Boothy Bites Episode 6 - Bank rates | RBA cash rate news | Great lending offers | Lydian HQ update

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Transcript:

Jackie
Hey everyone, welcome back to the September edition of Boothy's Bites with the man himself, Mr. Chris Booth, how are you doing Boothy?

Chris
I'm doing very well, thank you for having me. I can't believe it's nearly summer.

Jackie
You've been out on the boat recently? Warmer weather, boat weather?

Chris
Yes, I have. So if you follow me on Facebook, you'll see my - I only post good posts on Facebook, I don't post my shopping or housework or anything like that, but sailing certainly posted, and me and my mate got out on the weekend and did the spinnaker sail for the first time, which was pretty cool. A spinnaker's a big and complicated sail. Anyway, we had a great sail out, we got out to the sun, had a beer, sailed.

Jackie
Very nice! Now let's get back to business, enough with sailing. So first up, let's talk about the RBA's cash rate decision. So your thoughts on that?

Chris
Yeah, well, I mean it was Lowe's last hurrah which is good so I think a sort of - you know his exit, and then we've got a new governor of the RBA, and I forgot her name and I should know, but anyway we have a new person joining so that's got to be a different sentiment, we've got some different rules to engage as well, so probably not gonna be as many meetings and things which is all gonna be fascinating going forward.

Chris
But retrospectively, this year we'll be waiting for the inflation to come down - it progressively has been coming down, which has been great, and that means the interest rate rises that we've had had an impact there too. Obviously we've sort of worked through some of the Coronavirus impacts as well on inflation, and it was really nice to see that inflation figure come down, so that was the primary goal and is still the primary goal of the RBA, and that's meant that they've had a breather there with that sort of retrospective data, which is cool.

Chris
On the flip side of that, you know, when we rise interest rates, consumers are impacted y'know. So we've got problems now with consumers who are really struggling to afford just their day to day living, including their home loans and things like that. So, you know, extra discretionary spending, that's for the actual downsizing of retail sales. A lot slower.

Chris
The impact of the costs associated with building and renovations and refurbishing homes and things, that's really be down. So the next sort of thing that the RBA has got to work out with that slowdown is a contraction and it will. They need to reduce interest rates to stimulate more activity and a little bit more confidence in the market as well.

Chris
So yeah, it'd be an interesting sort of next few months, but you know, 4.1% is the cash rate I think will be 4.1% next month. I mean there's no sort of noise or news on the horizon which can really sort of impact the short term and what that's meant is that the yield curve, the interest rates that we're forecasting is gone from the normal curve, which is low interest rates down here by interest rates...

Chris
...here, we've now got the long term interest rates back to the same as the short term interest rates. So we've actually got what's called a flat yield curve. And what that means is that for borrowers, the interest rates associated with that, we've got cheaper fixed rates than the variable rates, which again is quite interesting. We haven't had that sort of anomaly in cheaper interest rates, fixed rates. So anyway, so that's the, that's the RBA, you know, *whew*. 

Jackie
What an interesting time though, and there's no denying that we're all feeling the pinch in one way or another. So it'll be interesting times ahead. So what's the latest with various bank rates at the moment and also some of the services on offer?

Chris
Yeah. So I mean the lenders are really, you know, we're in this kind of new norm now where interest rates are actually at kind of that they're transparent, we can see exactly whose variable rate is the same because before, when interest rates were going up, some of the smaller rates were changing somewhat. It's a bit confusing, but right now we're kind of in the sweet spot where we can actually compare like with mortgage lenders. So, you know, the good thing about that now with from an advice perspective, we can see what the cheapest rates are, which is wonderful.

Chris
Sticking to that, we now can see what the cheeky rates are, which some of the lenders are out there start to claw back a bit of their interest margins. So like no names or giving out names, but like the larger banks, they're going to be cheekily increasing their interest rates outside of RBA cycle. We've seen a couple of interest rate hikes 1050 basis points from variable rates set to just increase that.

Chris
So, you know, it's worth getting a review right now on your interest rates, which it always has been, and some of the appetite to lend right now, the best interest rates are always going to be your low loan to value ratio home loans with strong servicing. So prime lenders like Macquarie Bank, ING, and Suncorp, they're often really discounted rates for those low loan to value ratios and others.

Chris
And there's still a wee bit of a cash back market out there as well. You know, $2,000 or maybe $4,000 to refinance. But a lot of that sort of fight for refinance market is really gone. And in fact, we've got a few more people who are actually actively looking to buy property right now, got pre-approval and some funding and as well, which is really nice.

Chris
So that is cool, you know. And then lastly, affordability with our lenders is very different. So the credit policies with which we're working with are quite different and affordability certainly is one of those big factors when looking at a client situation. So maybe you're with your current bank and to demonstrate affordability today so hard with the bank's policy.

Chris
Having said that, though, if you did look to move to a different lender, that policy and ability to demonstrate affordability is very different. And then that's considerations for recommending different lenders as well. So solutions based, but number 1: get an interest rate with you to get a better rate. And number two: let's look and see what eligibility you have with the lenders too, yeah?

Jackie
Nice, love the work arounds and so what are some of your favorite lending offers available at the moment?

Chris
Yeah. Okay. So I've got to just quickly open my email. But first one first is Bank of Sydney. They've got a really cool 5.64% owner occupier P&I variable, which is extremely cheap. Bank of Australia, they've got a three year fixed rate. Like I said before, some of the fixed rates are lower than the variables. So they've got a P&I three year fixed, 5.54%. I'm stumbling over my words because it's so cheap.

Chris
And for investors we've got variable P&I and interest only at Firstmac for 5.74%, which is - Firstmac are a great bank an a good lender too. And lastly, we've got Bank of Australia with 5.64% P&I or 5.84% interest only rates too. So I think that that three year fixed rate from memory as well. So again, like I said before, if you're paying over 6% your interest rates right now, it's really time to actually do a quick check in with your broker and do that review as well.

Jackie
Nice. And so let's now talk about some niche products. So you've mentioned aged care loans and also the deposit boost loans. Can you talk us through those a little bit?

Chris
Yeah. So I think importantly for us, you know, we do home loans and investment home loans very well, right? That's our vanilla stuff. But, you know, as a mortgage broker, we've got access to over 60 different lenders, that's home loans, investment home loans,

Chris
We've got 40 different commercial lenders as well. But also within that sort of pot of lenders, we've got a variety of different sort of niche products. And we work with a lot of financial planners, they have a lot of elderly clients who've got some mature wealth, but potentially a lot of those clients own a property, don't want to sell that property...

Chris
...but have to make that change from living on their own and having that independent's home to moving into an aged care facility where they get some support and that comes with a lot of cost. Now, to borrow, if you an elderly client is difficult because you don't have an income and potentially don't want to dip into savings investments, but you've got to do that.

Chris
So La Trobe have got a particularly niche product to actually help support that process. So they will allow you to utilize some of your equity within your own home and borrow some money, and that money that can be utilized to get you into the aged care community and also pay those ongoing costs and importantly as well, you can actually capitalize those costs of the loan on top of the loan, so you don't actually have to make any repayments if you don't have the ability to do so and you get up to seven years to sort of manage that facility as well, which is pretty cool.

Chris
Yeah. Sadly sometimes in these situations, you know, that person might be in a pretty difficult time and it's always so difficult for family to manage those financial arrangements, so this is one way to do that. And if the family member does pass, then again, you've got some time and some flexibility to manage the sale of that property in accordance with the estate and the estate funding as well.

Chris
So really good sort of niche solution with helping clients who are vulnerable and in need of help whether they don't have access to cash, for us that's a big asset being at home, being able to get that cash and, you know, have a bit of their quality of life too. So one niche one. On the other one, OwnHome. I really like this one. I forgot, was it a deposit boost loan?

Jackie
Yeah, it's deposit boost loan. Yeah.

Chris
Great. So I actually went to a party about three years ago. Christmas time. Oh, about two years ago Christmas time, I'm sorry. I met all these young guys, all these kind of young go-getters. One of them was the guys from Quickli, who've got this really cool servicibility calculator. They're go-getters as well.

Chris
But another business at the time was a company called OwnHome and they were coming up with really cool solutions for people who have got high income but don't have deposits to get into that first home. And yeah, we've reconnected just recently with the CEO that was...Anyway, I reconnected with the guys at OwnHome and he talked about some of the new iterations of OwnHome. And what that is, is basically the clients who've got a strong income but have no deposit...

Chris
...they will do two loans for that client for 100% of the purchase price of that property to get them in their first time. So one, it's got to be a quality property. Number two, you get a prime lender who will lend 80% of the value of that property. OwnHome will then go ahead and lend the balance being 20% of that property.

Chris
And then lastly, the client has actually got to engage OwnHome to go do the buyer's service around finding that. And so you'd meet with OwnHome, you talk about the properties that you want, but then OwnHome would go away and help source that property and you do have to pay a fee for that. Now because you've got the blended first mortgage and the second mortgage for the facility

Chris
The blended interest rate is higher than the normal standard variable rate, but nonetheless, if you're in a high income earner looking to stay in, you know, the eastern suburbs where I started out looking to buy a million dollar or 1.5 million dollar place there, you're outside of the first home grants, you're outside of all the benefits that you get from that.

Chris
And it can still get you a good home in the location you want to be. And all you've got to do is save up the stamp duty being sort of 30, 35, 40,000 just to get you into that property, which is way easier than saving all of the rest of that money. Also, you avoid lender's mortgage insurance as well, which is a huge cost and huge burden as well.

Chris
So it's a real niche product. The second part about it is it's not just for first home buyers. It can be for people who are buying a family home at a later stage in life, you know, they then will have had one separated, starting out from scratch, don't have savings and it might be a few years when Kelly kicks me out.

Chris
So you know, how can you utilize this - frankly I'm earning some good money and I can go buy myself a place to live in and as I've handed all my cash and all my assets to Kelly to keep her happy. So again, I can see there's a -

Chris
I can see there's a space with this type of service in the future. Anyway, a couple of great examples there, but I'm sure there's more utility for OwnHome as well. But really niche product. And I promise you, I'm not trying to divorce Kelly, nor is she trying to divorce me. I can't get any better.

Jackie
Oh my gosh, that's why we love you.

Jackie
And so. Okay, moving on to my favorite part of Boothy's Bites, your property update. So, what have you noticed happening in the market recently?

Chris
Yes, I think it's you know, it's still hot, hot, hot. You know, so there's plenty of demand, plenty people out there buying, which is great. Supply still not opened up yet. Interestingly, though, we work with a business called Salefunder, which they finance the advertising costs associated with listing of properties...

Chris
...and we get to work with those clients, go through that sort of transition period and sale. There has been a swathe of clients who are putting their properties for sale right now. It's been very noticeable - the volume of those listings is certainly picking up. So, you know, my forecast is still at the stands and I do believe the spring period running into summer would see volumes of sales picking up purely for the, you know, the pressures around managing extra debt and interest costs associated debt.

Chris
So, you know, with that extra supply should meet demand and we start to see some calming of prices. In fact, interestingly, we've seen an increase this year in all the major cities - Sydney, Melbourne, Brisbane - in property values, you know, and that's purely been that sort of low supply, high demand and an increase in prices. And in fact just recently we've had a few clients who purchased, you know, the options have been so strong that they've had to, you know, been motivated to purchase and put in higher bids than what they thought. They won...

Chris
...the property. We've got a valuation on that property and it's been less than the purchase price, which has been the first time in quite a few years. So just be mindful when you come to those auctions or putting pre-bids in - we're at that stage now where potentially the valuations of these properties, can start to turn a little bit and that may impact some of the credit decisions around valuations, yeah?

Jackie
Nice, so make sure you're surrounded by the pros, hey? Get it right the first time.

Chris
That's exactly right. Do you know anyone?

Jackie
You know someone! So let's just finish on what's happening at Lydian HQ. What's the latest?

Chris
That's a great segway - do you know anyone - well the Lydian family is growing. Woo hoo, the pride! So we're really super stoked, this year has been great. You know. So we've worked really hard.

Chris
We've got fantastic partners nationally. We're getting some great results for our brokers who joined us early on. But because of the demand of the partnerships and the platform that we have now for brokers, certainly we get a lot more interest, a lot more support from new brokers joining Lydian, which is wonderful. So we've been able to recently put a new broker on in Sydney, a guy called Michael Short.

Chris
You know, he fits in very well. One of our Sydney based brokers has moved up to Brisbane to work with some partners up there, so that's great - so we wish Darren well. But he's still in the pride and the family is just running the office up there. We've also got a new broker down in Melbourne - Pinakin - who's joined us as well. So we got Michael, Pinakin, and I'm missing someone - oh Tahlia, she's running up in the Sunny Coast and she's joined us as well.

Chris
And excitingly we hope to have someone plugged into the Gold Coast area very shortly. So on that note, we need a broker in Newcastle. If you've got anyone, family, or friends who want to be a broker in Newcastle. That's a good spot for us. West Sydney - we want to be the king of the West. Parramatta, Penrith, we've got a space for you down there.

Chris
And then lastly, southwest Sydney as well. We've probably got a bit of a corridor there for some space too to get brokers started. But look, we're a team of 16 brokers, which is great and yeah, we've got plenty of great people to help clients, so we are genuinely a national business. Sydney, Melbourne, Brisbane, Adelaide, Perth. Oh, we need someone in Darwin as well. Have you got someone in Darwin?

Jackie
I'll get on the phone, see what I can organize. Maybe another Jackie, but just Jackie's. Well Boothy, thank you so much for your time. I can't believe that it's September already. We're doing this update and within 5 seconds we'll be doing October again. So thank you for your time. Love chatting to you. And we'll see everyone next month.

Chris
Yeah thank you Jackie, see you, ciao ciao!

Jackie
Bye!