Chapter 1: What is the main topic discussed in this episode?
It's The Real Estate Podcast, across every state, city and town of Australia. And welcome to another episode of The Real Estate Podcast, available on iHeartRadio every morning, also on Spotify and Apple and wherever you get your podcast from. Well, the weekend is back. Yes, the first weekend for August, the sixth day for 2022.
Coming up this morning, we're going to be talking shortly with Carlos Cacho, everything from mortgage buffers to mortgage defaults, bank serviceability of mortgages being eroded, and a whole lot more. If you're celebrating a birthday for today, the 6th of August, have a great Saturday, have a great weekend. You share it on the same day as Andy Warhol. Well, that's if Andy was still alive.
Of course, he's not. He was born on this day back in 1928. And checking on the history books, unfortunately, a very infamous day on this day in 1945, in one of only two times nuclear weapons have been used in warfare today, The United States drops a nuclear bomb on the industrial city of Hiroshima in Japan. Over 150,000 people were killed.
And after the Hiroshima and Nagasaki bombings, three days later, Japan surrenders to the Allies, and that ended the Pacific War. And on a brighter note, coming up next, we'll have a look at your weather around Australia. It's your weekend real estate breakfast, a cereal-sized podcast about what's happening in your local backyard every Saturday morning on The Real Estate Podcast.
It's the main centre forecast with propertybuyer.com.au. And good morning if you're in Sydney this morning expecting a fine day with sunshine and 20 degrees. Melbourne a few more showers, not a bad temperature with 15. Brisbane expect some morning rain and 25 degrees as your forecast high. And in Perth the showers increasing today and your high of 18 degrees.
We are just as addicted to property as you are. Every weekday morning from 6.30. Well, it seems like we have had a very busy long week and thankfully the weekend has arrived. The rate increased, of course, on Tuesday and since then so many talking points regarding when are we likely to be coming out of what is a very uncertain time in the housing property market?
Of course, the answer to that is just as uncertain as the question itself.
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Chapter 2: What are mortgage buffers and why are they important?
Well, on this Saturday morning, let's bring in Carlos Cacho, Australian Chief Economist and Banks Analyst at Jardin. And a very good morning to you, Carlos. Thanks for having me. And yeah, it does seem like a lot has been happening. There's been a lot of talk around people having these buffers.
And it's talked about like it's a widespread phenomenon throughout the country with people who have mortgages. They've got all this buffering behind them. The RBA have talked about the buffers. Inflation is the other driver, of course, coupled with mortgage rate increases. People are in mortgage stress right now.
Just how bad is that situation, do you think, likely to get with the buffers that they're claiming that are there versus people that are running out of money? Look, it's a very tough question.
I think the challenge is, while in aggregate we've got these really big buffers, we estimate between extra mortgage repayments and extra deposits that people have put in banks since COVID kicked off, there's over $300 billion in... in kind of excess savings or buffers sitting there.
The problem is we don't know where those sit and we don't know how well equally distributed they are across the economy and what we don't have data for this, but what I suspect is that a lot of those are sitting with probably a relatively smaller portion of households. We also know from the banks, from the own data that they've reported over the last six months,
that there's about a third of customers who are two years ahead in repayments. And that's great. Obviously, those customers are going to be in a much better place to deal with higher rates. But there's also over a third of customers who are less than a month ahead in repayments. And so, they're obviously going to be feeling the pinch from higher rates much, much quicker.
In most cases, they're going to be feeling it all right away and they're going to be seeing their bank accounts now. And while some of those customers, they've got a reason for not being ahead, they might have an investment
loan so there's an incentive to not prepay they might only in a fixed loan where there's you know not an ability to prepay but there's still about half of them who are not fixed or who are not investors who are not ahead on repayments and so they're the ones that we worry about where the this you know pressure of rising rates is really going to hit their their household budgets very quickly and you know quite hard given that the pace of rate hikes that we're seeing come through at the moment
And just having a look at that one step further, particularly around the repayments and the savings, of course, banks have the serviceability. And right now, that's being pretty much eroded, isn't it? Yeah, absolutely. So APRA, the banking regulator, requires banks to assess a customer's ability to repay a loan at a higher rate than the loan will actually be at.
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