Joust Talks Interest Rate Rise with FiveAA

Founder of Joust, Mark Bevan sat down with radio station Five AA to discuss interest rate rises and the upwards cycle of rate rises that are expected and provides (non financial) advice for young home buyers.

Find a transcript of the full conversation below.

"Most of the economists are tipping as many as 7 rate rises for the remainder of 2022."

Graham: Well, if the Melbourne Cup is the race that stops the nation. Today it's the meeting that stops the nation, it's the meeting of the RBA. They're meeting to almost certainly increase the cash rate. Which will see an increase in mortgage rates for everyone buying a home. Joining me now is Mark Bevin, founder of Joust. Mark is that fair are we almost certainly going to see a rate rise.

Graham: If they don't make a decision today why would they be leaving it a month?  

Mark: Oh, look I think it would really be to do with the election you're just the preference to not make a move so close to an election and there is some employment data expected in the next couple of weeks as well, that big keen to have a look at. 

Graham: And if there is to be a rate rise, be it today or in a month's time will that be it for a while or can we expect more rate rises?

Mark: Oh, no lookout our viewGraeme, is that this upward cycle will need to be fairly sustained to cope with the inflation pressures most of the economists are tipping as many as or between 24and 7 rate rises for the remainder of 2022. So, that's a big concern for particularly young families with large mortgages. 

Graham: Yeah, and that's the point, isn't it? A lot of these young families would never have been in the situation where they're buying a home and had a rate rise. I mean how many years has it been since there has been an increase?

Mark: You're right Graeme this will be the first rise since November 2010. So, as you say relatively new borrowers haven't had to deal with this. Look at our viewer Gia says the crucial thing is not so much what happens at 2 p.m. South Australian times this afternoon but what happens for the whole upward interest rate cycle. if the listeners your home loan rate moves from two and a half percent to four and a half percent over the next 12 months, that can be on the average loan of five hundred thousand dollars that can be ten thousand dollars a year, extra in interest or eight hundred dollars per month.

Graham: When you look at the figure as it is at the moment and those older listeners will recall the heady days of 18%. A lot of older people are saying gee why should younger people be concerned? We're still talking single-digit numbers.

Mark: Yes, look that's a valid thing, and look I think on balance rates will settle at a more normalised rate.The point one percent that the RBA, got down to was really an emergency setting influenced a lot by covert. So, but the difficulty for young people these days the banks have been lending as much as six times their income, yeah to get into their first home. Back in the day Graeme as you say of 16, 17, 18, interest rates. The banks were a lot more conservative you could probably only borrow say a maximum of four times your income. So, the household debt is a factor that we've got to keep an eye on as well.

Graham: With the inevitable rise coming up what advice would you have particularly for young home buyers of people already in their homes?

Mark: Graham look, it's so important to be on top of what your bank is charging you exactly what the rate is including fees, and then to use websites like Joust to generate a bit of competition around what other alternative home loan rates that could be lower more competitive that you could be eligible for and really it needs to bean ongoing process Graham, as I said this cycle is likely to run for 12 or 18months. And so, it's the risk is that you just look at it once and you think oh well no big deal but staying on top of it would be our advice.

Graham: Yeah, I was going to ask that question because you get into a bank or lending organisation say this is a terrific deal and then you put it on the back burner don't think about it but things change, organisations change. So, you've got to keep vigilant keep looking. 

Mark: Indeed, that's right.What's a good rate today? If your bank moves with larger rate increases than someone else then all of a sudden, your rate is less competitive. So, it is incumbent on everyone certainly with larger home loans to be diligent have you found people are fixing the rate or they sticking with variables during last year we saw a large swing towards interest rates but that's often driven by the fact that the headline rate of fixed rates can be lower than the variable rate.So, that can drive people to sort of take the cheapest headline rate that's available. What's happening now, of course, is the banks aren't silly the banks are increasing their fixed rates considerably and it's much harder to get a harder to get a competitive rate fixed out beyond anything like anything more than two years.

Graham: What's your view on having a cocktail of a variable part to a fixed rate?

Mark: Well, I think there's  an element of common sense there that to have a blend if your bank can offer you a part fixed part variable rate that's a reasonable hedge.

Graham: With the inevitable rise coming up, what advice would you have particularly for young home buyers of people already in their homes?

Mark: Graham look, it's so important to be on top of what your bank is charging you exactly what the rate is including fees, and then to use websites like Joust to generate a bit of competition around what other alternative home loan rates that could power more competitive that you could be eligible for and really it needs to be an ongoing process Graham, as I said this cycle is likely to run for 12 or 18months. And so, it's the risk is that you just look at it once and you think oh well no big deal but staying on top of it would be our advice.

Graham: Yeah, I was going to ask that question because you get into a bank or lending organisation say this is a terrific deal and then you put it on the back burner don't think about it but things change, organizations change. So, you've got to keep vigilant keep looking. 

Mark: Indeed, that's right. What's a good rate today? If your bank moves with larger rate increases than someone else then all of a sudden, your rate is less competitive. So, it is incumbent on everyone certainly with larger home loans to be diligent have you found people are fixing the rate or they are sticking with variables during last year we saw a large swing towards interest rates but that's often driven by the fact that the headline rate of fixed rates can be lower than the variable rate. So, that can drive people to sort of take the cheapest headline rate that available. What's happening now, of course, is the banks aren't silly the banks are increasing their fixed rates considerably, and it's much harder to get a order to get a competitive rate fixed out beyond anything like anything more than two years.

Graham: What's your view on having a cocktail of a variable part to a fixed rate?

Mark: Well, I think there's there's an element of common sense there that to have a blend of your bank can offer you a part fixed part variable rate that's a reasonable hedge.

Graham: I'm just looking at the time now. About three hours from now, people will be anxiously looking forward to the time. So, what is your gut feel you've given us three scenarios. What does your gut feel if you have to pick one?

Mark: My personal view is I think the RBA, may hold but then that but then increased by 40 by 0.4 per cent in June, but I'm in the minority in that case. So, most economists think it's very certain there'll be a rate rise this afternoon.

Graham: Mark thanks for your time.  

Mark: All right Graham.

Graham: Mark Bevin who is the founder of Joust and as the advice we've had over the past week or so is shop around.