09 Nov Why all rate increases are not bad news – Cate Bakos
In today’s show Cate Bakos, from Cate Bakos Property, buyer’s agent in Melbourne, tells us why all rate increases are not bad news.
Kevin: Well, we’re hearing all the time – aren’t we? – about rate rises. If it’s not the RBA, it’s the banks going individually. But there is a silver lining behind every cloud. That’s according to Cate Bakos from Cate Bakos Property, buyer’s agent in Melbourne.
Good day, Cate.
Cate: Hi Kevin. How are you going?
Kevin: Wonderful. I read your blog and I think you are exactly right. Tell me the thinking behind this when you say that rate rises are not all bad news.
Cate: First and foremost, we have rate rises for a reason. A lot of people are pretty sensitive about the idea of banks having a money grab and trying to seize high profits, but we originally found that we had rates going up in response to the banks being forced to hold capital.
Obviously, we do want our banks to remain strong, but the rational decision behind enforcing this change was because the RBA and APRA, in particular, were quite concerned about our property market heating up. We’ve had a lot of investment activity, and at the time that they made the decision to make a change, we had some record numbers of investment lines out there.
That was certainly having an affect in the marketplace, not just for first-home buyers but we saw some dramatically increasing values in lots of markets and some of our homebuyers who were missing out at auction were complaining that investors were driving some of the markets up, and I don’t contest that.
Kevin: You make a very good point there when you talk about the health of the banking industry. The last thing we’d want is to have happen in Australia what happened in America.
Cate: Absolutely. We had really strong banks right throughout the GFC, and I think we have to recognize that while we have some big lenders that are writing some enormous profits, we have a really healthy banking atmosphere out there. I think unless you’ve experienced some of the hardship that those who have had banks collapse overseas have experienced, we really need to pay some respect to how the lenders in Australia have handled our tougher times.
Kevin: That’s certainly a sensible look at what’s going on with the banks, increasing interest rates, and so on, but now let’s have a look at the opportunities that you rightly point out are there.
Cate: Yes, I think that we’ve gotten a little bit carried away with being sensitive to rate increases when, in fact, the real negative effects that investors have experienced in the last few months have actually been restrictions on what they can borrow. For lots of investors, it’s been restrictions on being able to borrow altogether. The opportunity for an investor who has equity or is an experienced, sophisticated investor who has lines of credit already established is that they can go out into a market where they have less investor competition now.
As we know, some of the great sayings out there exist. “Be greedy when others are fearful and fearful when others are greedy.” It’s a saying that I particularly like because if you are positioned to pounce into the market at the right time and avoid some really strong competition, you can sometimes have a fantastic buy under those conditions.
Kevin: Yes. Of course, with what is happening with the banks, there will be a number of people who are getting a little bit scared, and as you say, that creates those opportunities for savvy investors, Cate.
Cate: That’s right. Absolutely true.
Kevin: Cate, thanks very much for your time. Cate Bakos, of course, is a buyer’s agent from Melbourne, Cate Bakos Property.
Cate, thanks for your time.
Cate: Thank you so much, Kevin.