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Tectonic Shift

As of last week Australians can borrow $1m and pay $490 per week in interest payments. That is forecast to drop to $432 per week in coming months.

This reality hasn’t sunk in to the Australian psyche. Even most property investors haven’t worked it out. The smart money has; which is why the $2m plus price range has jumped more than 10% last 4 months whilst the rest of the market has increased 5%.

Half the reason it hasn’t sunk in is because the banks haven’t passed the rate cut on. They say they have, but it’s only to new customers. If you’re an existing customer you have to officially request a rate review for them to pass it on in full. We shouldn’t be surprised after all that came out in the royal commission. So jump on the phone today.

 

When the effect of these rates sink in, and it could take a year or more, the median house price in Australia will jump to $1m.

 

There’s a flip side to all of this. Yields are collapsing. This is the tectonic shift.

 

If you have $1m in the bank today the interest you will earn will pay you around $13,500 per annum today. And that’s likely to go down in the next month or so with further interest rate cut. Not so good as a retirement plan. You might be better off giving your money away and living off the pension then, which is around $23,000 p.a. The poverty level is slightly less.

 

This now means leaving your money in the bank will not even preserve capital after inflation.

 

We all need to consider this. That’s the focus of the strategy calls I’m conducting with Custodian clients. If you haven’t had one or booked in for one yet I would suggest you do. Click here to register.

 I have only got 2 things to say about Coronavirus. Firstly, it will pass and secondly where there is worry there is no gratitude.