I want to try and drive through a bit of the noise and the misconceptions out there today.
Number one misconception is that we are mortgaged up to our eyeballs in Australia. It is not true. The facts are that the total value of all houses in Australia is $10 trillion. We owe a grand total of $2 trillion on our houses. So really, we’ve got a loan to value ratio across Australia of 20%.
We don’t owe a lot of money on our houses.
Second misconception is interest rates are going up and that inflation is this big monster that’s going to eat us. Inflation can be a monster if you don’t own assets and as for interest rates going up, they were always going to go up, they must. They are just getting back to normal, and you can see below, in the Reserve Bank cash rate.
That 2.35% you see today… We’ll pay about 2% to 2.5% above that rate on our home loans and you can see there, it sat at about 2.5% for the past ten years on average. So, we’re just getting back to normal when it comes to our interest rates.
Misconception number three is that we can’t afford interest rates to go up. That’s also not true. We’ve never saved so much money from these low interest rates. Australians have $305 billion worth of savings in their savings accounts today, and that’s up by $200 billion since the start of the Pandemic – that’s a massive tripled in value.
You can see in the above graph that the red line is our savings ratio. We’re still saving more money than we were before the Pandemic, so we absolutely CAN afford it. And another way that we can afford it, and probably the most important way, is we’re 45 months ahead on our mortgages today in Australia. That’s nearly four years that we could make no repayments and we’d still be ahead on our mortgages.
The value of our wealth is $15 trillion. We’re one of the wealthiest countries in the world and a lot of people don’t realise the following:
- 31% of all houses in Australia are owned outright (no mortgage).
- There’s another 35% that are owned with a mortgage, and then
- another 31% that are investment properties rented out.
So, we’ve got rental income coming in to pay for our interests and other costs. That’s the point I want to make. I want to get you out of the detail and out of what I will call noise, because that’ll all settle itself out over the next six months or so. Look at the numbers.
