Interest rate increase vs bought breakfast

Whenarewethere · Guru

Interest rate increase vs bought breakfast

Tony Bev · Guru

I have young family members who have a mortgage

Lucky that both them, and their respective spouse are working, so they will be OK

I think that one problem is, in the days of 17% an average mortgage may have been around $40,000 or less than $7,000 a year
Although our wages were less, basic commodities were also less

Today an average mortgage could be up to $500,000 and upwards @ 4% or more, so around three times the amount of what people paid, back in the day
But with wages rises, basic commodities have also gone up

A couple with children, who recently purchased a house, probably did budget for their mortgage, they probably did not expect the recent rises

I do expect a lot of forced sales, due to the unpredictable economy, and have no doubt that a lot of younger people, will be tightening their belts

86GTS · Guru

Interest rates were at a ridiculously low rate.
Glad to see them returning to a more sensible level.
Those that were living above their means are now going to suffer.
Big new mansions, luxury furniture, new boats, luxury off road caravans & Toyota Landcruisers, they wanted it all.
Three take-away coffees per day at $7 each equals almost $150/wk.
Tough luck, surely they weren't stupid enough to not realise that it couldn't last forever.
No sympathy whatsoever.

Whenarewethere · Guru

We were paying $1370 pm & a bit extra where we could. Just trying to get the principal down any way we could.

RickJ · Senior Member

The young ones dont like it if buying property but the rising interest rates may go to help some partly self funded retirees survive.

We have earned virtually nothing on our money for several years. Now we are earning a couple of bob but it all helps.

TheHeaths · Guru

Good to see the milk of human kindness flows fruitfully here.

Aussie1 · Guru

TheHeaths wrote:
Good to see the milk of human kindness flows fruitfully here.

Got nothing to do with it, it's just about common sense. And sadly that is lacking with those that will suffer because they either lack education or simply did not think ahead. As it gets tougher the more those in financial strife will blame everyone except themselves. 86GGTS is exactly correct.

Whenarewethere · Guru

In the 2000s we wanted a bridging loan. Told the bank how much we needed, it was all approved.

A few days before we needed the funds the bank phones asking us do we need any extra money for renovations, a holiday or new car.

I politely said we only need what we asked for to buy the property & associated fees.

Part of the problem are the banks.

Tony Bev · Guru

I have sympathy for the younger people with high mortgage

Just three years ago, we did not have stuff like, Covid/Ukraine/higher inflation/etc to contend with

I do not remember anyone on this forum, predicting what would happen

December 2020 (just before Covid), I went to Tamworth from WA and returned just before the border was closed

April 2022, I went to Tamworth from WA, in a Covid bubble with friends from Wedderburn VIC
I done less miles, spent less time away from WA, but my total cost was about 25% more

That 25% was just for fuel and food, as each time I did not use caravan parks

Hands up anyone who predicted that would happen, three years ago

Aussie1 · Guru

Whenarewethere wrote:
In the 2000s we wanted a bridging loan. Told the bank how much we needed, it was all approved.

A few days before we needed the funds the bank phones asking us do we need any extra money for renovations, a holiday or new car.

I politely said we only need what we asked for to buy the property & associated fees.

Part of the problem are the banks.

No not at all. Banks are simply marketers, Just like any company selling something. People need to be responsible for their own decisions on what they are buying. Which clearly you did with the offer of additional funds. The "we must have" mentality is what sets them up for the "fall" when things get tight.

TheHeaths · Guru

Aussie1 wrote:
TheHeaths wrote:
Good to see the milk of human kindness flows fruitfully here.

Got nothing to do with it, it's just about common sense. And sadly that is lacking with those that will suffer because they either lack education or simply did not think ahead. As it gets tougher the more those in financial strife will blame everyone except themselves. 86GGTS is exactly correct.

Unfortunately I disagree with you, and those others who have commented similarly Aussie1.

In a country where median home prices in capital cities range from $500,000 upwards to over $750000, and we have a workforce that is increasingly becoming casual based, I would not like to be trying to get a start now.

Each of us has faced different challenges when we were younger, but I guarantee I would rather be 66 than 16 in todays world.

A bit of understanding goes a long way.

Aussie1 · Guru

TheHeaths wrote:
Aussie1 wrote:
TheHeaths wrote:
Good to see the milk of human kindness flows fruitfully here.

Got nothing to do with it, it's just about common sense. And sadly that is lacking with those that will suffer because they either lack education or simply did not think ahead. As it gets tougher the more those in financial strife will blame everyone except themselves. 86GGTS is exactly correct.
Unfortunately I disagree with you, and those others who have commented similarly Aussie1.
In a country where median home prices in capital cities range from $500,000 upwards to over $750000, and we have a workforce that is increasingly becoming casual based, I would not like to be trying to get a start now.

Each of us has faced different challenges when we were younger, but I guarantee I would rather be 66 than 16 in todays world.
A bit of understanding goes a long way.

I will admit you got that bit right e.g "A bit of understanding goes a long way". Because that is what many borrows are lacking when making decisions. Combined with a lack of education, is a recipe for future problems.

Cassie63 · Senior Member

Back when the rates were 17% I balanced 4 jobs to make ends meet. Wife didnt work she looked after the kids and house. We had one car, one tv and one bathroom. We managed.

Ivan 01 · Guru

Having gone through the *recession we had to have* with massive interest rates thrust upon us just when we were raising our family when our children were of age and considering buying their own homes my advice to them was to minimise their loan amounts as much as possible.
Pay as much as you can afford off the principle amount.
Do not enter into second mortgages.
Only purchase necessities. The luxury vehicles, boats, and overseas trips can be achieved later.
When borrowing with an unfixed interest rate, factor in the rate doubling during the repayment period.

Today my youngest is 42 and is only a few dollars short of them owning their first home. His wife has been a stay at home mum for most of their marriage.

My eldest, my daughter is 47 and has been a two income family for her married life. They presently own one property outright and have a very modest mortgage on another property which does provide a small income source.

We arent a special family. I was a tradesman and my wife worked on and off throughout our marriage to help. We battled with the 17% but careful planning got through it. My children werent hit with the silver spoon but have worked to take the best advantage of what they had.

I note today that the young ones have to have everything and it is all good until the banks begin to want their profits back.
With increased interest rates comes a downturn in most other activities and worse today with the rort on energy, fuel and commodities being silently sanctioned so our deficit may recover.

I feel a little sorry for the youngsters but those looking after them need to give them advice, not prop them up so that the parents can feel warm and fuzzy.

Are We Lost · Guru

That 17% rate came at a very difficult time for me. Marriage breakdown and property settlement was months before and I had a huge mortgage as a result. With a busy job I had a second job as a taxi driver working about 24 hours every second weekend (kids alternate weekends). The thought of having to miss out on going out for breakfast as an unreasonable imposition is laughable.

Like Ivan, my daughters appreciate the value of money and that life is sometimes pretty tough. Perhaps due to that, two of them have acquired rental properties and my third put her energies into gaining education and it is currently paying off exceedingly well. They all went through the tough times and came out better for it.

-- Edited by Are We Lost on Wednesday 2nd of November 2022 11:38:33 AM

TheHeaths · Guru

I see I am in the minority, so will back out gracefully.

I still wouldnt want to be a worker, on $50 or $60k per year, trying to even buy our modest home, at well below $500k, an entry level home at best, and a mortgage of $350 or $400k to cover. That is an increase of between $500 and $700 per month. And that is hardly for the high life of boats, caravans and 4x4s!

I am not saying we didnt have it tough, or that many are doing well, just that a bit of empathy for those struggling, through little fault of their own as many are, wouldnt go astray.

-- Edited by TheHeaths on Wednesday 2nd of November 2022 11:42:50 AM

Whenarewethere · Guru

The entire system is broken. Housing has turned into pretty much purely investment.

80 to 90% of vehicles are financed. When people buy cars this was they buy more expensive models. They get into a vicious cycle borrowing.

I have been living in the same block of units since 1989 & have a long term perspective on people on a tiny community.

People who have mortgages clean their home. Renters get cleaners in, in general.

When we got our 17% mortgage, there were a number of work colleagues I spoke to who have mortgages for a long time. They had a cap of 13% on their mortgage so it really didn't matter how much the rates when up. You don't have these caps these days.

Whenarewethere · Guru

Are We Lost wrote:
They all went through the tough times and came out better for it.

I agree. As tough as it was, I learnt to save.

It is easier to save a dollar than earn a dollar.

Ivan 01 · Guru

TheHeaths wrote:
I see I am in the minority, so will back out gracefully.

I still wouldnt want to be a worker, on $50 or $60k per year, trying to even buy our modest home, at well below $500k, an entry level home at best, and a mortgage of $350 or $400k to cover. That is an increase of between $500 and $700 per month. And that is hardly for the high life of boats, caravans and 4x4s!

I am not saying we didnt have it tough, or that many are doing well, just that a bit of empathy for those struggling, through little fault of their own as many are, wouldnt go astray.

-- Edited by TheHeaths on Wednesday 2nd of November 2022 11:42:50 AM

I think you made a valid point Ian.

Each of us has faced different challenges when we were younger, but I guarantee I would rather be 66 than 16 in todays world.

I know I do feel a little sorry for those youngsters.

My sympathy is compounded more from the parents, society, and advisors who actually allow them to dive headlong into massive debt.

Social influences and peer pressure account for a lot of it.

When we all were young and struggling the *cool* thing was how we saved and how we were possibly more frugal than others.

Today it is *cool* to have every possible luxury known to man. There are youngsters around that leave air cons running all day and cannot even turn a fan or a light off when leaving home for the day.

The only thing I personally dont agree with is we need to offer them the *milk of kindness*

I am speaking generally, but giving them a prop to lean on wont help them.

I note that the some of their *marriages* cost more than a house cost 30 years ago.

Probably the wrong word biggrin biggrin I do mean *wedding ceremony* biggrin biggrin

-- Edited by Ivan 01 on Wednesday 2nd of November 2022 12:54:58 PM

watsea · Guru

i understand what interest rates were in the late '80s-early90s as we were purchasing a house at that time.
What seems to be happening now, is that even though wages have increased, the property market has accelerated at a much higher rate. Most loans are for housing finance, so the loans are on a higher relativity scale than the earlier period of high interest rates. For example in'80s to early'90s, finance for our house and land was about 4 to 6 times my gross salary. Now, finance required for similar housing is about 8 to 12 times a salary for a comparative experienced person to what I was then.

Whenarewethere · Guru

Another thing I can't work out is that the landlord (I am also one, even without negative gearing) can make money out of property but the government bangs on that social house is an expense, even though I bend over backwards to maintain my investment property as is required by government.

Mike Harding · Guru

Negative gearing should *never* have been permitted into the tax system for private housing.

Private housing should not be a money making system outside the natural fluctuation over time. We now have a system where half the bloody "old people" in this country have an investment property and have significantly contributed to driving house prices to stupid levels and I hope it all comes crashing down around their necks.

People *must* have a home, there is no choice unless one likes parks benches and government should have stepped in years past to regulate the housing market and prevent the situation we have now, instead all flavours of government have simply encouraged it because they didn't care to risk losing votes.

I saw a housing crash in the UK in the early 90s and I hope one happens here and soon.

Housing should not be a luxury for the well off to make money on.

deverall11 · Guru

Mike Harding wrote:
Negative gearing should *never* have been permitted into the tax system for private housing.
Private housing should not be a money making system outside the natural fluctuation over time. We now have a system where half the bloody "old people" in this country have an investment property and have significantly contributed to driving house prices to stupid levels and I hope it all comes crashing down around their necks.
People *must* have a home, there is no choice unless one likes parks benches and government should have stepped in years past to regulate the housing market and prevent the situation we have now, instead all flavours of government have simply encouraged it because they didn't care to risk losing votes.
I saw a housing crash in the UK in the early 90s and I hope one happens here and soon.
Housing should not be a luxury for the well off to make money on.

Maybe it's also time to act on long term rental agreements. 12mth maybe 2 years max in residential. How about a European style rental agreement

or a commercial style instead of just talking about it. Happy to have this conversation with some one who feels the need to bring it up

in a 5 sec TV interview but do not know where to find them.

Anybody with suggestions welcome.

Gundog · Guru

Mike Harding wrote:
Negative gearing should *never* have been permitted into the tax system for private housing.
Private housing should not be a money making system outside the natural fluctuation over time. We now have a system where half the bloody "old people" in this country have an investment property and have significantly contributed to driving house prices to stupid levels and I hope it all comes crashing down around their necks.
People *must* have a home, there is no choice unless one likes parks benches and government should have stepped in years past to regulate the housing market and prevent the situation we have now, instead all flavours of government have simply encouraged it because they didn't care to risk losing votes.
I saw a housing crash in the UK in the early 90s and I hope one happens here and soon.
Housing should not be a luxury for the well off to make money on.

Sorry Mike without negative gearing the amount of rental properties would be very limited.

Whenarewethere · Guru

Maybe negative gearing should be on the first, let's say $700k of the property. $2+m negative geared properties are not exactly targeting the right audience.

Mike Harding · Guru

Gundog wrote:
Sorry Mike without negative gearing the amount of rental properties would be very limited.

Not at all!

Decades of history indicate that is not the case.

Mike Harding · Guru

Come on all you social justice warriors where's your fury with negative gearing? Or do most of you have a rental or two as well? No surprise there....

Are We Lost · Guru

The tax office can (and should) reject any claims for negative gearing where there is not a reasonable chance of the investment becoming profitable in a reasonable time. If that $2M property with say $1.5M loan has no chance of turning profitable in a few years then it should not qualify. In Sydney there are huge numbers of properties in that price range that are rented profitably.

As Gundog said, if there are disincentives for owners to rent out their properties, then there will be less available and rental prices will rise. With the currently falling property prices and fairly low rental yields the supply is likely to diminish.

So if negative gearing were to be made less attractive, new property investors would reduce, some sell up, causing the falling prices to accelerate. The Reserve Bank really wants to avoid this due to the flow-on effect to the economy. Soft landings are better. When times are good, then could be the time to gradually make changes, but I would tighten things for foreign investors first. Maybe more of that should have been done years ago.

dogbox · Guru

Mike Harding wrote:

Negative gearing should *never* have been permitted into the tax system for private housing.
Private housing should not be a money making system outside the natural fluctuation over time. We now have a system where half the bloody "old people" in this country have an investment property and have significantly contributed to driving house prices to stupid levels and I hope it all comes crashing down around their necks.
People *must* have a home, there is no choice unless one likes parks benches and government should have stepped in years past to regulate the housing market and prevent the situation we have now, instead all flavours of government have simply encouraged it because they didn't care to risk losing votes.
I saw a housing crash in the UK in the early 90s and I hope one happens here and soon.
Housing should not be a luxury for the well off to make money on.

if it wasn't for people having investment properties i would think there would be a bigger short fall in the places for rent, than there is now . recently seen a for lease, open house an there must have been 50 people in the que to view it
those people with investment properties will most probably miss out on any OAP benefits .
most ,if not all , tax benefit from negative gearing will most likely be recouped by the ATO thru capital gains tax

the cost of housing will keep rising as long as people are prepared to pay the asking price or possibly higher at auction they keep finding the money
the only way that the price of housing will fall is if demand falls .
one possible solution could be decentralization, most people want to live near the coast. move all government offices/ corporate hq's hospitals universities ect to country towns if you move the money the people will follow ( IF YOU BIULD IT THEY WILL COME )quote from the movie
CANBERRA is a perfect example , or maybe MELBOURNE to BRISANE highspeed railway via DUBBO with an international airport at DUBBO direct connection to International markets for our produce
to much forward thinking for governments that cannot see past the next election

-- Edited by dogbox on Wednesday 2nd of November 2022 08:55:43 PM

dogbox · Guru

Tony Bev wrote:

I have young family members who have a mortgage

Lucky that both them, and their respective spouse are working, so they will be OK

I think that one problem is, in the days of 17% an average mortgage may have been around $40,000 or less than $7,000 a year

Although our wages were less, basic commodities were also less

Today an average mortgage could be up to $500,000 and upwards @ 4% or more, so around three times the amount of what people paid, back in the day

But with wages rises, basic commodities have also gone up

A couple with children, who recently purchased a house, probably did budget for their mortgage, they probably did not expect the recent rises

I do expect a lot of forced sales, due to the unpredictable economy, and have no doubt that a lot of younger people, will be tightening their belts

if you look back to the mid 70's houses in syd could be bought for about $40000 - $50000 that was a price i could not afford but if i went to the outer western suburbs you could get a new house for $ 25-30000 might not sound much now but back then an income of $ 5000 - 6000 per annum meant you could manage but had to work 70 hours + to earn that

from memory we paid rent of $160 per month ,the mortgage cost $275 per month $ 115 per month more plus council/water rates ,insurance , Maintenace ect ect
it was a struggle but we managed