BONUS EPISODE: Where To Next For House Prices?

Chris sits down with Mortgage Choice CEO Anthony Waldron for a 'randomised' chat that gives advice on how to navigate falling house prices, rising interest rates and changing government rules.

• 0:00Speaker 00

  Hello and welcome to How We Got Here. This is a bonus episode where you actually get to hear from somebody with actual insight and advice that can be helpful. So I'm looking forward to that. Anthony Waldron is the CEO of Mortgage Choice. Anthony, thank you very much for joining us here on How We Got Here. Pleasure to have you.

• 0:17Speaker 01

  Thanks for having me.

• 0:18Speaker 00

  How long have you been working in the property and financial services space?

• 0:23Speaker 01

  Well, too long, over 30 years now. I've been involved in the industry in different ways. So it's seen certain, lots of changes and I've certainly been around lots over those years.

• 0:34Speaker 00

  Of course, you're the CEO of Mortgage Choice now, which means you have a good bird's eye view of the whole situation. And having that experience, I mean, safe to say, this is a bit of a challenging time in Australia's property markets. But I mean, how does it sort of sit in your mind? Do you rank this with, you know, COVID, with perhaps the GFC? Or, you know, like, how does it sort of feel to you?

• 0:55Speaker 01

  Well, I think it's because there's multiple things happening at once. So we've got interest rate movements, which we've seen lots and lots of times. That's been part of it. I think the other aspect of it though, is that the budget changes and the changes in negative gearing and the changes in capital gains tax. They're generational changes. And so really, when you start to look at that together and the impact of that happening at once, yeah, I think that's why it feels so big. There's lots to learn from the past as well, because we have seen change in the past.

• 1:22Speaker 00

  Yeah, well, it's interesting to hear you talking about those kind of, those individual issues being stacked on top of each other. And I'm really eager to kind of get into some of those with you and get you to sort of lay it out on the table in front of us, if, you know, if that sort of plays. And one of the ways that I wanted to do this is have it as a bit of a randomized chat.

• 1:42Speaker 01

  Yeah.

• 1:42Speaker 00

  I wanted to get you, Anthony, to pull keywords out of a bowl, or in this case, a mug.

• 1:48Speaker 01

  Yep.

• 1:48Speaker 00

  And then I'm going to ask you a couple of questions about that. So we don't, neither of us are going to know where it's going.

• 1:52Speaker 01

  Okay.

• 1:53Speaker 00

  But it's, I'm confident that it's going to work. I've actually never done this before.

• 1:56Speaker 01

  Right. Either of us.

• 1:57Speaker 00

  I've done some interviews before like this, I've never done it randomized. So we'll find out together if it works.

• 2:02Speaker 01

  Okay.

• 2:02Speaker 00

  But the other thing that we do on How We Got Here is something called Two Truths and a Lie, which we have a bit of fun with. It's, you know, we lay out three facts. The audience gets to decide at the start what they think the lie is, and then see if they've changed their mind by the end. And I'm really glad that you said that you'd play ball.

• 2:18Speaker 01

  Yeah.

• 2:19Speaker 00

  And present your own three.

• 2:20Speaker 01

  Yeah.

• 2:21Speaker 00

  Could you, would you mind?

• 2:22Speaker 01

  Yeah, I get to try you out on this.

• 2:24Speaker 00

  Yeah, I'm going to have a crack here. I don't know if I back myself entirely, but I'll, you know, I'll, I'll weigh in.

• 2:30Speaker 01

  I think, you know, we'll see how you go.

• 2:31Speaker 00

  Okay.

• 2:32Speaker 01

  So first up, at its peak, Australian borrowers were paying an additional $11 billion a year in loyalty tax.

• 2:40Speaker 00

  Okay.

• 2:42Speaker 00

  11 billion, that's a specific number. I know that loyalty tax is a big issue. I'm going to ask you about that. Okay, fair enough, registered.

• 2:49Speaker 01

  The second one?

• 2:50Speaker 00

  Yep.

• 2:50Speaker 01

  Over 81% of all mortgages in Australia are now written by mortgage brokers.

• 2:56Speaker 00

  Seems high.

• 2:57Speaker 01

  Seems high.

• 2:57Speaker 00

  Seems like a lot.

• 2:58Speaker 01

  Yeah.

• 2:59Speaker 00

  Okay.

• 2:59Speaker 01

  Yep, registered. Registered. And the third one?

• 3:03Speaker 00

  Yep.

• 3:04Speaker 01

  We've seen more first home buyers enter the market since the May budget.

• 3:09Speaker 00

  Okay, that would surprise me if that one was true, because the May budget felt like a bit of a bomb for some parts of the market.

• 3:18Speaker 00

  First two seem plausible, I just don't know about the number. The third one, I feel like that's hard to believe.

• 3:24Speaker 01

  Yep.

• 3:24Speaker 00

  I will go on record as saying, I think it's the third one. And then you can tell me at the end whether or not that's right.

• 3:29Speaker 01

  Okay, we'll wait till the end.

• 3:30Speaker 00

  You're not giving anything away, right?

• 3:31Speaker 01

  No, no.

• 3:32Speaker 00

  That's okay, this is big. Well, we're going to get into the, the kind of the breaking down. Here's the thing, I want to get, I want to go through things like the federal budget, which you just spoke about. Things like interest rates, you also spoke about, is incredibly important right now, given we're in the thick of it on that front. I want to get some specific advice. I want to get your perspective on prices and the outlook. I mean, I'm just sort of rattling off my wishlist here. But I want to get into all of that and I want to do it in a randomized way. So if you stick through the next little break, we're going to have a break. I'm going to get you dipping into that bowl next to you.

• 4:05Speaker 01

  Great.

• 4:05Speaker 00

  So we'll get into it in a sec.

• 4:07Speaker 01

  Okay, great.

• 4:10Speaker 00

  When was the last time you looked at your home loan? Well, most of us check it about as often as we flip the mattress and your lenders quietly loving that. If it's been a while, Mortgage Choice could help you find a better deal. Firstly, Mortgage Choice gives you more choice, comparing loan options from over 35 lenders. And with more than 1,000 local brokers Australia wide, expert help is never far away. To get more from your home loan, choose Mortgage Choice. Talk to your local Mortgage Choice broker today.

• 4:42Speaker 00

  Welcome back to How We Got Here. I'm with Anthony Waldron, CEO of Mortgage Choice. Anthony, we're going to get into this, you know, randomized conversation.

• 4:52Speaker 01

  Okay.

• 4:53Speaker 00

  If it's all right with you.

• 4:54Speaker 01

  Yeah, totally.

• 4:54Speaker 00

  So we've got five or possibly six, I'm not sure. But if you could dip into that mug next to you, then we'll know what we're doing. Now, I'm going to have to keep on my toes here.

• 5:04Speaker 01

  If I don't like it, can I put it back?

• 5:05Speaker 00

  No, you cannot.

• 5:06Speaker 01

  Okay, all right.

• 5:07Speaker 00

  This is hard.

• 5:10Speaker 01

  Loyalty.

• 5:10Speaker 00

  Loyalty, ding ding ding. Okay, well, this is interesting. This is possibly going to, you know, knock down one of our two truths and a lie that you just laid out.

• 5:19Speaker 01

  Yeah.

• 5:20Speaker 00

  So, you know, obviously you sit atop, you know, Mortgage Choice. You deal in vanquishing loyalty, I would have thought, I think. Tell us about, what is loyalty in the banking business? When it comes to a mortgage, how much does it cost? How much of a problem is it?

• 5:40Speaker 01

  Yeah, look, I think the whole thing has arisen out of what, what's been known as loyalty tax. And, and the reality of that is it's when an existing customer ends up paying more than a new customer. And that's all done because it's the attraction of the new customer in. But essentially, because you're an existing customer, a loyal customer, you've ended up paying more. And that, that has been an ongoing issue for some time. It actually got talked about quite a bit in the Hainan Royal Commission. And whilst it started to reduce over time, and it has reduced over the last few years, it's an issue for, for customers, because they look at it and go, well, why am I paying more? How is that fair? It's also changed quite a bit over the last few years. There's been some lenders coming to the market who've said, well, this doesn't make sense.

• 6:21Speaker 01

  I'm going to guarantee on some of our products that you won't pay any more if you're an existing customer than a new one. Groups like Athena came in and did that, probably five or six years ago. It's changed the market, but it still exists. And customers need to be really, really understanding that it still exists, especially as interest rates change. That's the time that it gets worse.

• 6:43Speaker 00

  So, safe to say that if you're driving down the road and you see a billboard with a rate on it from a big bank, then what you're seeing is the attractive front door.

• 6:53Speaker 01

  Yep.

• 6:53Speaker 00

  Front book.

• 6:54Speaker 01

  Yep.

• 6:54Speaker 00

  As it's described, and then the longer you stay on, the more, the further into the bank you drift. Is that kind of basically what happens?

• 7:01Speaker 01

  Yeah, that's right. So it's this front book versus back book relationship that you have there. And, you know, it's, it's the customer who's been loyal, who's historically ended up paying more.

• 7:10Speaker 00

  I once did a video on this on social media. I said basically that you, loyalty tax is a huge thing. You have to check in with a mortgage broker who will help you get a better deal. And, you know, you don't have to pay the mortgage broker upfront. And I got this huge pile on from American viewers, being like, this is absolute crap. He's, he's lying. This isn't how it works at all. Because it's not how it works overseas, right? Like, this is, Australians lean on variable mortgages.

• 7:39Speaker 01

  Yeah.

• 7:39Speaker 00

  Kind of more than overseas, is that right?

• 7:41Speaker 01

  That's right, that's completely right. If you go to America, it's almost all a fixed rate environment. Whereas if you come to Australia, it's almost all a variable rate environment. We've actually got quite a different market to most other countries.

• 7:51Speaker 00

  Do you find that sort of shift between variable and fixed, or at least the conversation, happening a lot? Possibly more than it used to?

• 7:59Speaker 01

  It happened a lot about five or six years ago, as interest rates were coming down. And what you saw then was the curve, the interest rate curve. The future rates were, we expected still to get lower. And so fixed rates were then, were then lower. So people locked in rates. You remember when people were locking in rates at sub 2% for their mortgage? Hopefully you were one of them.

• 8:19Speaker 00

  It would have been nice, no?

• 8:21Speaker 01

  Wasn't you? Okay, but most people started to lock that rate in. And it was a smart thing to do at the time. And then as they came back out of that, they went back into a variable rate environment. It was called like that fixed rate cliff.

• 8:32Speaker 00

  The cliff.

• 8:33Speaker 01

  If you remember that, yeah.

• 8:33Speaker 00

  God, we were talking a lot about the cliff. And to be honest with you, Anthony, I thought, and I reported on the cliff like it was going to be some sort of Armageddon moment. And it just didn't really happen. And I've been, you know, talking to bank executives, just going like, so what are we, just people are hanging on? Like, people are kind of muscling and gritting their teeth here as the kind of the, the shift in their repayments changes so much?

• 8:54Speaker 01

  Yeah, remember when people do get assessed for a mortgage? They're not just assessed at the rate they're paying, they're assessed at a higher rate. So most people had some buffer that was there. It was also coming out the back of COVID that a lot of that happened. There was a lot of cash buildup. People had put money into either their own savings accounts or they'd used their offset accounts. So there was a little bit of a buffer that people had to play with through that time.

• 9:14Speaker 00

  Yeah.

• 9:15Speaker 01

  So it was a big issue for people, but it wasn't the cliff, if you like, that everyone had made out it was going to be. Everyone got through it, as we tend to do.

• 9:24Speaker 00

  I was going a bit hard.

• 9:25Speaker 01

  You were going a bit hard.

• 9:26Speaker 00

  I was going too hard.

• 9:26Speaker 01

  Yeah, it was all the journalists.

• 9:28Speaker 00

  I know, we're all silly. Um, no, I, before we move on from loyalty, I just want to ask you, when we talk about comparing, you know, how many, because how many lenders do we have in Australia? And how many should you, what's a good comparison, you know, you?

• 9:41Speaker 01

  Oh, well, look, when you get to all the lenders in Australia, there's, there's probably hundreds. But the, the reality of it is there's 40 or 50 who are really playing in the mortgage market most of the time. I know for our brokers in, in Mortgage Choice, they've got about 40 lenders that they have to choose from. But then they've got about 2,500 products from those lenders that they have as well. So there's a lot that they're actually wading their way through when they're, they're looking for the best deal.

• 10:05Speaker 00

  Lot of products and a lot of government sort of incentives and things like that, which I'm, I think we should kind of possibly cover in a different part of this. It's its own thing, right?

• 10:13Speaker 01

  There is, yeah.

• 10:14Speaker 00

  Okay, well, that, I feel like loyalty is pretty well covered. I don't know, how many did you, how much, how many billions of dollars did you say in the, in the two truths and a lie?

• 10:23Speaker 01

  I said at its peak, it was $11 billion a year.

• 10:26Speaker 00

  With a B?

• 10:27Speaker 01

  Yeah.

• 10:27Speaker 00

  Okay. All right, yeah. I'm still sticking with my third one. All right.

• 10:32Speaker 01

  Okay.

• 10:32Speaker 00

  Would you mind pulling out another one for us?

• 10:35Speaker 01

  Advice.

• 10:36Speaker 00

  Oh, geez. Well, I had kind of been quietly hoping that this was going to come out last.

• 10:41Speaker 01

  Right. Do you want me to put it back in?

• 10:44Speaker 00

  No, no, I don't, this is the randomized, we can't, we can't be pulling wool. So, okay, I'm going to ask you now and we're going to get to some of the other stuff afterwards, but. Can you give us some rules of thumb for those, those out there with a mortgage? How often should you be reviewing your home loan? Like, is it kind of, do you have to do it every six months? Do you have to do it every two years? I mean, what's a normal thing to kind of hit that, you know, to hit up your mortgage broker?

• 11:10Speaker 01

  Um, well, we'd recommend at least annually that you're actually having that conversation. Um, and really it's about making sure you're still in the best option for you at that point in time. So having a discussion with the, the broker, um, every year, it puts you in a position where you, you get comfortable that that's, that's the best deal. But also people's circumstances change and you really want to understand if your circumstances change as well. So have you paid down, um, part of your mortgage? And if you have, does that actually lower your valuation ratio? Which means you might be eligible for discounts with a different lender and so on as well, which you wouldn't think about. Um, so it's just making sure those things are top of mind. Maybe your income's changed, maybe you're planning on having kids, all of those types of things and life changes.

• 11:51Speaker 01

  It's worth having those discussions because there's, there's ways to then manage your cash flow as well. So people think about it just as a mortgage, it's much more than that. It's, it's also about your cash flow, what can you do with that cash flow? What's the best outcome you can get with that? And so having a conversation is not just about price. Uh, it's having a conversation which reflects where you are at that point in time as well.

• 12:12Speaker 00

  Is it important to get in touch early? I mean, let's say your situation changes for the worse, you lose your job or something like that. There are hardship avenues that are available, right?

• 12:21Speaker 01

  There are, there are, and it's important to get in touch, that can be managed then in the best way. Um, and try and get you in the best, best position so that, um, you know, most importantly, you continue to pay down the house. You get, you continue to hold on to the house if it's a really bad situation, um, that's there as well. So your broker can help, the banks can help in those discussions.

• 12:39Speaker 00

  One of the things, I'm sure it comes up a lot for you, but is that it's so intimidating? As, you know, if you're flat footed and you're starting and you go, oh my God, how do I deal with this thing? I'm, I'm interested in buying, I'm preparing myself. What's your advice to somebody who's going through it for the first time? What do they need to get themselves together with so that they can have a good first chat?

• 12:57Speaker 01

  Yeah, well, it's really interesting. If you look at first home buyers, um, you know, if you, even if you look at the schemes that are available out there for first home buyers right now, there's actually five first home buyer schemes available at the moment. And it's depending on what states you're in, they're different. Um, so just understanding that and getting the best outcome for yourself around that, it's seek advice. And go and speak to someone about that because you don't want to miss out just because you didn't know about it. Um, yes, you can, you can Google it, you can do all those sorts of things, you can search it, you can use AI to have a look at it. But getting advice from someone and making sure you're in that position is really important. Um, and then also working out what you can borrow.

• 13:36Speaker 01

  But in a first home buyer type situation, understanding what you can afford, not necessarily the total that you can, that you can borrow. That might be higher than you, you feel comfortable from an affordability perspective. You might want to have a buffer there. Having those discussions early, that leads you to being able to go, okay, what property do I now, can I afford? What's the area that I want to buy in? And you can have those, those discussions early. So getting an early understanding of what you can afford is really important.

• 14:01Speaker 00

  And just finally on advice, what do you think the most common thing that, what do you think the most common moment in a conversation with a broker? Where the, the kind of the first timer goes, oh, what? You know, I didn't know about that. Like, what do you think is the biggest surprise? Is it that buffer you were talking about at 3%? Is it 3%?

• 14:18Speaker 01

  Uh, well, it depends on the lender.

• 14:19Speaker 00

  Oh my God.

• 14:20Speaker 01

  Um, so it depends on your bank, non-bank, uh, et cetera, within that. So yeah, that is a surprise to people that they've, they've got to do that. Um, look, I think the other component that's the biggest surprise is how much the deposit is going to be to avoid lenders mortgage insurance. Um, and lenders mortgage insurance is just another cost, um, to, to the borrower. So it's really understanding that, how do they get to that deposit piece, the time it takes to do that? Um, a lot of people come in pretty unprepared and, and they just don't understand that. So again, early conversation, um, gets more preparation.

• 14:51Speaker 00

  I feel like we're going to have some more advice sprinkled through our other sections. Would you mind giving us?

• 14:55Speaker 01

  Go for another one?

• 14:56Speaker 00

  Give us another one?

• 14:57Speaker 01

  Righto, back together.

• 14:58Speaker 00

  Oh no, it's all born of.

• 15:00Speaker 01

  Uh, prices.

• 15:02Speaker 00

  Okay.

• 15:03Speaker 01

  Yeah.

• 15:03Speaker 00

  Here we go, because there's action in that world right now, to say the least.

• 15:08Speaker 01

  There is.

• 15:08Speaker 00

  Um, I mean, what about a write-in saying it's been five months in a row? We've had negative national prices in Australia.

• 15:16Speaker 01

  Yep.

• 15:17Speaker 00

  I mean, nobody likes crystal ball gazing and there's a lot going on, but do you expect this is the start of something bigger? Or, I mean, how, what's the anatomy of a, a house price correction?

• 15:26Speaker 01

  Well, that's a really good question and you've got to look at history, I guess, to get some sense of that. And so if you look at the house price corrections that have occurred, um, over the last 20 years or so, um, you know, we're in that sort of situation of, are we likely to go further? Is it likely to be longer? Is it likely to be deeper? Most of those, um, those changes have been caused because of interest rate changes. And again, that's what's really driving the movement in house prices at the moment. The question mark remains about what's the true impact of the negative gearing and capital gains tax changes? Will they, they have a big impact or is it just rates that's going to affect the prices, um, at this stage? So if you look at that, you know, we're, we're trying to understand whether we're, we're getting close to the bottom, are we not?

• 16:07Speaker 01

  Um, but it's also really important to look at prices in, in a different way as well. So you've got to look at a bit more nuanced than just national prices. It's different in every state. If you look at New South Wales, Sydney and Melbourne.

• 16:20Speaker 00

  Yeah.

• 16:20Speaker 01

  Um, Sydney and Melbourne, the, the increase has been much lower. Um, and you know, we can see that in the charts that we've, we've shown you there.

• 16:28Speaker 00

  Yeah, anyone who's listening to this and not watching can, you know, if it's safe to do so, pull over, have a look. While, while Anthony was talking there, we've, we've shown some of the previous house price corrections and the current one in comparison, which is in red, I think. And then as you were just talking about the differences in the, in the capital cities.

• 16:46Speaker 01

  Yep.

• 16:46Speaker 00

  Um, we'll have that up as well. So anybody who's listening, uh, and it's safe to do so, have a look. Uh, what were you saying about the difference experience, uh, for the capital cities?

• 16:55Speaker 01

  Well, Sydney, Melbourne, just that peak, um, was not as sharp. It didn't rise anywhere near as, as much as you've seen in Perth and Brisbane and Adelaide. Uh, and when, if you're looking at Perth and Brisbane, Adelaide, you've almost doubled over the last five years. Um, poor old Melbourne, um, hasn't grown anywhere near, uh, that sort of level. Uh, and Sydney's sort of somewhere in between, um, there. But if you look at, at that growth, uh, it's, it's, it's been pretty incredible, um, particularly in Perth, Brisbane and Adelaide.

• 17:22Speaker 01

  What's happening now is those prices, yes, they are, they are coming off, but then you've got to look at the nuance within that. So absolutely the higher price houses, you know, uh, they've come off the most. Um, and you can see that in Sydney and Melbourne in particular, who have led us into this downturn and that tends to be the case. They tend to lead in and tend to lead out in Sydney, Melbourne. Uh, and what's, what's occurred there is that higher value houses, they've, they've fallen much further than those that are kind of more entry level. Um, held up a little bit more by first home buyers, um, that have come into the market as well. So you've seen differences in different parts of the market. You've got to understand local area as well. You can't just look at it and say nationally, this is what's happened.

• 18:01Speaker 00

  Hmm.

• 18:02Speaker 01

  Um, the national number really masks local markets.

• 18:05Speaker 00

  Yeah, I suppose it comes down to the street in some cases.

• 18:08Speaker 01

  Absolutely.

• 18:09Speaker 00

  It's, it's interesting hearing you talk about those different sort of tiers, I guess, what are they called? Quartiles of the market, um, that the, that the more expensive stuff's coming down, the more affordable stuff isn't moving as much, which sounds like bad news for first home buyers who are hoping that this correction was going to make a discount, uh, when they go to buy a home.

• 18:27Speaker 01

  Yeah, well, if you look affordability is actually nationally at its worst position it's ever been.

• 18:31Speaker 00

  Wow.

• 18:32Speaker 01

  Um, and if you look at someone on the average income household on about a hundred and $20,000 a year, if you look at all the houses that were sold last year, they could have afforded 12% of all houses that were sold last year.

• 18:43Speaker 00

  That's.

• 18:43Speaker 01

  So affordability is just, um, still at a, a massive issue. If you think about interest rates rising again, affordability becomes, you know, even harder, uh, for people, even though it's prices are coming down. So it's a real balance between that.

• 18:55Speaker 00

  That was, yeah, I mean, I'm like, I was in the, we'll talk about the federal budget in a minute, but that was a big part of the kind of the calculation behind that. Um, it sounds like, and you know, we always like being a little bit glass half full where we can be. If you, so if you're a first home buyer and you've come into a bunch of money and you want a more expensive property.

• 19:10Speaker 01

  Now's the time.

• 19:11Speaker 00

  Now's the time. Congratulations by the way. Um, yeah, okay. And so the last thing I wanted to ask you about prices is, so we talked about how you can't talk about the national, you can barely talk about the city because it's so kind of granular. What about the different types of housing stock? Cause I know that houses and units have been performing quite differently for some time. What have you been noticing on that front?

• 19:31Speaker 01

  Yeah, look, that's been a, a trend for many years, um, that freestanding houses have tended to outperform units. Uh, at the back of COVID, um, you know, a lot of us who were living in apartments and so on at the time, you wanted more space, uh, at the back of that as well. So some of that's continued, uh, but the reality is the ultimate thing we need is more housing. Um, and that will mean more density in some of the housing as well. So, um, we got, that has to alter a little bit over time in, in, in Australia. And you're starting to see that in some of the councils and, and what's happening with some of the plans there. Um, but ultimately we have a supply problem and supply can't be fixed quickly. You can't build stock, you can't get it out there as fast as we would like.

• 20:11Speaker 01

  Um, and so that's going to be an ongoing issue in terms of, you know, people choosing between the house and the, the unit or, or the higher density housing, um, that's there. But ultimately we're going to need more higher density housing.

• 20:22Speaker 00

  I want to ask you more about supply, um, and then I want to ask you about some of these other issues.

• 20:26Speaker 01

  Yeah.

• 20:27Speaker 00

  But we're going to have a quick break.

• 20:29Speaker 01

  Okay.

• 20:29Speaker 00

  And we'll come back in a second.

• 20:31Speaker 01

  Right.

• 20:33Speaker 00

  What if your home loan isn't as competitive as it used to be? Loyalty is a lovely thing, but let's face it, your bank has never sent you flowers for it. Mortgage Choice can help you find a better deal. With more choice from over 35 lenders, they'll compare your options and crunch the numbers for you. And with more than a thousand brokers Australia wide, expert help is never far away. Plus, because they're part of realestate.com.au, they know the property market. So when it's time to get more from your home loan, refinance with Mortgage Choice. Talk to your local Mortgage Choice broker today.

• 21:10Speaker 00

  Well, welcome back. And we are talking with Anthony Waldron, CEO of Mortgage Choice. Anthony, you were just talking before the break about supply. And that is the kind of, that is the thing that we've been hearing about in Australia for such a long time as the thing that needs to get addressed. We've got the National Housing Accord, we've got to build all these houses. The problem, of course, is that a lot of the houses are going to be higher density. And you just sort of mentioned that the units tend not to perform as well over the longer term. So is it as appealing prospect for somebody entering the property market to buy one of these newly built, more dense properties? Is that becoming a bit of a difficult sort of calculation for people to make?

• 21:52Speaker 01

  Look, I think it depends on the individual. And people have to realise the first house or first property that you own is usually not the last. You know, we've all gone through that, what's next, trade up, lifestyle changes, et cetera, as well. So you've got to think about it as not potentially being the property for life that's there. The quarter acre dream kind of thing that's been around for forever. You know, people still have that, they still want to get into different types of houses. But what's right for you? And that's going to be different for different people at different times as well. You know, I even look at my own parents who are in their 80s and still living in a five bedroom house with all the bedrooms upstairs as they try and walk up the stairs still in their, in their late 80s. Is that right? Is that right for them?

• 22:35Speaker 01

  So you've got to, we've got to be able to encourage people to look at that and get into the right type of housing for them at the right time.

• 22:42Speaker 00

  Well, I suppose if your parents were talking to a mortgage broker about what they wanted to do, it would be difficult to paint a picture of a big incentive for them to sell that property and move somewhere smaller, right? Like, is that part of the problem that it's not, we're not incentivising older people in larger properties into smaller ones? In fact, we're kind of doing the opposite, right?

• 22:59Speaker 01

  We're almost doing the opposite. Even some of the changes that have come in right now, it kind of encourages people to stay in their principal place of residence. So some of the CGT and negative gearing changes that have come in, it almost encourages them to stay there because it's investment property is not as attractive. Some of the rules that you've got around assets test and so on as well, your principal place of residence is exempt. So, you know, if you're in a, if you're in a house that's been the family house, you're almost not necessarily encouraged to trade down, if you like, into a smaller property. Yet we've got, you know, bedrooms empty, sitting around the country and a housing shortage.

• 23:34Speaker 00

  If they did want to buy a different place, the other thing they've got to pay is stamp duty on the new place. How much of a problem is stamp duty across the board?

• 23:43Speaker 01

  Oh, I think stamp duty is one of the things that discourages people from moving. And so if you're trying to create that, you've got to create other opportunities with that. There's lots of opportunities at that. Should it be a broad based land tax? Is that a better opportunity for people? It's certainly something we encourage people to look at and governments to look at.

• 24:00Speaker 00

  We don't want to alienate anyone listening from overseas, but this is another one where people go, I'm sorry, it's the stamp duty. But it's not a particularly common thing around the world, is it? Like, can you, can you give us some idea, like, stamp duty is effectively exactly what it sounds like. It's an administrative tax, right? It's a stamping of the thing, is that it?

• 24:22Speaker 01

  That's where its name originally came from. And it's just stuck with it. So, you know, I, I think it was probably initially just more of a literal, you know, stamp of the documents that you were paying for. But it's such a big part of the economy now and really the taxes that are at a state level. So we really encourage people to look at way through that. So some of these broad based land taxes that have been discussed, it's something that we would really, really like to see reforming. Because if you get reform in that, you would encourage people to move. You would encourage some of those empty bedrooms, like my parents have, to be used. And that would be a great outcome.

• 24:59Speaker 00

  Yeah, I mean, that kind of, the way that we use the existing housing supply that we have also is such a big part of that supply prices conversation, I would have thought. I want to hit, we've got two big topics ahead of us, I think. If I, if I know what's in that cup, and I do, because I put them in there. I think we've got some big ones. Would you mind fishing out one of them?

• 25:24Speaker 01

  Federal budget.

• 25:25Speaker 00

  That's a big one.

• 25:26Speaker 01

  It is a big one.

• 25:27Speaker 00

  It is a big one. This, for anyone who is unaware, the May budget had, well, some massive changes, frankly, for all of the investment landscape. Can you give us some idea of what exactly was proposed to be changed? And how those sort of mechanisms actually worked? And this is a lot of questions at once.

• 25:51Speaker 01

  Yeah.

• 25:52Speaker 00

  Can you explain to us what was going on there? So it was capital gains tax discounts and negative gearing simultaneously being changed. Can you give us some idea of what those two things were and how they're being changed?

• 26:04Speaker 01

  Yeah, look, so in the negative gearing aspect of it, it effectively allowed you to claim income that wasn't against the house, but against the expenses that might have been there as well. So if you had, your expenses were greater than your income, you could claim your expenses against other income as well. That was, that's sort of the way negative gearing worked. And it was an enticement for people to invest in property because effectively allowed you to have higher expenses and claim all that as a tax deduction. And it encouraged people to invest in property. So with the removal of that and then the, the changes to, to the capital gains tax, there was a model which effectively allowed for 50% of your capital gain to, to not be taxed.

• 26:45Speaker 01

  It's now on this indexation process, so effectively after inflation, which is much more complex. And you don't, it's much harder to forecast because you don't know what your return is going to be. You don't know what inflation is going to be. So it's much harder for people to get a really great sense of exactly what that tax will be.

• 27:00Speaker 00

  The negative gearing stuff was grandfathered?

• 27:03Speaker 01

  Yes.

• 27:03Speaker 00

  How important was that?

• 27:05Speaker 01

  I think for existing investors, incredibly important because it's, it's meant that people at least have got certainty for the, the properties that they have and the investments that they've got within it. What it does do though, is it discourages you to sell. Because it's like, well, I've got this property, it's negatively geared, I'll hold on to that one for as long as I can because that's the best tax investment I can get in this situation. So it encourages that, that holding on to, to properties as well.

• 27:31Speaker 00

  How important is that part to the initial response? Do you think if it hadn't have been grandfathered in, the ask would have dropped out way more than it did?

• 27:40Speaker 01

  Potentially. I mean, we'll never know for sure, but potentially that would have been there. But you also look at rentals. Because most of these investment properties are rentals. We've effectively got a rental shortage in Australia as well. If you look at vacancy rates, they're very, very low.

• 27:52Speaker 00

  Yeah, what, 1% ish?

• 27:54Speaker 01

  Yeah, ish, depending on where you are again, it depends a bit. But yeah, ish, that sort of number. And so, you know, that, that has to be thought about as well. You really don't want more pressure on renters at the moment as well, especially when the cost of living is just increasing with inflation.

• 28:09Speaker 00

  So a couple of months have passed now. I mean, how does it look through the rear view mirror to you now?

• 28:18Speaker 01

  Well, if I look at it from what we're seeing in the market right now and, and the way that investors have acted, so really you can see investors have really pulled out of the market during that period of time. And so, you know, that's a, that's a pretty big impact. At the same time, there's uncertainty around interest rates. So to tell you exactly, is it interest rates or is it, you know, the government's policy changes? It's hard to kind of get that attribution perfectly right. Either way, there's a lot less investment lending going on today than there was a few months ago.

• 28:49Speaker 00

  I keep asking that question, I keep getting nowhere. Like, I asked Matt Common, CEO of Commonwealth Bank, I said, how much do you reckon? If you had to put a percentage on it, how much of it's about interest rates? How much is it about the federal budget? I asked Michelle Bullock the same thing.

• 29:01Speaker 01

  Yeah.

• 29:02Speaker 00

  Got nothing from either one.

• 29:03Speaker 01

  Right.

• 29:03Speaker 00

  Would you be willing to say it tilts one way or tilts the other? Or is it just too hard?

• 29:09Speaker 01

  It's really hard to tell.

• 29:10Speaker 00

  Fair enough, I'll stop asking.

• 29:11Speaker 01

  It's really hard to tell. Yeah, I won't try and upstage Michelle or Matt.

• 29:15Speaker 00

  Yeah. I mean, look, I suspect it's a hard thing because it all sort of swirls around at the same time. But I mean, what about from the perspective of, you were just talking about this affordability problem in Australia. It's worse than it's ever been.

• 29:28Speaker 01

  Yep.

• 29:28Speaker 00

  Do you kind of, I suppose, understand or even sympathise with the federal government for having a crack at this? But in, you know, in your opinion, was it executed wrong? I mean, what's going on there? Because they wanted to address housing affordability. Like, that was in the budget documents, I was reading it in there. And, and I was sort of thinking to myself while I was reading them, all we've been hearing about is supply side, you know, addressing the supply side of this, of this affordability issue. And here we are, looking at this big document full of demand side stuff. And so I was kind of like, oh, wow, okay, let's see what happens. And now, you know, it's pretty rough out there. How do you kind of reflect on that?

• 30:09Speaker 01

  It's really hard to completely understand for exactly the same reason that we're just talking about. We're in a situation where inflation's running hotter than the RBA would like. And so you've got this interest rates that have risen three times in the last 12 months, likely to go again. Every economist.

• 30:24Speaker 00

  It's jumping ahead.

• 30:25Speaker 01

  Oh, sorry, sorry.

• 30:26Speaker 00

  I'm just kidding, it's fine.

• 30:27Speaker 01

  But every economist thinks they're going to go again. And so in that situation, you know, that uncertainty creates inaction as well. So you've got that going on at the same time as these changes.

• 30:39Speaker 00

  There's all these consequences, both intended and unintended. I want to ask you about the last one, though. We all know what it is.

• 30:46Speaker 01

  Do we?

• 30:46Speaker 00

  I think so.

• 30:47Speaker 01

  What is it?

• 30:48Speaker 00

  Well, it's rates.

• 30:50Speaker 01

  Interest rates.

• 30:50Speaker 00

  Yeah.

• 30:51Speaker 01

  Yeah. Likely you knew.

• 30:52Speaker 00

  I know. Look, we're in the, we're in the thick of this, hey? We had three interest rate rises in Australia earlier this year, bang, no bang. And I mean, the mood was grim after that.

• 31:03Speaker 01

  Yep.

• 31:04Speaker 00

  What do you think's gonna happen next?

• 31:06Speaker 01

  If you look, most economists are predicting we've got one coming this year, so potentially as early as Tuesday, so tomorrow. And then if you look at that beyond that, then they're also predicting a second rate rise probably earlier in the new year as well. So you're talking about another 50 basis points is what the most common predictions are. Now, of course, with a bit of data, that can all change. You know, it wasn't that long ago, we weren't expecting any more interest rate rises as well.

• 31:33Speaker 00

  I remember it well, I was reporting on it constantly. Now I feel like an absolute goose.

• 31:36Speaker 01

  That's, yeah, well, fair enough. But if you look at that, you know, what will happen? You can't guarantee, but that's, that's what most people are seeing as the most likely outcome at the moment.

• 31:46Speaker 00

  Of course, it's all about inflation.

• 31:49Speaker 01

  Yep.

• 31:49Speaker 00

  Right? I mean, so can you help us understand? That's, that's what we're trying to, and not just us. Globally, central banks are trying to rein in inflation and it's proving to be incredibly difficult.

• 31:58Speaker 01

  Yep.

• 31:59Speaker 00

  Can you kind of give us some idea about, you know? We keep hearing about it as a blunt tool.

• 32:05Speaker 01

  Mm hmm.

• 32:05Speaker 00

  For, you know, affecting change when it comes to inflation. We're told we need to get back to within two to three percent. We're gonna keep on jacking up interest rates. People with a mortgage, they're the ones that are doing it so tough. And we keep seeing in the data that they've stripped back their spending, you know, discretionary's gone out the window.

• 32:23Speaker 01

  Mm hmm.

• 32:23Speaker 00

  They're really doing it tough. Does it kind of, is it frustrating? And are the brokers in your business, you know, are they having, you know, I guess, how are the conversations at the moment?

• 32:34Speaker 01

  Yeah, no, it is tough. And it will be tougher for people if we get another two rises as well.

• 32:41Speaker 01

  But it gets down to the advice you get early. If you get advice early, one of the most important things you, you discuss in that is what happens if? What happens if interest rates move? Are you, are you prepared for that? So a lot of advice is, is given, which is don't necessarily max out your loan. Don't go to the most you can borrow. Let's get it to an affordability piece. Let's understand your plans. You know, are you planning to be in the workforce the whole time? Is one of the parties in the, in the household likely to be out of work for a period of time? You've got to actually think about all those things as you're going in. Cause it allows you to, to sort of get through these situations and understand, you know, that that cash flow is really, really important to you. There's also options that you can look at if you get into this situation where it is, it is too hard. You know, can I move to interest only?

• 33:26Speaker 01

  Am I on the best rate? Is there someone else out there who's got a better offer for me? Has my loan to, to valuation ratio changed so that I'm, I could get in discount somewhere else? Have I even just gone and asked my existing bank for a discount? Cause they've gradually increased my rate. Have I even just asked for that? You've got to go and do all those things and it's all about managing your cash flow. And getting advice and having your mortgage broker sit down with you and work through that is so important. It's why I also said earlier, going back on an annual basis is really important because things change. It's not just rate that changes, your circumstances change. And so being able to have an ongoing conversation about that's incredibly important. And we understand that rates move.

• 34:10Speaker 01

  Everyone should understand that that's the case. You know, we aren't a fixed rate. We talked about that before as well. We're not a fixed rate heavy sort of environment that's here. And so people have to, to plan around that and really important, do it early.

• 34:26Speaker 00

  Yeah, I mean, I suppose the, the question I've got is when you go in, interest rates are rising, the situation feels bad, you know, you may or may not be in negative equity. I mean, things kind of feel very daunting.

• 34:40Speaker 00

  Is the banking space competitive enough for it to be a really good carrot to dangle to go and have that conversation? I mean, how much could you save or how much help could you receive? Like, you know, I mean, we talk, we often talk about an interest rate will cost an average borrower a hundred bucks extra a month.

• 34:58Speaker 01

  Yeah.

• 34:58Speaker 00

  Going in and having that conversation, I mean, what's the, what's the flip side of that coin? I mean, how much could you help yourself and your family by, you know, going in and having the chat? How competitive is the market? Can we get some money back here?

• 35:10Speaker 01

  A rule of thumb, the longer you've been in there without reviewing it, the bigger the opportunity. So if you've been in your existing product for four, five years and you haven't had a conversation, you haven't done a review, you haven't sat down with someone, yeah, the, the potential is that it is really significant, you know, hundreds, if not thousands of dollars opportunities that you're talking about there. It's worth doing. And of course, the bigger the loan, the bigger the opportunity as well that you're sitting on. So get in, have the conversation, have it as an ongoing conversation. Make sure you're reviewing that. Understand your circumstances and how they've changed and how they're likely to change. That's really, really important. Are you in the best type of product for you right now? Should you be looking at fixed rates because you want guarantee, you want certainty?

• 35:53Speaker 01

  And for some people, certainty is the most important thing they can have, or at least for part of, part of, part of the portfolio that they got. All of those things are, are important. If you do own investment property and it, it is a bit murky out there at the moment, what's the best outcome? If I've got an investment property, but I've got a cash flow problem, what's the right thing to do? It's gonna be different for different people. If you're on a principal and interest loan and you're in an investment property and you've got a cash flow problem, should I move to interest only? All, all of that, it requires advice. And most people don't have either the capability or the capacity to do it themselves. So go and talk to someone who's an expert.

• 36:34Speaker 00

  It's funny hearing you talk about the size of the opportunity because when we find ourselves in hard times, we so often try to, try to do things like I'm gonna get rid of a streaming subscription or I'm gonna go and go shift from this supermarket to that supermarket. But I mean, the scale of, I mean, you're talking about hundreds or even thousands of dollars.

• 36:50Speaker 01

  Yeah.

• 36:51Speaker 00

  Yeah. I mean, you've got to grade it like that, I suppose.

• 36:53Speaker 01

  You do. Quite often the other thing that happens when you're having that conversation, so you're having a conversation, say with your broker and, you know, it might be the streaming service or it might be something else. When it forces you to look at your expenses at the same time, it's not always just the mortgage that you're looking at when you do it. You know, I know in my household, I've got two adult kids.

• 37:13Speaker 01

  We just looked at insurances as well in the discussion and it was like, oh my goodness, this is incredible. And, and that actually came out of the discussion I was having with my mortgage broker. Cause we just laid it out again and it was like, oh, hang on, I am completely overpaying here and why do we have three Netflix subscriptions? And, you know, all those aspects of things that you're gonna kind of go, actually, we can cut down expenditure.

• 37:35Speaker 00

  Yeah.

• 37:36Speaker 01

  It's, it's not always just about the mortgage, that advice. Some of the, some of the advice is actually purely, it's almost budgeting advice that you get.

• 37:42Speaker 00

  I mean, I can get that. I mean, and, and it's kind of, it's weirdly enjoyable when you get into the right headspace for it. It's a weird thing to say, but I kind of find that it's almost like popping pimples or something like it's gross like to do it. I had a friend who had, was paying pet insurance for a pet who had died.

• 37:57Speaker 01

  Oh.

• 37:58Speaker 00

  Years earlier.

• 37:59Speaker 01

  Really?

• 37:59Speaker 00

  And they were still paying it. And so just being able to, like, yeah, okay, it sucks that it was happening, but being able to get rid of it, like they wouldn't have unless they actually had a proper audit of themselves, they wouldn't have caught it when they did.

• 38:10Speaker 01

  Yeah.

• 38:11Speaker 00

  I feel like, I feel like we've gone through the big, the big ones there. There's so much more to keep talking about.

• 38:18Speaker 01

  Yeah.

• 38:18Speaker 00

  And I've really enjoyed our chat, but I suppose the thing that I want to finish on, because so much of this feels really gloomy. And I mean, people are kind of in the thick of it. I think it's probably pretty safe to say, whether it's people who already own, people who are thinking about owning, changes in legislation, changes in interest rates. Do you have room for optimism at the moment?

• 38:38Speaker 01

  Yeah, totally.

• 38:38Speaker 00

  What are you optimistic about?

• 38:39Speaker 01

  Well, even that chart that we showed before around price movements in properties. Okay. Cause we, we all concentrate on the fact it's gone down a little bit. But if you look at that over the long term, look how much it's gone up.

• 38:50Speaker 00

  Mm hmm.

• 38:51Speaker 01

  And I mean, the charts for Brisbane, Adelaide and Perth are just incredible. So if it's gone down three, four, five percent, if you've been there for five years and it's gone up 90%, if I told you it had gone up 85 instead of 90, you'd have gone, that's pretty good. And so we can be optimistic about those things. You can also be optimistic about the fact that Australians love property. If you're willing to look long term, then you can, you can get to an outcome. You're gonna go, yeah, the returns will be there if you're investing in that. From a, from a perspective of this is the place that I want to live in, most people aren't looking to live in a house for 12 months. They're looking to live in a house for, for the rest of their lives. And so take a long-term view out the back of that and there's lots to be, to be optimistic about.

• 39:37Speaker 01

  There's also lots to be optimistic about and saying, well, just if I just reviewed where I'm going and what I've done, there's probably savings I can make right now. And if you do that, maybe there's other options for you as well out the back of it. So yeah, there's lots to be optimistic about. Other thing I'd say, if prices are falling a little bit and first home buyers and they're, they're looking at it, go and understand what you can afford. Um, because chances are rents will probably increase as well. If rents are going to increase, go and understand what you're catered for because there'll be a time. And, and movements like this create opportunity. Um, and if you look at that slide that we had up earlier, that with all the prices and dropping and all that. As they've dropped, those, those were the best times to look at buying. So really encourage people to say, well, what can you do?

• 40:22Speaker 01

  And go out, get prepared, the most important thing, just get prepared.

• 40:26Speaker 00

  And have a chat, I mean, how many times would a, would a broker be talking to somebody before they actually do something? I mean, there's a lot, right?

• 40:33Speaker 01

  Many, many times, yeah, absolutely, absolutely. And, and, you know, they almost act as a coach as well, uh, in terms of that. And, and can help you with, I'm trying to make decisions around this. These are the things they need to think about.

• 40:44Speaker 00

  There's so much to think about, but hopefully this chat has kind of armed people with a bit of understanding about what's going on at the moment. Cause there's a lot going on at the moment, but also the big picture. And I, I really like that you kind of pointed out that markets are cyclical.

• 40:57Speaker 01

  Yep.

• 40:58Speaker 00

  You know, there are opportunities, it's never all bad.

• 41:01Speaker 01

  Yeah.

• 41:02Speaker 00

  Sometimes it feels like that, if you're listening to me on the news sometimes.

• 41:06Speaker 00

  I'm trying to work on that, but, um, you know, I, yeah, I think different cities, different parts of the market. I mean, there's a lot going on, so.

• 41:13Speaker 01

  Totally.

• 41:13Speaker 00

  Thank you very much. I've really, uh, and thanks for playing ball with the randomized structure of the chat.

• 41:18Speaker 01

  No worries.

• 41:19Speaker 00

  I think it's a passing mark. I think.

• 41:21Speaker 01

  I think so.

• 41:21Speaker 00

  I think.

• 41:22Speaker 01

  You had me worried. I tell you, I wasn't sure what was going to pull out, yeah.

• 41:26Speaker 00

  Usually when you're interviewing, you want to know what's going on. So, um, I don't know, I'll probably do it again, just to see. But can we revisit the two truths and a lie?

• 41:34Speaker 01

  We can.

• 41:34Speaker 00

  Because I suspect I was right.

• 41:36Speaker 01

  Yep.

• 41:37Speaker 00

  But can you go through all three, um, one more time and just tell me which is the lie?

• 41:42Speaker 01

  Okay, so they, the first one, when it's at its peak, Australian borrowers were paying an additional 11 billion a year in loyalty tax.

• 41:49Speaker 00

  Right.

• 41:49Speaker 01

  True, that's true.

• 41:52Speaker 00

  But just quickly, how far below that do you reckon it is now?

• 41:55Speaker 01

  Oh, it'd be, it'd be significantly below that. I, I, I haven't seen.

• 41:58Speaker 00

  But it'd be in the billions.

• 41:59Speaker 01

  Oh, look, the market's so big, um, that it probably would still be.

• 42:04Speaker 00

  Okay, fact, like it.

• 42:05Speaker 01

  Fact. Um, 81% or over 81% of all mortgages in Australia are written by mortgage brokers.

• 42:12Speaker 00

  Is that true?

• 42:12Speaker 01

  That's true.

• 42:13Speaker 00

  Wow.

• 42:14Speaker 01

  Yeah, it's grown quite significantly.

• 42:16Speaker 00

  Is it still growing?

• 42:17Speaker 01

  It's still growing, yeah. Uh, the last quarter was up on the previous quarter, uh, as well. Um, the question is, how far does it go? Does it top out at some point? All those components, um, I've been, tried to guess that for probably the last 30 years.

• 42:30Speaker 00

  I mean, if it's still growing, people obviously want it. That's a ground up growth, right? Cause do the banks want you to go straight to them? Or do they like that they talk, do you talk to a broker?

• 42:39Speaker 01

  Uh, it depends on, on the different banks and different ways, uh, that people are trying to distribute their products. Um, you know, the reality is we've got 40 lenders on our, on our panel of, of available lenders. Uh, most of those don't have big branch networks or, or footprints. So they're, they're very happy for you to be talking to a broker.

• 42:57Speaker 00

  Yeah, fair enough. Okay, well, that's, that's big. God, eight out of 10, massive, okay.

• 43:02Speaker 01

  Number three.

• 43:02Speaker 00

  That leaves number three.

• 43:03Speaker 01

  Yeah, we've seen more first home buyers enter the market since the May budget.

• 43:08Speaker 01

  Haven't really, no, it's been pretty much flat, um, same sort of number.

• 43:11Speaker 00

  Yeah, well, that, I think, you know, that's interesting. And it's a bit of a shame because that was part of the calculation, right? We're going to improve affordability. But I think fascinating to see the differences in the different segments of the market performance. I mean, it's, it's never a surgical thing, is it?

• 43:27Speaker 01

  No, no, and who knows what happens over the next few months.

• 43:29Speaker 00

  Yes.

• 43:29Speaker 01

  Prices fall, uh, maybe there's a bit more certainty on interest rates. Cause it's not just the fact that interest rates are rising, it's the uncertainty of, is it going to happen once? Is it going to happen twice? How far is this going to go? That, that creates the inactivity, inactivity.

• 43:42Speaker 00

  Yeah, well, I'll look forward to kind of following up with you after, um, you know, if we get another one.

• 43:47Speaker 01

  Yeah.

• 43:47Speaker 00

  What, you know, because everyone reads the statement so closely. It's all, all in the tea leaves there. Um, Anthony Waldron, CEO of Mortgage Choice, thank you very much for having the chat with me. It's been, it's been great.

• 43:58Speaker 01

  Thanks for having me.

• 44:01Speaker 00

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