One of Australia’s top mortgage lenders has issued a dire warning to homeowners after interest rates reached a 10-year high: Sell now before it’s too late.
Businessman and ex-Celebrity Apprentice host Mark Bouris told Daily Mail Australia he was forced to sell his house when interest rates hit a record 17.5 per cent and the country plunged into recession in 1990 – and warned history may be set to repeat.
Reserve Bank governor Philip Lowe on Wednesday told a Senate hearing in Canberra this month’s ninth consecutive interest rate hike – taking the cash rate to 3.35 per cent – would be far from the last.
Average borrowers on a 30-year loan term are now paying $3,303 a month – a 43 per cent jump from $2,306 in May 2022 – and further rate rises this year are all but certain.
Mr Bouris, one of Australia’s top financial advisors and founder of mortgage lender Wizard Home Loans, said today’s hikes reminded him of 1990 when interest rates hit record highs and he was forced to sell his home.
He said families today need to ‘bite the bullet’ and consider doing the same because the worst could be yet to come.
‘My kids were young and we had to move out and rent a place. That wasn’t great. They wanted to know why we were leaving and I had to explain it,’ he told Daily Mail Australia.
‘[My wife] would ask when would we have the security of our own place again … I was a young guy and I felt a bit embarrassed about the situation.’
Mr Bouris said his family spent four or five years in the rental home before finding their feet and getting back on the buyers’ market.
He said the struggle of selling the family home and moving into a rental was tough, but it was the right decision for their future.
‘You’ve got to bite the bullet sometimes and realise that selling now is probably better than selling later,’ he said.
‘I had to sell my home and I think a lot of Australians are in a similar place this time. Don’t feel embarrassed. Sometimes, it’s just how it is.’
Monika Radulovic and Mark Bouris attend the launch of IWC Schaffhausen’s pilots watch launch at Sydney Theatre Company
Mr Bouris published a video on TikTok where he asked Aussies struggling with interest rate hikes to get in touch.
Within a few hours, he was inundated with messages.
‘I’ve had to actually put up another post saying please just hold off sending because I’ve had hundreds of responses,’ he said.
‘I’ve had responses from people struggling because of all sorts of circumstances.
‘There’s domestic violence where people had to move out or one of the partners has had to leave and the other is left with the mortgage and can’t maintain it on a single income.
‘Others have had problems with businesses … because of COVID – and they can’t now afford to pay the new interest rates.
‘I’ve had literally hundreds [of messages] and I’ve probably replied to maybe 60 – but each one requires a fair bit of time and effort.’
He said one of the major issues he’s come across is the new variable rate kicking in.
Mr Bouris (pictured in 1990) said it reminded him of the 1990s, when recession and a poor economic climate saw him sell his own home
Mr Bouris, who is the founder and chairman of Wizard Home Loans, Australia’s second largest non-bank mortgage lender, published a video on TikTok where he asked Aussies struggling with the mortgage crisis to get in touch
The era of the record-low 0.1 per cent interest rate in 2021 saw borrowers take advantage of home loan rates of two per cent or lower.
But now more than 800,000 loans, temporarily fixed with those ultra-low interest rates, will expire this year – and those mortgage holders will face a massive increase in repayments.
Meanwhile, Dr Lowe told the Senate hearing on Wednesday the situation for homeowners would get worse before it gets better.
‘There is a risk that we have not yet done enough with interest rates and spending is more resilient and that inflation stays high,’ he said.
‘If inflation stays high, it’s very damaging for the economy, it worsens income inequality, it makes it harder for businesses to plan, it erodes the value of people’s savings, it’s corrosive for the economy.’
Dr Lowe warned worsening inflation would lead to even higher prices and higher unemployment, referencing the early 1990s when the jobless rate hit double-digit figures even after a recession.
‘We’ve got to be attentive to the risk from higher inflation – it’s more than 30 years since we had higher inflation, I think many people have forgotten the really, serious damage that does to people, to livelihoods, the functioning of the economy if it persists,’ Dr Lowe said.
Dr Lowe acknowledged it was ‘really, really hard for some people’ who would have to battle ‘a very big increase in their mortgage payments’.
However he noted that he had to tackle inflation running at a 32-year level of 7.8 per cent to avoid a repeat of 1990 when wages growth failed to keep pace with price rises.
‘When we’re raising interest rates… it’s unpopular in large parts of the community, particularly given the history of the lower interest rates over the years,’ he said.
‘It is unpopular and it’s the job of the central bank to do what’s unpopular in the national interest and that’s what we’re doing.
‘If we don’t get on top of this, the pain will be worse.’
But Dr Lowe, who is on a $1,037,709 remuneration package, said he understood borrowers were doing it ‘really, really tough’.
Mark Bouris is pictured with former U.S. president Donald Trump
‘I read those letters and hear those stories with a very heavy heart,’ he said.
‘I find it disturbing. People are really hurting, I understand that, but I also understand that if we don’t get on top of inflation it means even higher interest rates and more unemployment.’
Mr Bouris hit out at the government and Reserve Bank for putting Aussies in the position of having to sell their homes – and offered advice for those struggling with rising mortgages.
‘If I was in that position, if that was me, knowing my circumstances, I would sell now rather than sell in six months time because I think the chances are that you get a better price now,’ he said.
‘I don’t see why the government should put people through that. The government have raised outstanding amounts of taxes over the last couple of years .
‘The government is in a position to probably give a little bit back to those people who are going to suffer during this inflation fighting period.’
Mr Bouris was unimpressed with the government’s actions tackling the crisis and said its policies during Covid made the situation worse.
‘Governments cause inflation because they give money and people think, “oh, that’s free money. I’ll go and spend it”,’ he said.
‘During Covid, they gave the bank’s money to lend money to people to buy houses. They gave it to banks really cheap. So therefore, the banks pass that on to borrowers really cheap. We gorged ourselves with cash and then we gorge ourselves once the lockdown closed off.
‘We gorged ourselves with luxury. We went on holidays, we bought second-hand cars, we bought four wheel drives, televisions, we just rewarded ourselves ridiculously and that is human behaviour.
‘Both the government and the Reserve Bank created inflation. Now they are trying to fix inflation and mortgage holders are going to pay it. I just think that’s really unfair.’
As a solution, he called on the government to offer a rebate to mortgage holders.
‘If you have a rebate off tax for a mortgage, let’s say a million or less, then that will help them keep their heads above the water while interest rates keep rising,’ he said.
‘Make it $2,000, for example. That $2,000 you then make an application to the Tax Office for. The $2,000 rebate will be distributed to you and it will help borrowers who need it.
‘I think that’d be a great economic policy for the government to bring out the next budget, it makes sense.’
Finance guru David Koch explodes over interest rate debacle and says EVERY Australian who took Reserve Bank Governor’s ‘derelict’ advice should get their loan guaranteed
Sunrise host David Koch has called on the government to guarantee every home loan taken out on the ‘derelict’ advice of Reserve Bank Governor Philip Lowe that interest rates would not rise until 2024.
The Reserve Bank Governor will face a grilling in federal parliament on Wednesday over the nine rapid rate interest rises that have have occurred since he forecast that they would not go up until 2024.
Interest rates rose to 3.35 per cent last week – the highest they have been in 10 years.
The succession of interest rate rises mean thousands of households are facing the so-called mortgage cliff, as low fixed-rate mortgage deals expire and the higher interest payments begin.
Koch said many who invested on Mr Lowe’s erroneous forecast could lose their homes.
‘All of these Australian households, imagine the emotional pressure you would be going under at the moment, facing the prospect of a sale on your house,’ he said on the Channel Seven breakfast program on Wednesday.
‘It would be destroying families and destroying relationships. That’s the human side of it.’
Koch proposed the Albanese government should go to the banks and say ‘we will guarantee these people’s loans because they followed the derelict advice of the Reserve Bank’.
‘They’ve still got to paying their loans but many of them are in negative equity and the bank will be on the verge of selling them out,’ Koch said.
‘It’s not a handout, it’s just saying to the bank, don’t close them down, we will guarantee it until things improve.’
Negative equity occurs when a property is valued at less than the loan taken out to purchase it.
RBA boss Dr Lowe (pictured) will be feeling the heat today when he faces a grilling in parliament over the rapid rise of interest rates
Koch’s Sunrise co-host Natalie Barr initially raised her eyebrows in shock at the suggestion but by the end of the explanation she was nodding in agreement.
The Reserve Bank Governor will face Senate Estimates on Wednesday.
Last week, the Reserve Bank lifted interest rates to 3.35 per cent, in the latest increase.
For those coming off fixed rate deals this could mean a jump from paying 2 per cent of their loan to over 5 per cent.
This means an extra $1,114 for a borrower with an average $600,000 home loan who is coming off an ultra-low fixed rate of 2 per cent and moving on to a new 5.26 per cent variable rate mortgage.
Dr Lowe will be questioned by the economics legislation committee as the Reserve Bank foreshadows more interest rate rises to rein in inflation, which grew by 7.8 per cent annually in the December quarter.
The federal government is concerned about the 800,000 mortgage holders on fixed rates yet to feel the full brunt of increasing rates.
The future of the RBA’s leadership has also come under question ahead of the treasurer’s decision on whether to extend his term in the second half of 2023.
Senate grilling for RBA boss
Reserve Bank Governor will face two days of questioning by parliamentary committees over the rapid interest hikes.
On Wednesday he will front a Senate estimates committee. committee and on Friday it will be a House of Representatives committee.
Beginning in May the bank has lifted the cash rate nine successive times to 3.35 per cent.
Dr Lowe said in November of 2020 that interest rates would stay on hold until 2024 but apologised for this comment last November.
His seven-year term as RBA governor is set to expire later this year with speculation mounting Treasurer Jim Chalmers may not extend it.
Several MPs, including Labor backbenchers, have questioned the future of Dr Lowe based on the RBA’s predictions issued during the pandemic that interest rates would not rise until 2024.
Treasurer Jim Chalmers has refused to comment on Dr Lowe’s future as Reserve Bank governor.
The RBA is also subject to an independent inquiry, with the findings due in March.
Read more at DailyMail.co.uk