440 Speaker 1: That's really interesting. The last time I fixed it was 223 00:11:15,440 --> 00:11:17,520 Speaker 1: two point nine. Oh well, you know, we all knew 224 00:11:17,559 --> 00:11:20,719 Speaker 1: that was good. Okay, very interesting, and folks do keep 225 00:11:20,720 --> 00:11:23,440 Speaker 1: in mind, I mean though those Stewart has outlined this 226 00:11:23,559 --> 00:11:27,960 Speaker 1: and he's it's very well underpinned by his data, and 227 00:11:28,040 --> 00:11:31,880 Speaker 1: the data in turn is the RBA data. But it 228 00:11:31,880 --> 00:11:34,560 Speaker 1: doesn't mean that it never suits anyone. And as Stuart said, 229 00:11:34,559 --> 00:11:38,280 Speaker 1: there are situations where peace of mind, how much is that? 230 00:11:38,800 --> 00:11:42,040 Speaker 1: And a lot of people do like to know how 231 00:11:42,080 --> 00:11:44,320 Speaker 1: much they're going to pay. If things are very finely 232 00:11:44,400 --> 00:11:46,160 Speaker 1: done in your world or on your books or in 233 00:11:46,200 --> 00:11:50,319 Speaker 1: your accounts, then there can be great comfort in knowing, Okay, 234 00:11:50,400 --> 00:11:52,600 Speaker 1: my rate is X and that's it for three years 235 00:11:52,679 --> 00:11:54,240 Speaker 1: and that's not going to change, and that's one thing 236 00:11:54,280 --> 00:11:57,640 Speaker 1: I can kind of control as such. But as Stuart says, 237 00:11:57,640 --> 00:12:00,640 Speaker 1: if you're speculating that you have outsmarted the entire world 238 00:12:00,640 --> 00:12:04,360 Speaker 1: banking system and the markets, and that that is that 239 00:12:04,720 --> 00:12:07,839 Speaker 1: you know something they don't, the chances you're going to 240 00:12:07,920 --> 00:12:10,760 Speaker 1: win not only are they slim in theory, but now 241 00:12:10,760 --> 00:12:14,720 Speaker 1: we know historically they are actually pretty slim as well. Okay, 242 00:12:14,800 --> 00:12:18,080 Speaker 1: really it's such a good issue. What I want, hopefully 243 00:12:18,120 --> 00:12:20,200 Speaker 1: is I'd like to know what the audience thinks about this, 244 00:12:20,559 --> 00:12:23,240 Speaker 1: Let us know the Money Puzzle at the Australian dot 245 00:12:23,240 --> 00:12:26,120 Speaker 1: com dot au. I've had some correspondence on it, but 246 00:12:26,120 --> 00:12:28,480 Speaker 1: I'd love to know what the audience thinks. We will 247 00:12:28,480 --> 00:12:29,760 Speaker 1: be back in a moment to bring you up to 248 00:12:29,840 --> 00:12:33,360 Speaker 1: date on more contemporary issues like are the banks going 249 00:12:33,400 --> 00:12:35,760 Speaker 1: to clamp down? And is it going to cool the market? 250 00:12:35,800 --> 00:12:46,359 Speaker 1: Back in a moment. Hello, Welcome back to The Australian's 251 00:12:46,400 --> 00:12:49,920 Speaker 1: Money Puzzle podcast. I'm James Kirkby talking to Stuart Weems, 252 00:12:50,400 --> 00:12:52,840 Speaker 1: who is of course the pros Solution Group, regular on 253 00:12:52,880 --> 00:12:56,600 Speaker 1: the show and regular contributor to the Wealth section on 254 00:12:56,760 --> 00:13:01,199 Speaker 1: The Australian. I have had such different views on this, Stewart, 255 00:13:01,600 --> 00:13:04,280 Speaker 1: so it's only a matter of weeks since people were 256 00:13:04,320 --> 00:13:06,520 Speaker 1: still talking. I mean, you talk about it, said, is 257 00:13:06,559 --> 00:13:09,280 Speaker 1: it ain Zi just finally moving the note that says 258 00:13:09,440 --> 00:13:11,960 Speaker 1: they don't take that they might expect more red cuts. 259 00:13:12,000 --> 00:13:13,520 Speaker 1: I mean I think there is no one left saying 260 00:13:13,559 --> 00:13:15,080 Speaker 1: it now, correct me if I'm wrong, but I don't 261 00:13:15,080 --> 00:13:20,960 Speaker 1: think there is. So we've just about digested that the 262 00:13:21,000 --> 00:13:23,800 Speaker 1: brains trust of the major banks are saying no more 263 00:13:23,840 --> 00:13:28,040 Speaker 1: rad cuts. Some commentators in the banking system are saying 264 00:13:28,280 --> 00:13:32,080 Speaker 1: the next move will be up. We've just about digested that. 265 00:13:32,120 --> 00:13:34,600 Speaker 1: It incomes OPRA and they say, okay, we're moving in 266 00:13:34,760 --> 00:13:38,600 Speaker 1: right now, straight away with a cap on lending for 267 00:13:38,679 --> 00:13:43,959 Speaker 1: the banks smack in the residential market. And the law 268 00:13:44,120 --> 00:13:48,360 Speaker 1: as such, the regulation is that the banks from this 269 00:13:48,600 --> 00:13:51,800 Speaker 1: directive onwards, no more than twenty percent of their lending 270 00:13:51,840 --> 00:13:54,199 Speaker 1: book can be given to people who are borrowing it 271 00:13:54,280 --> 00:13:56,679 Speaker 1: more than six times income. Okay, And to put that 272 00:13:56,720 --> 00:13:58,679 Speaker 1: in perspective, for you folks, to buy a house in 273 00:13:58,720 --> 00:14:01,839 Speaker 1: the major cities where we're talking times, nine times, ten 274 00:14:01,880 --> 00:14:05,120 Speaker 1: times depending on what city you're in, but certainly in Sydney, 275 00:14:05,160 --> 00:14:09,160 Speaker 1: Melbourne and Brisbane that is the case. Do you think 276 00:14:09,200 --> 00:14:14,360 Speaker 1: it will make a difference to the house price outlook. 277 00:14:16,080 --> 00:14:19,480 Speaker 3: It's really interesting, James, because I wonder why they've done 278 00:14:19,520 --> 00:14:22,680 Speaker 3: this at this time. In twenty twenty two, they did 279 00:14:22,720 --> 00:14:26,160 Speaker 3: make an announcement to say that there are some lenders 280 00:14:26,160 --> 00:14:29,440 Speaker 3: getting close to this benchmark, but they didn't disclose which 281 00:14:29,480 --> 00:14:33,160 Speaker 3: lenders they were, So it's maybe there's an outlier there 282 00:14:33,200 --> 00:14:35,040 Speaker 3: in terms of one of the banks that is doing 283 00:14:35,080 --> 00:14:38,160 Speaker 3: more of this risky lending. Because some banks, I think 284 00:14:38,240 --> 00:14:41,080 Speaker 3: CBA was saying it's like eight or nine percent of its. 285 00:14:40,960 --> 00:14:42,320 Speaker 2: Book, so it's sort of questions. 286 00:14:42,640 --> 00:14:44,120 Speaker 3: No, I don't think it's going to have any impact 287 00:14:44,160 --> 00:14:46,120 Speaker 3: on the market and the reason for that, and I 288 00:14:46,200 --> 00:14:48,960 Speaker 3: think everyone should really understand the market and the players 289 00:14:49,000 --> 00:14:52,280 Speaker 3: in the market. But there's really two types of mortgage lenders. 290 00:14:52,880 --> 00:14:56,520 Speaker 3: There's banks and non banks. Now, bank is what's called 291 00:14:56,560 --> 00:15:00,720 Speaker 3: an ADI and approved deposit institution. They're heavily red because 292 00:15:00,720 --> 00:15:03,160 Speaker 3: what they do they take deposits and they use some 293 00:15:03,240 --> 00:15:06,000 Speaker 3: of that money to onlind and to fund mortgages, and 294 00:15:06,040 --> 00:15:08,240 Speaker 3: of course we need to make sure that's safe for 295 00:15:08,320 --> 00:15:11,320 Speaker 3: deposit holders that they're so that there's a lot greater 296 00:15:11,440 --> 00:15:15,360 Speaker 3: oversight for banks through opera things like the three percent 297 00:15:15,400 --> 00:15:19,480 Speaker 3: inch of straight buffer caps on high debt to income lending. 298 00:15:19,560 --> 00:15:20,400 Speaker 2: These sorts of things. 299 00:15:20,440 --> 00:15:23,920 Speaker 3: Now that's going to have an adverse impact on some borrowers, 300 00:15:23,960 --> 00:15:26,400 Speaker 3: like in terms of you know, their borrowing capacity to 301 00:15:26,440 --> 00:15:29,200 Speaker 3: bank is going to be lower. But the other cohort 302 00:15:29,280 --> 00:15:32,960 Speaker 3: of mortgage lenders in Australia are non bank lenders. These 303 00:15:33,000 --> 00:15:36,400 Speaker 3: are mortgage managers, typically called mortgage managers. They will raise 304 00:15:36,440 --> 00:15:39,800 Speaker 3: money through securitization, which was something that was heavily used. 305 00:15:40,160 --> 00:15:42,480 Speaker 3: PREGFC got a bit of a bad name, but it 306 00:15:42,520 --> 00:15:46,800 Speaker 3: wasn't used in Australia like it was used overseas. And 307 00:15:46,920 --> 00:15:49,200 Speaker 3: so they're not what's called balance sheet lenders because they 308 00:15:49,240 --> 00:15:52,200 Speaker 3: don't take deposits. And so what they do is they 309 00:15:52,240 --> 00:15:54,400 Speaker 3: go and sell a whole bunch of mortgages, bundle them 310 00:15:54,480 --> 00:15:56,520 Speaker 3: up into a vehicle and then sell them to the 311 00:15:56,520 --> 00:15:57,400 Speaker 3: market as a bond. 312 00:15:57,600 --> 00:16:01,520 Speaker 1: And these are, to be clear, they're not banks, right, 313 00:16:01,560 --> 00:16:03,000 Speaker 1: So that's the first point. So I think the part 314 00:16:03,000 --> 00:16:05,520 Speaker 1: you're making to me, you know, it seems to me 315 00:16:05,560 --> 00:16:08,240 Speaker 1: you're saying it won't change the market, but it'll change 316 00:16:08,280 --> 00:16:11,360 Speaker 1: the banks. Right. So they're banks as we know them, 317 00:16:11,400 --> 00:16:13,120 Speaker 1: the big four banks and all the other bank names 318 00:16:13,120 --> 00:16:17,720 Speaker 1: that are adis government guaranteed regulated anyway, this cap applies 319 00:16:17,760 --> 00:16:20,400 Speaker 1: to them. It doesn't to all these other names Pepper 320 00:16:20,520 --> 00:16:23,720 Speaker 1: Liberty for US, mac Resumec, the non banks that are 321 00:16:23,720 --> 00:16:27,200 Speaker 1: out there. And so are you implying, Stuart, basically that 322 00:16:28,360 --> 00:16:30,840 Speaker 1: these guys that have just listed will will move in 323 00:16:30,920 --> 00:16:33,360 Speaker 1: and take this business and so the market in its 324 00:16:33,360 --> 00:16:35,040 Speaker 1: broadest sense won't be disturbed. 325 00:16:35,800 --> 00:16:36,680 Speaker 2: Yeah, spot on. 326 00:16:36,960 --> 00:16:39,280 Speaker 3: You know, I think for those people that are educated 327 00:16:39,360 --> 00:16:42,040 Speaker 3: in terms of borrowing, either through using a broker or 328 00:16:42,080 --> 00:16:44,200 Speaker 3: doing their own research. They're going to find that there's 329 00:16:44,240 --> 00:16:47,680 Speaker 3: other alternatives out there that provide a lot more flexibility 330 00:16:47,680 --> 00:16:51,280 Speaker 3: that aren't guided by these sort of appra regulations. 331 00:16:51,600 --> 00:16:53,160 Speaker 2: Now, they're only a small part of the market. 332 00:16:53,240 --> 00:16:55,480 Speaker 3: There's not a lot of great data, maybe sort of 333 00:16:55,520 --> 00:16:58,720 Speaker 3: five year six percent, but these lenders are growing at 334 00:16:58,760 --> 00:17:03,440 Speaker 3: a substantial pace, increasing their lending by thirty percent each 335 00:17:03,480 --> 00:17:05,840 Speaker 3: year and so forth, because they need to fill a 336 00:17:05,840 --> 00:17:09,879 Speaker 3: gap here because of borrowing capacity, contraction with the banks 337 00:17:09,920 --> 00:17:12,520 Speaker 3: and so forth. So I think there are now the 338 00:17:12,560 --> 00:17:14,160 Speaker 3: first I mean a lot of people think I've never 339 00:17:14,200 --> 00:17:15,440 Speaker 3: heard of these people before. 340 00:17:15,480 --> 00:17:16,320 Speaker 2: What are your risks? 341 00:17:16,880 --> 00:17:20,240 Speaker 3: Well, firstly, if that mortgage lender goes bust, what will 342 00:17:20,600 --> 00:17:23,399 Speaker 3: invariably happen is they will sell their mortgage book to 343 00:17:23,440 --> 00:17:28,320 Speaker 3: another lender, And that happened in the Gfcquarie started to 344 00:17:28,480 --> 00:17:31,240 Speaker 3: sell off some of their mortgages. Now they're back into 345 00:17:31,240 --> 00:17:33,720 Speaker 3: the mortgage market in a big way over last since 346 00:17:33,720 --> 00:17:37,960 Speaker 3: the GFC. But that happened, so the risk is very low. 347 00:17:38,119 --> 00:17:39,679 Speaker 3: Like what's at the end of the day, you end 348 00:17:39,760 --> 00:17:42,120 Speaker 3: up with a different lender. The only thing you need 349 00:17:42,160 --> 00:17:44,879 Speaker 3: to think about is some of these mortgage managers can 350 00:17:44,920 --> 00:17:47,800 Speaker 3: get a bit tricky with offset accounts, and so they 351 00:17:47,840 --> 00:17:50,919 Speaker 3: advertise that they'll have an offset account. But if that 352 00:17:51,040 --> 00:17:55,199 Speaker 3: offset account isn't held by a bank, and ADI be 353 00:17:55,320 --> 00:17:57,520 Speaker 3: very careful, I would not use it because you don't 354 00:17:57,960 --> 00:18:00,119 Speaker 3: then get the government guarantee the turn and fIF ty 355 00:18:00,200 --> 00:18:04,320 Speaker 3: thousand dollars. That can be risky because sometimes they try 356 00:18:04,359 --> 00:18:06,800 Speaker 3: and compete and they come up their systems don't really 357 00:18:06,800 --> 00:18:09,440 Speaker 3: work and it's not a true offset account. But sometimes 358 00:18:09,480 --> 00:18:11,359 Speaker 3: they'll have an arrangement with a bank like an A 359 00:18:11,440 --> 00:18:14,160 Speaker 3: and Z or a CBA, and they'll link that account 360 00:18:14,160 --> 00:18:15,240 Speaker 3: to their mortgage account. 361 00:18:15,280 --> 00:18:16,359 Speaker 2: In that case, it's okay. 362 00:18:16,680 --> 00:18:19,960 Speaker 1: But if they're taking more risk, someone might say, well, 363 00:18:20,400 --> 00:18:23,160 Speaker 1: who cares you know, I'm borrowing from them if they're 364 00:18:23,200 --> 00:18:25,520 Speaker 1: in trouble. Is there a problem? I get the loan 365 00:18:25,560 --> 00:18:28,359 Speaker 1: from them? But is there a risk that their reds 366 00:18:28,359 --> 00:18:33,200 Speaker 1: could rise higher and faster than bank reads? 367 00:18:34,600 --> 00:18:38,040 Speaker 3: Yeah, there is, particularly if they get a bad name 368 00:18:38,280 --> 00:18:41,040 Speaker 3: in terms of the quality of their book and they 369 00:18:41,080 --> 00:18:43,040 Speaker 3: don't make it harder for them to go and raise 370 00:18:43,080 --> 00:18:47,280 Speaker 3: funds and so forth. But these days, very there's almost 371 00:18:47,640 --> 00:18:51,080 Speaker 3: no charges to refinance. There'll be an administrative cost, but 372 00:18:51,240 --> 00:18:54,280 Speaker 3: very small, so you're not locked in anymore. These days, 373 00:18:54,320 --> 00:18:56,800 Speaker 3: you would just refinance. But if you were trapped at 374 00:18:56,800 --> 00:18:59,760 Speaker 3: that lender, that could be a challenge. That happened to 375 00:18:59,800 --> 00:19:03,160 Speaker 3: some extent with Macquarie customers. I mean, anyone been around 376 00:19:03,200 --> 00:19:06,360 Speaker 3: for sort of fifteen years would realize that. In the JFC, 377 00:19:06,600 --> 00:19:10,800 Speaker 3: but it wasn't an insurmountable problem. We found solutions and 378 00:19:11,320 --> 00:19:14,200 Speaker 3: found another home. It's something to look at, something to consider, 379 00:19:14,280 --> 00:19:18,240 Speaker 3: particularly if you're not fitting into the parameters of the 380 00:19:18,280 --> 00:19:20,639 Speaker 3: big banks. And you know that a lot of these 381 00:19:20,680 --> 00:19:22,919 Speaker 3: brand names have been around for a long time. They're 382 00:19:22,960 --> 00:19:26,640 Speaker 3: big businesses, well run businesses, but you know, normal due 383 00:19:26,640 --> 00:19:27,960 Speaker 3: diligence supplies of course. 384 00:19:28,000 --> 00:19:30,680 Speaker 1: Okay, So telling us two things there. One is that 385 00:19:30,760 --> 00:19:33,520 Speaker 1: the lending limits imposed there's got a lot of atension 386 00:19:34,000 --> 00:19:36,639 Speaker 1: from the prudential regulator may not affect the market to 387 00:19:36,680 --> 00:19:39,120 Speaker 1: any great degree because of the fact that the non 388 00:19:39,160 --> 00:19:41,359 Speaker 1: banks A are out there, b are looking for a 389 00:19:41,400 --> 00:19:44,280 Speaker 1: new business and we'll pick up this business. But you're 390 00:19:44,280 --> 00:19:49,640 Speaker 1: also telling us that if you are looking to borrow 391 00:19:50,200 --> 00:19:53,439 Speaker 1: beyond that six times income, and the bank says no, 392 00:19:53,560 --> 00:19:56,600 Speaker 1: whether non banks are there, as you say, with keeping 393 00:19:56,640 --> 00:20:00,280 Speaker 1: your eyes for open and due diligence in that sector 394 00:20:00,320 --> 00:20:03,560 Speaker 1: which is not as regulated folks, clearly as banks. Okay, 395 00:20:03,560 --> 00:20:06,080 Speaker 1: because they're non banks, right, so they're not guaranteed. That's 396 00:20:06,119 --> 00:20:09,480 Speaker 1: the whole thing. And interesting about the offset account too. Okay, 397 00:20:09,720 --> 00:20:11,960 Speaker 1: we will take a quick break because I have just 398 00:20:12,000 --> 00:20:14,560 Speaker 1: two last questions that I want to put to Stewart 399 00:20:14,840 --> 00:20:17,080 Speaker 1: that we must recover. I think they're very important. Okay, 400 00:20:17,119 --> 00:20:24,600 Speaker 1: back in a moment. Hello, Welcome back to the Australians 401 00:20:24,680 --> 00:20:30,320 Speaker 1: Money Puzzle podcast. James Kirkby talking to Stuart Whims. Okay, now, folks, 402 00:20:30,680 --> 00:20:32,760 Speaker 1: one thing I think you should be alert to. We're 403 00:20:32,800 --> 00:20:37,000 Speaker 1: talking about how the lending limits for all the attention 404 00:20:37,040 --> 00:20:42,080 Speaker 1: they've gone from opera that have just been imposed as 405 00:20:42,080 --> 00:20:44,160 Speaker 1: a surprise. I think in the context of a market 406 00:20:44,160 --> 00:20:46,639 Speaker 1: where rates are supposed to be going down. Stewart is 407 00:20:46,640 --> 00:20:49,080 Speaker 1: making the point that they may not have much of effect. However, 408 00:20:49,840 --> 00:20:52,560 Speaker 1: behind the scenes, there is a Senate inquiry going on 409 00:20:52,600 --> 00:20:58,960 Speaker 1: into CGT and that I would expect, should it build 410 00:20:58,960 --> 00:21:02,480 Speaker 1: from here, could be an issue. The Greens have called 411 00:21:02,480 --> 00:21:05,360 Speaker 1: for that and they have sort of sharpened the focus 412 00:21:05,359 --> 00:21:07,320 Speaker 1: of it by saying, look, we just want to zone 413 00:21:07,359 --> 00:21:10,200 Speaker 1: in on houses. Don't worry about negative gearing in other areas. 414 00:21:10,359 --> 00:21:14,240 Speaker 1: Don't worry about CGT in other areas. The CGT on 415 00:21:14,520 --> 00:21:17,359 Speaker 1: houses is what we want to move in on. We 416 00:21:17,359 --> 00:21:20,760 Speaker 1: want to see tax changes there. Specifically, they want to 417 00:21:20,760 --> 00:21:24,080 Speaker 1: see it unestablished houses, which of course is where investors 418 00:21:24,119 --> 00:21:27,800 Speaker 1: always go. Should we be worried do you think. 419 00:21:28,440 --> 00:21:30,440 Speaker 2: Should we be worried about the Greens or should we 420 00:21:30,440 --> 00:21:32,760 Speaker 2: be worried about the CGT discounts? 421 00:21:33,080 --> 00:21:35,520 Speaker 1: Well, should we be worried about the government finding a 422 00:21:35,640 --> 00:21:39,480 Speaker 1: marvelous gateway into the issue by having a Senate report 423 00:21:39,520 --> 00:21:42,920 Speaker 1: which was sort of prompted by the Greens, and then saying, oh, well, 424 00:21:42,920 --> 00:21:45,320 Speaker 1: look we've got this Senate report and really we must act. 425 00:21:45,640 --> 00:21:48,400 Speaker 3: You know, before the discount came in. For those old 426 00:21:48,520 --> 00:21:52,440 Speaker 3: enough to remember, and I'm certainly aging myself in today's episode, 427 00:21:52,480 --> 00:21:55,320 Speaker 3: but we'll remember that you had to index your cost. 428 00:21:55,119 --> 00:21:59,840 Speaker 1: Space fair a while ago. We're talking theater Costello were yeah. 429 00:21:59,760 --> 00:22:01,840 Speaker 3: Yeah, we were talking twenty years ago, and then they 430 00:22:01,880 --> 00:22:05,000 Speaker 3: brought in the fifty percent discount. It is just a 431 00:22:05,040 --> 00:22:08,040 Speaker 3: shortcut way of doing that. But it was always criticized 432 00:22:08,520 --> 00:22:10,920 Speaker 3: to some extent that it sort of overcompensated that it 433 00:22:11,000 --> 00:22:15,720 Speaker 3: was it was generous. The Henry reviewing nine's again some 434 00:22:15,840 --> 00:22:18,560 Speaker 3: time ago, arrived at you know, it should be forty percent, 435 00:22:18,600 --> 00:22:22,520 Speaker 3: that should better align with CPI. So I think that 436 00:22:22,520 --> 00:22:26,000 Speaker 3: there is probably a reasonable basis to say, look, maybe 437 00:22:26,040 --> 00:22:28,280 Speaker 3: it can be pared back a little bit that. But 438 00:22:28,400 --> 00:22:33,080 Speaker 3: whether that has any relationship with property, housing, affordability, all 439 00:22:33,119 --> 00:22:35,840 Speaker 3: those sorts of things, you know, I just think is 440 00:22:35,920 --> 00:22:37,440 Speaker 3: I mean, there's a lot of studies on this, right 441 00:22:37,480 --> 00:22:39,840 Speaker 3: and most of it arrives at the conclusion that it 442 00:22:39,880 --> 00:22:42,440 Speaker 3: has no impact. That it's all about it's all about 443 00:22:42,480 --> 00:22:45,800 Speaker 3: supply more than anything else. The other thing the government 444 00:22:45,840 --> 00:22:48,280 Speaker 3: wants to be careful of because it's always negative gearing 445 00:22:48,359 --> 00:22:51,760 Speaker 3: is criticized. And I haven't looked at the more recent numbers, James, 446 00:22:51,760 --> 00:22:54,320 Speaker 3: but it's something like they raised three times more revenue 447 00:22:54,359 --> 00:22:58,879 Speaker 3: from CGT then they forego from negative gearing, So you know, 448 00:22:58,920 --> 00:23:00,760 Speaker 3: that could be I guess it's a good way of 449 00:23:00,840 --> 00:23:03,480 Speaker 3: them sort of raising tax revenue and a guess they've 450 00:23:03,480 --> 00:23:04,760 Speaker 3: got a bit of a hole in the budget with 451 00:23:05,720 --> 00:23:06,440 Speaker 3: the change to. 452 00:23:06,400 --> 00:23:09,159 Speaker 1: Them, it would be a lucrative line of inquiry compared 453 00:23:09,200 --> 00:23:10,879 Speaker 1: to negative gearing. Okay. 454 00:23:11,200 --> 00:23:14,160 Speaker 3: I think what we want to do is increase long 455 00:23:14,280 --> 00:23:18,520 Speaker 3: term supply of housing, rental housing accommodation in Australia. To me, 456 00:23:18,640 --> 00:23:21,840 Speaker 3: what would make sense is to tear the discount. So 457 00:23:21,880 --> 00:23:23,760 Speaker 3: maybe you can still get fifty percent, but you got 458 00:23:23,840 --> 00:23:25,959 Speaker 3: to hold the asset for ten years or something like that. 459 00:23:26,040 --> 00:23:28,240 Speaker 2: Reward the investors that are prepared. 460 00:23:27,920 --> 00:23:31,600 Speaker 3: To, you know, not speculate on a market, not try 461 00:23:31,640 --> 00:23:34,639 Speaker 3: and make a quick dollar, but genuinely investing in the 462 00:23:34,680 --> 00:23:36,959 Speaker 3: market and providing rental accommodation. 463 00:23:37,080 --> 00:23:38,080 Speaker 2: I think that would make sense. 464 00:23:38,240 --> 00:23:41,600 Speaker 1: Reward the investor is not the flippers, the property flippers. 465 00:23:41,640 --> 00:23:44,640 Speaker 1: Interesting line of thought there, Okay. One last question from 466 00:23:44,760 --> 00:23:47,200 Speaker 1: cars on the show a week or two ago, one 467 00:23:47,200 --> 00:23:49,440 Speaker 1: of your guests said they would only ever provide their 468 00:23:49,520 --> 00:23:52,600 Speaker 1: children with a loan in order to protect the equity 469 00:23:52,800 --> 00:23:55,320 Speaker 1: in the home. This will be a experct. My question is, 470 00:23:55,359 --> 00:23:57,879 Speaker 1: can you loan your child money so they can put 471 00:23:58,040 --> 00:24:01,640 Speaker 1: it into super I assume you would need a legally 472 00:24:01,680 --> 00:24:04,200 Speaker 1: binding loan agreement. I don't know about that. 473 00:24:05,720 --> 00:24:08,280 Speaker 3: So you could, I mean you could loan the money. 474 00:24:08,480 --> 00:24:10,880 Speaker 3: Of course, it would need to be with the contribution cap, 475 00:24:11,040 --> 00:24:16,200 Speaker 3: so one twenty for non concessional or thirty for concessional contributions. 476 00:24:16,240 --> 00:24:17,600 Speaker 3: Of course they need to be able to get the 477 00:24:17,600 --> 00:24:20,280 Speaker 3: money into Super. The thing James, that I would have 478 00:24:20,320 --> 00:24:22,240 Speaker 3: a problem with, is it a genuine loan? 479 00:24:22,720 --> 00:24:23,639 Speaker 1: Are you going to call it in? 480 00:24:23,920 --> 00:24:25,080 Speaker 2: How are they ever going to repay it? 481 00:24:25,080 --> 00:24:27,239 Speaker 3: Because once it's inside Super, the only way they can 482 00:24:27,280 --> 00:24:30,760 Speaker 3: get it out is when they turn sixty or maybe 483 00:24:30,840 --> 00:24:34,040 Speaker 3: financial hardship. So I think if it came to a 484 00:24:34,200 --> 00:24:38,560 Speaker 3: relationship breakdown and that's the main risk asset protection risk here, 485 00:24:39,200 --> 00:24:41,360 Speaker 3: I think there would be an argument to say it's 486 00:24:41,400 --> 00:24:42,360 Speaker 3: not a genuine loan. 487 00:24:42,680 --> 00:24:44,760 Speaker 2: Genuine loan because why would a parent. 488 00:24:44,600 --> 00:24:47,480 Speaker 3: Loan money to put into Super and expect the child 489 00:24:47,560 --> 00:24:49,199 Speaker 3: to repay it when they turn sixty. 490 00:24:49,240 --> 00:24:50,280 Speaker 2: That doesn't make sense. 491 00:24:50,840 --> 00:24:53,520 Speaker 3: Maybe a binding financial agreement would work better in this 492 00:24:53,560 --> 00:24:56,679 Speaker 3: sort of situation. But I do know of you know, 493 00:24:56,720 --> 00:25:00,760 Speaker 3: one of my mentors who's very wealthy, establish self managed 494 00:25:00,800 --> 00:25:03,960 Speaker 3: super funds for each of his grandchildren and put money 495 00:25:04,000 --> 00:25:07,000 Speaker 3: into those self managed super funds. And the way he 496 00:25:07,119 --> 00:25:09,920 Speaker 3: explained it to me was that they're still going to 497 00:25:10,040 --> 00:25:12,960 Speaker 3: have to go out, get a job, work hard, buy 498 00:25:13,000 --> 00:25:15,720 Speaker 3: a house, do all those sorts of things. But he 499 00:25:15,880 --> 00:25:19,000 Speaker 3: just viewed it as you know, that'll be invested for 500 00:25:19,080 --> 00:25:22,320 Speaker 3: many decades and it'd be a great fullback position. So 501 00:25:22,359 --> 00:25:25,480 Speaker 3: it's kind of an interesting thought around. I guess contribute 502 00:25:25,560 --> 00:25:29,840 Speaker 3: using super as a vehicle to I guess create intergenerational 503 00:25:29,880 --> 00:25:35,280 Speaker 3: wealth without necessarily dissuading you know, the beneficiaries from working 504 00:25:35,280 --> 00:25:36,600 Speaker 3: hard during their working life. 505 00:25:36,680 --> 00:25:38,960 Speaker 1: Yeah, yeah, one of our listeners think of that one. 506 00:25:38,960 --> 00:25:42,280 Speaker 1: It's really interesting just on two things there with Carl's question, 507 00:25:42,480 --> 00:25:45,600 Speaker 1: and this is not advised on information obviously, but you 508 00:25:45,640 --> 00:25:50,240 Speaker 1: would seem Super would complicated quite significantly, and perhaps a 509 00:25:50,400 --> 00:25:53,680 Speaker 1: standard loan if you want to tighten this a standard 510 00:25:53,680 --> 00:25:55,919 Speaker 1: loan agreement. I think it really hinges on whether the 511 00:25:55,960 --> 00:25:58,280 Speaker 1: parents would ever really call in the loan. That's the thing. 512 00:25:58,720 --> 00:26:02,720 Speaker 1: That's that's the million question. As for starting a super, 513 00:26:03,000 --> 00:26:06,040 Speaker 1: that's very interesting because I suppose it gives the person 514 00:26:06,200 --> 00:26:10,719 Speaker 1: in question the ability in their mid career when they 515 00:26:10,760 --> 00:26:14,680 Speaker 1: have so many costs too. For instance, maybe they would 516 00:26:14,760 --> 00:26:20,840 Speaker 1: not need to do a voluntary salary sacrifice and it 517 00:26:20,920 --> 00:26:23,320 Speaker 1: actually in a way loosens up some money for them 518 00:26:23,520 --> 00:26:25,280 Speaker 1: at the time when they really need it. Really were 519 00:26:25,400 --> 00:26:28,520 Speaker 1: thinking about Hey, terrific stuff, Thank you very much. Stuart 520 00:26:28,520 --> 00:26:31,320 Speaker 1: for coming on the show. My pleasure is always always 521 00:26:31,320 --> 00:26:33,359 Speaker 1: good to have you. Thank you very much. That was 522 00:26:33,400 --> 00:26:35,960 Speaker 1: Stuart Weams of the pro Solution Group. As I say, 523 00:26:36,080 --> 00:26:38,439 Speaker 1: a regular on the show and a regular contributor. Lookout 524 00:26:38,440 --> 00:26:42,200 Speaker 1: for him in the Australians Wealth section. Let's hear from 525 00:26:42,240 --> 00:26:45,800 Speaker 1: you folks. Really interesting issues there today the money Puzzle 526 00:26:45,840 --> 00:26:49,280 Speaker 1: at the Australian dot com dot au. Talk to you 527 00:26:49,440 --> 00:26:49,880 Speaker 1: very soon.