The 8 year mortgage

David Collett
Dec 28, 2018 · 2 min read

I help people borrow money.

I write letters to central bankers and treasury secretaries. Asking questions.

The mega mortgage housing machine rolls on because we accept it.

Australian house prices have been rising faster than wages for decades

We implicitly accept a 30 year mortgage. The “30 years” bit isn’t the part we’re supposed to question.

We’re supposed to question the rate.

Four percent? Three point six nine percent?

The rate is a distraction.

Should we be focussed on abolishing negative gearing?

Yes, of course.

But even when negative gearing has gone, investors will outbid home owners.

Let’s say you’re a twin. And you both have the exact same financial situation.

You’re both organising pre-approval to buy your first home. Same lender. Same home loan product. You’re both earning $65,000 gross per year excluding super.

And negative gearing has been abolished.

You tell the bank you’re going to live in the property. Your twin says he’ll rent it out.

If you both go to an auction this Saturday and bid, your twin will win.

You’re on $65,000 per year. Your twin can add 80% of the annual rent. On a weekly rent of $400, this equates to an extra $16,640 per year.

Your twin is now on $81,640. Even though the extra income is still only a hypothetical.

Can you put down on your home loan application the fact you intend to get an extra part job after the loan has settled to earn an extra $16,640?

Can you guess how many lenders would accept this hypothetical income?

Why are lenders allowed to accept the hypothetical future income from a property purchase, but not from picking up an extra job?

Abolishing negative gearing is a necessary step in the right direction, but where exactly does it lead?

Do we have to crash house prices to afford them?

Or could we include annual house price growth in our inflation data so our central bank raises interest rates whenever house prices rise too fast compared with our wages?

Or are we expecting too much?

Should we do what our central bank does and just view the housing market like the stock market? Houses are financial investments and nothing more.

In the long run, central banks will take the lead from Treasury.

In the long run, Treasury will take the lead from Parliament.

In the long run, Parliament will take the lead from the people.

We are the people.

We reinforce the status quo with our language.

What we read, what we write and what we talk about.

Do not accept a 30 year mortgage.

It’s the blue pill.

David Collett

Written by

Likes asking questions and BJJ. Works at Dallett

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