The world has gone to...

Wow what a day yesterday was:

1. Petrol prices hit a new high
2. Interest rates went up by 0.5%
3. KFC announced that they have run out of lettuce and are now using cabbage?

So what does this all mean? Well if you normally drive to get a Zinger burger from your local KFC, you are going to be p@ssed at how much it costs to get you there. Also you will be bitterly disappointed when you unwrap your chicken burger (if you share the same views on cabbage that I do). Will someone think of the children!

I received allot of emails/calls from clients yesterday, very nervous about the rate rises and inflationary pressures hitting the household budget. I am not an economist so I won't comment on inflation but in regards to the rate rises, let me remind you that we are in a period of normalisation.

Anyone who has had a mortgage pre-2020 will remember what their interest rates were, the days of 1.99% are over. They were always going to be a short term thing, so everyone needs to let it go. To the smart people who used the extra cash to pay down debt or use the opportunity of cheap money to make money, good thinking! Let me know your tips/strategies so I can share them (No crypto tips please).

When you are assessing whether you should be taking on debt, I always recommend that you:

Take a look at your income VS debt: Looking at your repayments, you need to ask your self are you willing to sacrifice short term pain for long term gain?

When you are running the numbers on a loan servicing calculator like this one, make sure you are running your figures based on a 4.5-5% interest rate. This will give you a pretty accurate average of what you are going to be up for in the next 15-20 years.

Any periods that we have below this rate, should be viewed as 'cream' for you to make extra repayments with. Just because you are given a 30 year loan by the bank does not mean you should hold the debt for that long. Pay it off using extra repayments and you can see 3-4 years taken off your loan (depending on how aggressive you are).

My main concern is for first home buyers trying to pick the bottom of the market, I have seen this story so many times before. They think a crash is coming and it never comes (I was one of them back in the day):

Things that first home buyers (or simply just home buyers) need to take into consideration is:

1. Stock levels are pretty low still: People are not buying due to fear but vendors are not selling unless they need to. Great to good properties are still selling for strong numbers however FOMO has disappeared, my argument is that it should have never existed in the first place.
2. The First home Land deposit scheme: On July 1, the govt is releasing another 30,000 slots. There are already queues for these slots, the only barrier for first home buyers getting into the market is a deposit and LMI. This scheme sorts all of that out so if the property is good, it will go and for a good market price. The past has shown that these schemes create allot of demand in this sector and pushes the price point higher. Get in early to avoid the stampede! If you don't you will end up with slim pickings...
3. Interest Rate Rises are killing your borrowing capacity: We are currently reassessing client's approvals that are about to expire. If you were able to borrow e.g 800k at 1.99%, what do you think is going to happen when we re-run your situation at 3%?

By sitting on your hands, you are betting on the fact that the market in the suburbs you want to live in, are going to peel back further and faster than your borrowing capacity will. That is a mighty punt you are taking and I wish you all the best.

Here is a link to some Cabbage recipes if you are daring. San Choy Bow is going to look a little different in my household for a while I guess...

Don't forget to check us out at Soren Financial...