19 SEP – INTRODUCTION

There is no future in any job.
The future lies in the person who holds the job.
GEORGE W CRANE

Welcome to another newsletter. We’ll start off by discussing mortgage stress which is in the news right now with increasing numbers of borrowers reporting trouble making their repayments. Furthermore, rates look like going up.

Following their recent board meeting Governor Philip Lowe told a business dinner I attended in Brisbane “ Our judgement has been that it is not in the public interest to encourage an already highly indebted household sector to borrow even more. More borrowing might have helped today, but it could come at a future cost.”  That’s a clear signal that there are no more rate cuts.

Former treasurer Peter Costello put it succinctly on ABC radio when he pointed out that rates had been slashed to protect Australia from the global financial crisis and to encourage people to spend. In Costello’s words, “and spend they did – all on housing”.

He reminded us that the GFC is now over and rates will eventually “return to normal”. He finished on a sombre note: “the longer the rate rises are delayed, the greater will be the pain when they eventually rise, as they must”.

No, we don’t know when they will rise but it’s a bit like a farmer in a drought. He knows that the DROUGHT WILL break – he just doesn’t know when.

It’s a wakeup call to anybody with a home loan, and especially to anybody having problems making their payments now.

If you have a mortgage now I suggest you try to maintain payments at a minimum of $870 a month for every $100,000 you owe. This is based on a 15-year term at 6.5%. This will give you a huge safety buffer if rates do start to rise, or if you get into financial stress.

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