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The impact the major banks are leaving on investors

By Demii Kalavritinos 03 November 2017 | 1 minute read

Phil Tarrant welcomes Momentum Media’s managing editors of wealth, Aleks Vickovich, and mortgages,  James Mitchell, to talk politics, power poverty, rebalancing mortgage books and interest rates. 

James Mitchell, Mortgages, Aleks Vickovich, Wealth

On this episode, they explore the issues property investors are facing from major banks and government, their recommendations on how to overcome them.

They also discuss how rising interest rates are affecting the market, and where they expect to see rates in the future.

You will also hear about the recent policies by the major banks hurting the property market, current monetary policies and why there is a disparity in rates.




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If you liked this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn. If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

Related articles of interest:

Sydney apartment market expected to fall in 2018, but may bounce back
Rate rises will lead to ‘major adjustment’ in housing market: Westpac
The pros and cons of fixing your rate



About the author

Speaker 1: Welcome to the Smart Property Investment Show with your host Phil Tarrant.

Phil Tarrant: G’Day everyone. Phil Tarrant here, host of the Smart Property Investment Show. Thanks for joining us running up into summer at the moment. And I don't know if you are in Sydney and you managed to get out into the hot sun over the weekend. It's starting to heat up and much like our property markets. What a great segue. Feel that.

Aleks Vickovich: You’ve done this before.

Phil Tarrant: No, it's good. We're going to have a bit of fun today. I've asked a couple of my colleagues into the studio to have a chat with me. I have Aleks Vickovich who is the managing editor of all the wealth platforms here at Momentum Media. And I also have James Mitchell who's the Managing Editor of Mortgages here at Momentum Media. These two guys got their finger on the pulse of everything that is going on in wealth creation, banking, finance, and I just want to pick their brain today and see what their read is on the current market. How things are tracking and dig down into some of the issues, which are going to be impacting borrowers in the years ahead.

            Guys, how you going?

Aleks Vickovich: Yeah, great.

James Mitchell: Very good, thanks.

Aleks Vickovich: How you doing, Phil?

Phil Tarrant: I'm all right. Who wants to start? Viko? I've here written politics.

Aleks Vickovich: Yeah, well, I can talk about politics. I always feel slightly inadequate coming on this show. Because I'm a big fan of the Smart Property Investment Show. But what are listeners the same age as me, but far more financially independent. Far more successful. You know, they made sacrifices in their lives. So I always feel a little bit inadequate coming on this show.

Phil Tarrant: Now, you're synonymous with Australia's wealth industry. You move around all of Australia, all the fund managers-

Aleks Vickovich: I do.

Phil Tarrant: ... the big platforms. And here you are lamenting-

Aleks Vickovich: Yeah. They pick up the bill for lunch though.

Phil Tarrant: ... lamenting about your dire financial situation. When are you going to buy some property, mate?

Aleks Vickovich: Yeah, well, I've chosen avocados in the meantime, and I'm going stick with that choice for now.

Phil Tarrant: Yeah. It's good.

Aleks Vickovich: It's neither or-

Phil Tarrant: So, what's going on? How are you reading the current sort of political landscape and you know, there's a lot of agitation, we're going to move up into election at some point soon.

Aleks Vickovich: Sure.

Phil Tarrant: You got labour always throwing some big curve balls towards our current sitting government. And they're staying pretty stout and saying it's business as usual, okay? What's your read?

Aleks Vickovich: Well, I mean at the very short term, I mean, it's sort of crisis at the moment. Although they're saying that it's not what with Deputy Prime Minister and a few other key senators being out of the Parliament for now. They reckon there's about a hundred pieces of legislation before the House at the moment that might be in jeopardy now. Because of the fact that they were signed off on minister's that have been found to be illegitimate by the High Court. So, no doubt quite a few of those pieces of legislation affecting borrowers and Mums and Dads across the country.

            So at the moment I think they've got some short term issues on the politics side that's stopping them from the bigger debates. But more broadly from that I think that Labour is kind of reactionary at the moment. I think they're going to do pretty well at the polls next time because of all the sort of short term crises and issues that's been going on for the government.

Phil Tarrant: How much do you think Aussies are hurting at the moment in terms of just getting by day to day? I watched a piece last week ... Recording this on a Monday, and I watched, I think I was 60 Minutes or Sunday Night or something the other night. And they had your mate, Mascon, talking about how power should be a lot cheaper. Right now, Aussies are paying way over the odds and there's power poverty and people really struggling.

            What's your thoughts on this? It's an expensive place to live, Australia. And I guess the context is, people are trying to save up for a deposit. They can never get there to buy a house or an investment property.

Aleks Vickovich: Yeah. Absolutely. And I think, if you look at the numbers there's no doubt that wages have not grown in line with inflation. The price of goods has gone up exponentially and wages haven't to the same extent.

            And so I totally understand people are feeling a lot of hate. If you go back to before Paul Keating inflated the dollar, property was cheap in this city. The views weren't any different, the harbour front still looked as good as it does now. And they were a third of the price or whatever. But I also think partly it's an issue of there needs to be reform of the tax regime. I think that would help wages go up a lot. And I think there's a ... I think economics is not taught well in schools.

Phil Tarrant: I don't think it's taught at all.

Aleks Vickovich: It's not taught at all. And I think that a lot of the listeners of this show have a better understanding than most because they understand economics on a daily basis.

Phil Tarrant: Yeah.

Aleks Vickovich: But it's not taught in schools and unless you have some sort of exposure to the business world or to investment personally, I don't think you quite understand how these things work. So, there's no doubt people are struggling, but I think there's things we could do in the economy to increase those wages naturally.

Phil Tarrant: Yeah. So James, you're pretty connected in with what the major banks are doing in terms of policy.

James Mitchell: Yeah.

Phil Tarrant: Last week I think you were sort of knocking around and I know Alex reporting season right now and differing stuff in. But how is it for borrowers sort of moving forward from a mortgage perspective. Do you think it's a market which is stable? Is it a market which is hostile towards investors? Or is money still cheap.

James Mitchell: Money's still cheap. But the problem is, I mean, what's happening at the moment is, obviously, the banks have lifted ... they've hiked interest only rates quite a few times in order to meet APRA's requirement on ... APRA wanted to slow down interest only lending. And I think what's interesting to look at now is that obviously the majors are sort of reducing P&I a little bit, upping rates for interest only and trying to rebalance their books. That's basically what they're trying to do. 'Cause they've got too much exposure.

Phil Tarrant: So, used to them rebalancing their-

James Mitchell: Mortgage books.

Phil Tarrant: ... books. So can you explain to our listeners what that means?

James Mitchell: Yeah. So basically you've got a bank like Westpac for example. And they've got however many mortgages on their books for however many Australians. 50% of all the mortgages Westpac hold, are interest only. That's probably too big an exposure. So they want to rebalance that and make sure that there's more Australians paying down principal because it's a better thing to do.

            That's been a bit of a change in the psychology of the Australian borrower which has been regulatory induced. And then as a result of that with the banks as well. So they are trying to tweak things. They're trying to change customer behaviour in terms of paying down debt rather than just using this interest only. Because property keeps on rising. Which I think is quite dangerous when the market starts to flatten.

Phil Tarrant: But do banks prefer interest only loans than P&I loans?

James Mitchell: I don't know, you'll have to ask the banks.

Aleks Vickovich: I don't think they talk that way in terms of preference.

Phil Tarrant: They're all out to make a buck all right? Let's be fair, they've got huge ... their shareholders obviously want profitability and they deliver significant profits to their share holders.

James Mitchell: Yeah, that's right. I mean, I think, going forward I think ... I don't think anyone would argue with this. The profitability of the Australian Banking Model is being challenged. And it's going to look very different in the future to how it has over the last 20 years. It's just not going to be sustainable.

            So banks are sort of changing the way they operate. There's a lot more scrutiny on them. Intense scrutiny on the banks. I've sat through and watched the Parliamentary Committee where all four major bank CEO's were basically grilled-

Aleks Vickovich: Yeah, getting slammed aren't they.

James Mitchell: ... for two hours at a time. How much of your book is interest only? You sent out this press release on the 27th of June saying you hiked rates by 34 points, all your customers? Not just the new ones to meet this requirement? And they're asking straight up, "Did you measure that? What was the calculation? What was the modelling? Why did you get to 34 basis points?

Phil Tarrant: What did they say? Did they say-

James Mitchell: They said there's no calculation. It's a judgement. And then CBA said they did it because everyone else did it. So some really interesting-

Phil Tarrant: Which CEO do you think sort of did the best in terms of copping it?

James Mitchell: To be honest Shayne Elliott from ANZ, I think. Just 'cause I follow all the rhetoric which comes out of them and that sort of stuff. He's probably the most on the ball at the moment in terms of just getting his point across and balancing out consumer outcomes with trying to run a bank in a different environment. And I think he's quite open to change. He's even said that. I mean, they're sort of selling off their wealth businesses. They're streamlining the ANZ business completely. It's very different now and will be going forward to what it looked like before when Mike Smith was CEO and they were sort of investing in Asia, wanted to be the super regional bank.

            Banking is changing back to almost just savings and loan.

Aleks Vickovich: And to be fair, I think ANZ had less exposure to a lot of those problematic areas. I mean the banks haven't done well in the wealth management space. They haven't done well in life insurance. They're just not well suited to that type of business. So they are moving back to being savings and loans operations. That's easier to do for some than for others.

            And if you have a look at the case of Commonwealth Bank for example, I mean some of the wealth management businesses that they bought in the late '90's and early 2000's, some of those businesses came with price tags of $100 million plus. And they're effectively worthless businesses. Except if they're able to push financial products through those.

Phil Tarrant: Let's have a chat about that Alex. So, can you explain to our listeners what I'm going to use vertical integration is, right. So, what you're talking about there is that banks bought these financial planning, wealth businesses to try and provide a better outcome, better relationship with their customers, try and cross over and stuff right?

Aleks Vickovich: Yeah, that's right.

Phil Tarrant: Has it worked?

Aleks Vickovich: Well, it hasn't worked at all. It's completely failed. But there's nothing nefarious about it in general. I mean, vertical integration is just kind of a wanky term that people like McKinsey & Co use. Which just means that you own both manufacturing and distribution, right? So if you're manufacturing Nike shoes and you own the Nike store, then you're vertically integrated.

            But what happened I guess in wealth management was, that they have these financial products, and we're talking about superannuation funds, life insurance policies, these types of products that Mums and Dads have for their long term retirement savings. And they bought these distribution companies. Financial planners, insurance brokers and so on as a vehicle to push those financial products through. So that in itself wasn't the problem. The problem was that those industries that they bought were also professionalising at the same time.

            So they were going through a process where they were needing to have higher education levels. They were becoming more akin to kind of accountants or lawyers. Both by law, but also naturally in terms of where those industries were going. Which means that they didn't want to be salespeople for products. They wanted to give unbiased advice like you would expect to get from your lawyer. And those two things don't really go together, right? So a lot of those people said, "Well, we're not a distribution force. We're trusted professionals. So you can't turn us into sales people." And when that happened, and the laws subsequently came into back that up, really made those businesses less valuable from the perspective of the banks.

            So, you're totally right. There was nothing too nefarious about it. Arguably they weren't honest enough about the fact that they owned the Nike store as well as the Nike shoe. So there was disclosure problems. But you're exactly right. All the banks are trying to do is get a return for their shareholders. And despite all of the scandals after scandals they've had in the last few years, greater profitability for most of the banks than they've ever had before. So, they're doing pretty well. But I think James is right. They're moving back to savings and loans. And I think it's a very important issue for everyone in the country. Particularly for investors because there's direct relationship between the amount of competition in the banking sector and the sorts of prices that people get.

Phil Tarrant: So if you look at it and I don't know what the most update numbers are on this, but the value of Australian residential real estate's about 7 trillion bucks, it's six point something. I think our value of superannuation's about three and I think Aussie equities is about 2 trillion. Is that right?

Aleks Vickovich: Yeah, it think that's right.

Phil Tarrant: That's sort of numbers, right?

James Mitchell: I think that's close.

Phil Tarrant: So Aussie real estate is big business, right? And when you look at what gets channelled into the banks, and the bank's profitability, I think 40% of it so, is because of their mortgage business so it makes sense for them to be in the business of mortgages and ensuring that Aussies can borrow to live or invest or whatever they want to do.

            When you look at the market over the last sort of two years, everyone's been talking it down. It's this big property bubble. It's going to burst and things are dire. Particularly in Sydney and Melbourne. You look at other markets like Perth that's 10 plus under where it should be. So they're hurting it, right? So every market's got different markets, right?

            But when you look at the Sydney property market, and Melbourne, they've been waiting for it to cool and come off for some time.

James Mitchell: It looks like it's happening.

Phil Tarrant: Well, yeah, but even auction results the weekend just past were still pretty strong, right? Stuff's still going way over reserve. So I don't know how much it's cooling.

James Mitchell: I think what'll be the big, I guess the big test for Sydney and Melbourne in particular, is when the RBA starts tightening monetary policy and starts increasing rates. And they, I mean, they don't really have much ... I reckon they're going to be on hold for some sort of world record time that a central bank can be on hold for rates. 'Cause there's a few different opinions around. A number of the major banks can see two rate hikes next year and another two in 2019.

            Bill Evans from Westpac is probably the only economist of the majors at the moment who thinks that RBA is going to be on hold for the next year and probably the year after.

Phil Tarrant: So he says, "No rate increase."

James Mitchell: No rate increase at all.

Phil Tarrant: It's not going to go down.

James Mitchell: It's not going to go down, but it's not going to go up.

            The thing is, if you go back in history in terms of the property cycle, every time Australian property has dipped, the RBA comes and cuts rates, and then it goes back up again. And then every time it goes up too high, they cut rates and then it comes down a little bit. And so on and so forth. It's used as a lever and it's worked pretty effectively. We had that dip in 2011, and they changed rates.

            They can't really do that any more, because they're pretty low. And they don't want to cut rates because it's going to create problems. They've already got a lot of worries about household debt and all that sort of stuff. So, I was at a lunch couple of weeks back and Bill Evans from Westpac was having a chat to a group full of mortgage brokers and real estate agents. And he said that basically he doesn't think they're going to increase rates. He goes, "But if he's wrong, and they do increase. Or, when they start increasing it's going to be a problem. Because there are people who are already stressed with the level of debt they've got, even though it's held up by an appreciating asset. They're stressed with servicing that debt and rates are at record lows. They've never as low as they are now."

Phil Tarrant: So it can only get worse.

James Mitchell: Basically yeah. And the RBA said that the neutral cash rate is three and a half percent, right? So that's 200 basis points higher, than where we are now. And that's the neutral rate. So I think that's something which a lot of the economists are worrying about. And you see reports coming out all the time. And that's probably why in our mortgage business in particularly it's been a bit bearish in terms of what's gong to happen. 'Cause we've been trying to forecast with economists, what happens to the market when rates start to rise?

            Because you've got a whole, I guess, a whole bunch of buyers or holders of property or mortgage holders and customers in the market who've been in the market for five years. Who have never known rates to be anywhere-

Aleks Vickovich: Normal levels.

James Mitchell: At normal levels. Exactly.

Phil Tarrant: Six something percent.

James Mitchell: Exactly. And if you've been using that time to pay down debt, that's great. But if you've been using it to leverage then it could be a problem.

Phil Tarrant: So there's a couple of terms you used there that I just want you to explain hopefully for our listeners. You talked about monetary policy. Now, property investors, there's no shortage of information you can get around them. What we're trying to do on the Smart Property Investment show is to try and talk in normal terms rather than in economic speak, and jargon and flim flam that most people don't-

James Mitchell: It just means interest rates.

Phil Tarrant: It just means interest rates does it?

James Mitchell: That's it. You can use them interchangeably.

Phil Tarrant: So-

Aleks Vickovich: In the context of property.

James Mitchell: In the context of property.

Phil Tarrant: In the context of property, okay. So, the Reserve Bank ... There's a couple of things moving in the Aussie property markets. Let’s have a look at this, you’ve got the Reserve Bank, you've got APRA.

James Mitchell: Yeah, the banking regulator.

Phil Tarrant: Okay, so, the Reserve Bank says, "This is what the interest rate is." And they determine that based on macro and micro economics drivers trying to steer Australia for a positive future, not a negative future, right?

James Mitchell: Yeah, basically.

Phil Tarrant: So, that's Reserve Bank's job.

James Mitchell: Yeah.

Aleks Vickovich: As far as I understand it though, it's kind of grey to what extent the banks, the retail banks, the big four and so on-

James Mitchell: Yeah…

Aleks Vickovich: .. are bound by what the Reserve Bank does.

Phil Tarrant: It doesn't matter. Because they'll say, "Oh, the cost of money is a lot more expensive for us to secure debt ourselves, therefore we need to pass it along to the consumer." So there's always a big gap. But you talk about his period of time that we've had with record low interest rates. A lot of people moving into property and putting positive pressure on prices to go up. But most people have done pretty well out of property out of the last sort of five years so.

            So for those people who have used this period to pay down debt, they're going to be sort of okay. For those people who have used it to leverage and maybe overextend, at a point and time when rates start going up, it's going to start getting problemic. That said, APRA has pulled a lot of levers to persuade, influence, cajole, whatever the banks to say, slow down on interest only lending, under 10% growth, that's all cool. But serviceability though for borrowers, banks are looking or lenders are looking at sort of 7ish percent now. So hopefully because of the way banks have been looking at borrower's potential to borrow money. They've put enough fat in it so at certain time, in terms of serviceability if it does go up to that. That should be okay

James Mitchell: Yeah.

Aleks Vickovich: I think one of the issues is that I think the banks know that all these kind of, fear and scare tactics that come out of government, that come out of the central bank. They know that it's fairly hollow because you only have to look at recent history to know that the banks are too big to fail. And if the banks in America are too big to fail, then the banks here are definitely too big to fail.

Phil Tarrant: One of the reasons we didn't fail during the JFC is because of a very, very strong banking system. Which was relatively risk-adverse. Unlike America who are knocking out laws to the people who should not have had loans.

Aleks Vickovich: Yeah, I mean there were many reasons. We had less exposure to the economy and where the problems were. We also had lucrative stores of bulk site nine, or that we would flood into the China east. So I think that's probably the main reason why. But the point is that the risks that we talk about. James, you're exactly right. I think there's far more risks on the investor themselves than there is in for the banks.

James Mitchell: Yeah.

Aleks Vickovich: Who, if they got into trouble, ultimately would be bailed out by government it think. And that's what a new study shows today, that came out of the Sydney University Business School. Which showed that, that government backing, that is kind of implicit in Australia where the government has said, "We've got your back. The banks can't fail. The banks are the key part of the stability of out economy." That has really influenced the decisions that the boardrooms make at the banks because they can lend in a risky kind of sense.

            Where a normal business wouldn't take those sorts of risks because it doesn't have anyone looking out for them, you know?

James Mitchell: Yeah. I think ultimately education for investors, for anyone buying a property, for anyone making any financial decision, education is so important. And I've learnt that through speaking to mortgage brokers and just through speaking to people who've recently bought property in the market. Because, and this is something which I think the RBA and APRA have, all those different bodies have said is that "Don't get into the illusion that property only goes up. It can go down."

            I mean, you've probably had investors, on our show over the last couple of years who bought and investment and it has gone down because they've had a lack of education.

Phil Tarrant: Well, that's what we're trying to do is educate them to say, don't buy those assets that are going to down in value. Or, don't pay overs for something when it's real price is $300,000 rather than $350,000, because they bought it of the plan of some developer's walked away with a nice paycheck, right? So it's about buying sensibly.

            But, I just want to touch on rate disparity between interest only and principal interest. And I'm looking to buy some stuff at the moment.

James Mitchell: It's about a hundred basis points now.

Phil Tarrant: It's huge and I had a chat with my broker the other day and I'm just buying a ... it's outside of the SPI Portfolio I normally talk about. But it's duplex up in Queensland. Just signed the contract the other day. But I was talking to my broker, and he said, "Phil, if you go principal and interest loans, at least I can get you high 3% interest rates. But if you go interest only and borrowing at 90% it's going to be sort of mid 5's." And he goes, "Look, it's going to be about $200 difference to go principal and interest you're going to be paying down an interest component of it. No worries at 90%." So why is there a disparity, James, around this chat with lenders and brokers?

James Mitchell: You mean, why is there a disparity in the rate? There's a disparity in the rate because basically APRA came out, 2015, and said, too many investors in the market. We need to slow that right down. Then they put a 10% capt. Banks can't grow their investor lending by more the 10% on annualised basis. That was sort of met, the market came down a little bit, RBA did two rate cuts. And the market resurged. I think afterwards he was pretty pissed of by that.

            So, then they came out in March of this year and said, "Right, now we're going to hit interest only. Now all new lending can't be more than 30% interest only. So for every hundred mortgages you write, only 30 of those can be interest only. As a result the banks use the pricing lever to achieve this ultimately. So what they did was, okay, how are we going to stymie the flow of interest only? We'll jack up the rates for interest only. And we'll reduce the rates of P&I by a small amount. So they jacket up the rates by around 30 basis points for interest only loans and reduced principal interest by about five and 10 basis points.

            And they also cut any sort of fees or anything like that to switch over. And they came up with some really competitive fixed rates of P&I as well. So they basically did that to try and, you know...

Phil Tarrant: So let's put pieces of banks in. So if people want interest only loons, it's good business for the banks because they're making more money off it right? But they are satisfying their requirements of APRA to keep their lending on interest only under 30%.

James Mitchell: Exactly. This is where that Parliamentary inquiry was really handy you know. 'Cause they really wanted to know basically, are you making a profit off this regularly stuff? And then there was even scrutiny ...

Phil Tarrant: Was the answer yes?

James Mitchell: No one could give a straight answer. I'm literally jut writing a report up on it now. For a Year in Review for the Adviser.

Phil Tarrant: Yeah.

James Mitchell: The trend is no one can give a straight answer. They basically said, it's guesswork. It's a judgement call. Which is quite worrying-

Aleks Vickovich: Of course they're going to try and turn ... I mean they've got the most highly paid lawyers in the business. You know they've got all these lobbyists on their side. Any regulations that come out they're going to try and turn to their advantage. As really any investors out there should. I mean this whole conversation if it shows one thing, it's the amount of power that governments have over the market.

            And a lot of investors have been doing well because prices have been kept artificially low. By the central bank. But that's an intervention. That's not the market operating as it should according to basic market dynamics. That's people, the government intervening. That's why it's so important to pay attention to this stuff. Because they can come in and completely change the dynamics just with one piece of law.

Phil Tarrant: So the government gets to choose what's going on. But to be fair, sort of looking towards the government and what it's done in terms of trying to keep price growth at a reasonable sustainable level, it's sort of working, right? It's nice to have a proactive central bank and a proactive government that's looking at this market saying… but are you saying, let the market be the market.

Aleks Vickovich: I am more cynical. Yeah, I am saying that. And I think there's a few problems. One is that I think very often there's a political reason why the central bank does what it does, right? Central bank takes its orders from government in the same way that APRA does and then every government department. The central bank has some independence of course.

James Mitchell: Which are based on election cycles and all sorts of-

Aleks Vickovich: It's based on election cycles and -

Phil Tarrant: And just heat us all up. We started with politics, let's end with politics. So what's going to happen? When's the next federal election?

Aleks Vickovich: It depends, I mean, it's got to happen in the next kind of-

James Mitchell: 2019.

Aleks Vickovich: Yeah, it's not for a little while, unless you never know with instability at the moment. The media's making things very unstable for them so-

Phil Tarrant: Is that you? Are you making things unstable?

Aleks Vickovich: No, no, no. I like to keep things peaceful in my titles. You know that, Phil. But people have gotten used to this lower interest rate environment. And I think one of the risks is that people get used to a situation that they think is natural, but it's actually, it's not. It's a function of politics.

Phil Tarrant: And what's really going to change though, if we had a change in government, James?

James Mitchell: Well, I think it'll be the tax policies from Labour. Negative gear, capital gains tax, they ... I mean, you go on Labour's website that's still their policy you know? In 2016 when we had the election and that was a big thing that was on the table. That and the Royal Commission into banks. Like Alex was saying, it's a game of politics. The coalition had to come up with something to meet Labour's policy. And so they've done this little inquiry into the banks. And hauled them in front of camera every now and then to be accountable.

Aleks Vickovich: And a big tax on the banks as well. And that's real.

James Mitchell: And of course, and the banks having all that sort of stuff. So they're doing these little tweaks to say, "We're managing things here. We're trying to make things more affordable." But there's a big cohort behind rooming negative gearing. Labour, a number of economists like Saul Westlake for example, for a long time have been calling for it. If, and you look at the opinion polls at the moment I think Labour's actually ahead of the coalition on these poles. It's pretty hard to come back from that.

Aleks Vickovich: Labour's been saying that for 20 years, or 30 years, or even longer when they're in opposition though. It's very difficult to do away with negative gearing once you're in power.

James Mitchell: That's true.

Phil Tarrant: This is a point, and it comes up in every conversation I have with investors and negative gearing always comes after.

Aleks Vickovich: Of course!

Phil Tarrant: And I go down to Canberra for the budget every year and I was down there this year and obviously they thought there'd be something would happen around that. And all they did was levy the banks on a big tax and remove some depreciation benefits that people get. So they didn't really touch negative gearing.

            The challenge you have in negative gearing is that I think a lot of people in the halls of Canberra don't really understand is that negative gearing isn't just for the rich.

Aleks Vickovich: I think that's right. Yeah.

Phil Tarrant: Negative gearing, you know, some stats around, I got banded around when I was standing in Canberra in May when the budget was. And one in four police people will teach is negative gear. It's not the wealthy, it's not the guys and girls sitting in the fancy offices here and it's-

Aleks Vickovich: But even those who are-

Phil Tarrant: ... good everyday Australians. Who are using property as a way to generate wealth and plan for a nice retirement.

Aleks Vickovich: Exactly right. And I think it comes back to that discussion around a lack of understanding of economics. I mean it's very easy to paint it as people who own property portfolios are Scrooge McDuck and they're hoarding this money. But very often who are those people? They're also the people who are running businesses and employing hundreds of people. So there's direct relationship between people having large property portfolios that they can live off-

James Mitchell: And economic growth.

Aleks Vickovich: ... that's exactly right. And they invest that back into the business. They use that as an income source. That's where jobs come from. Jobs don't come from government. They come from people who negatively gear and own properties.

James Mitchell: Yeah.

Phil Tarrant: Fair enough. That's good. All right, I think we did all right there. That's interesting right on 28 minutes and that's where we like to sort of keep that target ... our target band for our property podcasts. Much like the reserve bank, like a target band of inflation right?

Aleks Vickovich:We like to control things here.

James Mitchell: Keep it under 30.

Phil Tarrant: James, mate, thank you for your insights.

James Mitchell: No worries, thanks Phil.

Phil Tarrant: You've got a deep understanding of the cycles of mortgages and I think you're quite fortunate the position you have working cross mortgages here at Momentum Media that you actually get that inside view. I think you articulated some of those points really well. So, thank you mate.

James Mitchell: Thanks.

Phil Tarrant: Good for our listeners. And Viko still remain staying a cynic I think it's good for you.

Aleks Vickovich: Someone's got to be, Phil.

Phil Tarrant: It's good. You're observations on vertical integration I think's really important for our listeners because I think listeners need to know that where you choose to obtain financial advice from you need to make sure that it's not conflicted. And if something is coming from a major bank or some other financial institution, who is a manufacturer, i.e. they make it and they also distribute it, it's okay. They have some very good products, but ask the questions make sure you're getting the right advice.

Aleks Vickovich: Yeah, exactly right. Do your own research. Listen to people like the Smart Property Investment Show. There are people that are on your side, but all to often a lot of people aren't on your side, so, that's my view.

Phil Tarrant: There you go. All right, thanks guys. Thanks for tuning in everyone. Remember to check out SmartPropertyInvestment.com.au if you're not yet one of the many tens of thousands of people who are getting our newsletter, market intelligence every single morning, please subscribe, it's smartpropertyinvestment.com.au/subscribe. We're on all the social stuff go and check it out just search for Smart Property. Any questions for me or for the guys on the show today around what we spoke about, you can email the team, [email protected]

            And if you want to come onto the podcast we are running up into our Christmas period, we're going to get hard so we want to share some more stories from investors like you. The more we can do that the better off we can create educated investors that make the right property buying decisions. There we go. We'll be back next time. Until then, good-bye.

The impact the major banks are leaving on investors
James Mitchell, Mortgages, Aleks Vickovich, Wealth
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