Wow. Who would’ve thought the last month was possible?
One person who is possibly licking his lips is Phil Anderson, the guru behind Property Share Market Economics. He might well be thinking ‘Yes! The last bull run (before the next crash) is about to launch!’ You heard it first here.
The events of the last month’s tariffs on, off, on again, off again yoyo, reminds me of Blackadder’s “I have a plan so cunning, you could pin a tail on it and call it a weasel‘ or perhaps Hans Christian Andersen’s tale of the Emperor’s New Clothes.
Anyway, back to Australia!
You’re probably being overwhelmed and numbed with the election news and sound bites, so here are some other interesting stories for you to read which are a bit more nourishing for the mind:
- Best interest rates
- Negative cashflow is on the rise – let’s dive deeper into negative gearing
- Renewables’ best kept secrets
- Tips for tradies starting a business (also good for anyone else!)
- 97% of borrowers are in good shape.
- NBN Gigabit plans? They are here (and reasonable)
- Can you afford a home loan?
- Chat GPT – the rules of prompting have changed
- Australia – king of the (highly priced) property market?
- AUKUS – back in focus
- Pros and cons of balloon car loans.
Read more below.
Best Rates
The interest rates below are current as at 26 April 2025.
A quick summary of the last 12 months:
- The most recent RBA Cash Rate change was the 0.25% decrease in February 2025.
- This Rate was maintained at the RBA Board Meeting in April.
- The next RBA Board Meeting is scheduled for 20 May 2025. Whilst the pundits are anticipating a further rate reduction, the RBA has not made any announcement to suggest that this will be the case.
Regarding the information below, please note:
- The rates below exclude: > clean energy rates > first home buyer rates > packages > construction loan rates > offset account feature.
- The best rates are based upon a 30 year loan with a Loan to Value Ratio (LVR) of less than 60%. This is typically the lowest LVR used by lenders when sharpening their rates.
- Interest Only rates are based upon an Interest Only period of 1 year.
- Fees and charges are excluded from consideration. These can be considerable for some lenders so we always recommend a full analysis of all the costs you will be likely to incur. We provide this service for you when you book a time for an initial discovery call chat.
Owner Occupiers
Principal and Interest
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Fixed Rates: from 5.19% pa – 2 and 3 year terms; down by 0.45% from last month
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Variable Rates: from 5.64% pa; no change from last month
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Clean energy loans:
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Fixed Rates from 4.94% pa; down by 0.20% from last month
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Variable Rates from 5.43% pa; no change from last month
Interest Only
- Fixed Rates: from 5.74% pa – 2 and 3 year terms; down by 0.25% from last month
- Variable Rates: from 6.04% pa; down by 0.10% from last month
Investors
Principal and Interest
- Fixed Rates: from 5.74% pa – 2 and 3 year terms; down by 0.39% from last month
- Variable Rates: from 5.79% pa; no change from last month
- Clean energy loans:
- Fixed Rate loans from 4.94% pa; no change from last month
- Variable Rates from 5.29% pa; no change from last month
Interest Only
- Fixed Rates: from 5.64% pa – 2 and 3 year terms; down by 0.15% from last month
- Variable Rates: from 6.08% pa; down by 0.01% from last month
Surveys Find More Property Investors Are Experiencing Negative Cash Flow
There’s been a significant increase in the share of property investors who are negatively geared, due largely to the higher-interest-rate environment.
The term negatively geared gets used a lot these days – often in a positive way, but, it can also have some negative side effects as set out in this news story. So we will explore this conundrum further below. But first, let’s get back to the current predicament as outlined in this news story.
Before we start
If you would like to find out more about this topic, just reach out for a quick chat and I will be happy to explain it to you further.
And a quick disclaimer: anything said below needs to be confirmed with your tax accountant and professional advisors to make sure they are applicable to you and your circumstances. As with most things in life, generalisations don’t always apply to you!
The current negative gearing statistics explained
The Property Investment Professionals of Australia (PIPA) found that the share of property investors who were negatively geared rose from 57% in 2023 to 65% in 2024, based on surveys of investors.
“Just consider that 42% of survey respondents [for 2024] also indicated that their cash flows were tight with a further 11% indicating that their working income was not covering the shortfall currently, so they were drawing on savings,” PIPA Chair Nicola McDougall said.
“It’s clear that investors and tenants are both struggling in the high property cost environment at present, however investors are often doing without to ensure they can cover the shortfall between the rent they receive and the high costs associated with owning one or two investment properties.”
Quick tip if it’s been at least two years since you took out your home loan:
The market has moved a lot in that time, which means there’s a good chance you could refinance to a comparable loan with a lower interest rate – thereby improving your cash flow.
Deep Dive: Investment properties are a business
Before we explain negative gearing, let’s remember this:
Owning an investment property is owning a business.
In every business, there is an asset which is created and which costs money to run but which will hopefully generate a positive return for you from the money you have spent.
Typically, there are two types of positive returns you can make from a business:
- From the profits the business makes and/or
- The increase in the value of the business and its assets.
This distinction is important when considering the topic of negative gearing.
Importantly, most investment property businesses are designed to make money from the appreciation or increase in the value of the property. In the Australian property market, it has been one of the best strategies to create wealth as you can borrow up to 80% (or more) of a property’s value so any increase in the value of the property is a return on the equity you had to contribute (i.e. the 20% you had to contribute to buy the property).
A simple example: you buy a $500,000 property with a loan at $400,000 and a cash contribution of $100,000. Over 5 years, the property’s value compounds in growth at 5% pa* which results in a value of $638,140 in 5 years and over $814,447 in 10 years That is, a return of $138,140 before capital gains tax over 5 years. or $714,447 over 10 years.
As your initial investment was $100,000, this return equates to an annual return of roughly 19% pa over 5 years and 22% pa over 10 years.
Note: over the last 30 years, Australian housing prices have increased by approximately 6.4% pa (report by CoreLogic August 2022).
As a business proposition, this sounds all good and rosy – assuming the costs of borrowing and running and maintaining the property were equal or less than the income it was generating…. Right?
Well, this is where negative gearing comes into play.
What is negative gearing?
Negative gearing is a financial strategy where investment costs (like interest on a loan) exceed the income generated by that investment, resulting in a loss. This loss can be used to offset other taxable income, potentially reducing your overall tax liability.
In short, negative gearing is actually a loss the business has incurred. It is important to remember this at all times so you don’t get seduced by the benefits of negative gearing and ignore the real costs of the loss!
In the context of property investment, negative gearing occurs when the rental income you earn from your property is less than the expenses of owning and maintaining the property. These expenses will often include the interest on the loan you obtained to buy the property.
These expenses are primarily made up of two types:
- Cash expenses and
- Non-cash expenses
Cash expenses are where you have to pay money to someone else. Examples of cash expenses are rates, repairs, real estate agent’s management fees and body corporate fees.
However, investment properties, particularly new investment properties, can often have a significant non-cash expense – depreciation.
So let's define depreciation
Depreciation is the accounting method used to spread the cost of an asset over its useful life, reflecting its gradual decrease in value due to wear and tear, obsolescence, or other factors. In essence, it's the process of recognising that assets lose value over time and distributing that loss of value as an expense over the asset's useful life. The accountant's logic is that by making this allowance in your profit and loss statement, you are funding the future acquisition of a replacement asset by making a charge against the profits which are being generated from that asset.
Whilst it is used in accounting, the Australian Taxation Office (ATO) also allows businesses to claim depreciation as an expense.
So, for example, the non-land value of the constructed property is depreciated for tax purposes (typically 2.5% pa or 4.0% pa) whilst any fixtures and fittings can be depreciated at a higher rate (eg ovens: 13.33% pa).
Ok, you still with me? Good! Let's continue.
Three Scenarios which apply to property investors
So imagine a three scenarios…
Scenario #1:
Your investment property rental income is greater than all your expenses.
This is a very safe strategy as your profit and cashflow is positive and, you will also be paying tax on your profit.
Together with your capital gain (historically 6.4% pa for housing, you are sitting safe and pretty well off.
Scenario #2:
Your investment property rental income is less than all your expenses (cash and non-cash) BUT it is greater than your cash expenses.
In this scenario, you have a tax loss AND you also have a positive cashflow!
This is the sweet spot as you can claim a tax deduction for the tax loss which can reduce your normal tax payment from your day job but you still have positive cashflow from the property. Yippee!
With your reduced tax bill, you can save that money to invest in your next property and it is costing you nothing in terms of your existing cashflow requirements to do this. Zero, zilch, nix.
Scenario #3:
Your investment property rental income is less than all your expenses AND it is less than your cash expenses.
This is potentially dangerous and you are entering a higher risk territory as the other income you earn from your day job will be needed to pay the cash shortfall with the investment property. I know. I have been there.
Some observations about Scenario #3:
- If you can afford to fund this cash shortfall, this may not be an immediate issue. For example, you either earn lots of money and/or you have typically been able to save money, then you can potentially survive with this scenario.
- If you have not typically had a lot of spare cash from your day job, then this can put a huge strain on your financial resources and dare I say it, your relationships (money stress issues are right up there as a cause of marital break-ups).
- When you are in a cash loss position, you need to weigh up the negative impact of this cash loss against the (hopefully), future gains on the value of the property.
A well known and very bad Scenario #3
What has been a nightmare for many property investors is when they invested in inner city apartments which did not increase in value (in fact many decreased in value) and the cash loss from their borrowings plus property costs exceeded the rental income. And this is before we even start to talk about the cost of replacement cladding!
Unfortunately, you can’t magically fix this scenario but you can get some good advice as to what you should do next.
If you are in this position and you are in a world of pain, let’s have a chat about how we can assist you understand your alternatives. We also have a range of experts in property investment who we can refer you to who can do the numbers for you to work out what are your options for your current property portfolio.
Remember the sage advice, the best time to fix a problem is today.
Renewables' best kept secrets
Going on what you read in the media, you would think there is actually a serious debate around renewables Vs alternatives.
When you delve into the numbers, this could not be further from the truth. In fact, the only thing standing in the way of faster travel down the renewables timeline is disinformation, misinformation and sometimes, weirdly, government policies.
Anyway, what I have read this past month:
US Power Grid
In the Trump world of dig baby dig, renewables are quietly taking up the challenge in the US’s $2 trillion power grid. Wired, had this report, some key points of which appears below.
- Between 2021 and 2024, grid battery capacity increased fivefold. During 2024, the US installed 12.3 gigawatts of energy storage. This year, new grid battery installations are on track to almost double compared to last year. Battery storage capacity now exceeds pumped hydro capacity, totalling more than 26 gigawatts.
- The aging US grid is in dire need of upgrades, and batteries can cushion the shock of adding gigawatts of wind and solar while buying some time to perform more extensive renovations. Some power markets are finally starting to understand all the services batteries can provide—frequency regulation, peak shaving, demand response—creating new lines of business. Batteries are also a key tool in building smaller, localized versions of the power grid.
- The most common battery storage technology, lithium-ion cells, saw huge price drops and energy density increases – from $3,000 a kilowatt-hour in 2008 to $150-$200 a kilowatt-hour for the full system install.
- The combination of solar plus storage accounted for 84 percent of new US power added in 2024.
Meanwhile, in Australia…
A report in the Renew Economy, gets technical but the graphics are cool. It’s called a Sankey diagram and it effectively maps input to outputs (including energy wasted outputs).
- Most of Australia’s coal and natural gas is exported (14,904 Petajoules or 72%)
- Of all our domestic energy consumption of 1,500 terawatt hours (TWh), around 964 TWh or 64%, is lost before it gets to the end user. Inefficient coal and gas-fired power plants account for a third of this lost energy (314 TWh) whilst transportation (via combustion engines), accounts for over a fifth (200 TWh)
- If we electrified Australia with renewable electricity (think of South Australia for a minute), two things would happen:
- #1 – total energy entering the system would fall to 749 TWh – down from 1,500 TWh
- #2 – lost energy would account for 169 TWh of this total compared to the current 964 TWh.
Tips for starting a business as a tradie (or anyone else for that matter)
I have known Kim Radok for a long time now and as the owner of Credit Matters, he comes up with some gems in his newsletter. Here is his website link: Credit Matters
A summary of what Kim wrote in his latest newsletter. He will offer more hints in future newsletters but I thought this was a good one to start.
When a tradie transfers from being an employee to starting their own business, they are often unprepared to deal with all the issues of being in business. It is therefore important they surround themselves with specialist professionals.
The world has become increasingly complex and difficult for tradies. Kim’s first hint therefore is to encourage them to use the right professional assistance required to operate a business successfully.
Kim recommends engaging a conservative accountant, a business contract lawyer, a debt collector, and a reliable bookkeeper from the outset. These experts not only provide essential guidance but also save you time and prevent costly mistakes. They allow you to focus on your core work and profitability.
He goes on to say that whilst you may not immediately need a debt collector, having one on standby ensures swift action if payment issues arise. Their involvement often prompts clients to settle outstanding debts promptly, maintaining cash flow and business stability.
RBA reports just 3% of home loan customers have a cash flow shortfall
Based on the latest Financial Stability Review by the Reserve Bank of Australia (RBA), borrowers have managed the challenges posed by increased interest rates and inflation quite effectively over the past three years.
“Despite widespread pressures on households’ budgets, most borrowers have enough income to cover their essential expenses and scheduled mortgage repayments,” the RBA said.
“Around 3% of borrowers are currently estimated to be experiencing a ‘cash flow shortfall’, putting them at risk of falling behind on their loan repayments. Although this percentage is higher than before the pandemic, it is notably lower than the peak observed prior to the Stage 3 tax cuts and a further moderation in inflation over the second half of 2024.”
The RBA also noted that only around 1% of all variable-rate owner-occupier borrowers faced both a cash flow shortfall and minimal financial buffers, indicating that very few borrowers were at significant risk of falling behind on their mortgage.
“Additionally, the share of loans in formal hardship arrangements has stabilised, although it remains a little higher than pre-pandemic levels.”
Most lenders have hardship programs for borrowers who are struggling to pay their home loan. Please contact me if you’re experiencing financial difficulties.
From $84k to $232k: The salary needed to service a mortgage across Australia
What income do single-income buyers need to service a mortgage?
In recent years, the Australian property market has experienced significant price fluctuations, particularly in major cities like Sydney.
To manage mortgage repayments on a median-priced house, single-income buyers would need to earn between $112,000 annually in Hobart and $232,000 annually in Sydney. This highlights the growing disparity in affordability across the country.
For a median-priced unit, the required income ranges from $84,000 in Darwin to $126,000 in Sydney, again reflecting the differences in property prices between regions.
These findings, based on Domain’s median property price data and Mozo’s calculations, assume a 30-year loan at an interest rate of 6.05% p.a.
Here are three ways to reduce your mortgage repayments:
- Get a loan with an offset account. As regular readers know, I go a step further. Use your offset account as the account which receives your salary and from which you pay your bills. Treat your offset account splits the same as you would have traditionally used savings accounts. The more you park (and keep!) in your offset account, the less interest you’ll be charged on your loan.
- Capitalise on lump-sum payments. Use tax refunds and cash gifts to either pay down your mortgage or beef up your offset account. Again, as per my advice above, don’t stick them anywhere first other than your offset account. And if you find a better use for these funds, only then take them out of your offset account.
- Avoid setting-and-forgetting your home loan. People who stick with the same mortgage for 30 years generally pay more interest over the life of their loan. Instead, think about refinancing every two years or so. Why? Well, banks are no different to many other large service providers. If you play the ‘set and forget’ game, they will attempt to make a little bit more income from you. Why? Because they can and you are not watching!
NBN Gigabit plans? They are here (and reasonable)
A few short years ago, I was battling with my telco over a broadband solution which worked and then didn’t work when it rained or the wind blew. Now, Fibre to the Premises is the new black and speeds when I got mine set up, I increased my speed from 50 Mbps to 200 Mbps.
Well, that is now history (almost). 1000 Mbps plans are coming and at prices starting from around $90 per month (yes, you read that correctly).
Here is the article from Tech Radar.
And, if you want someone to do the comparisons for you, we have our very own Home Now service. To be fair, the best price from our providers is slightly higher than the ones mentioned in this article but the good news is they will do a lot of the hard yards for you – just go to the link below. Plus, they can also get you onto better plans for your gas and electricity (it worked for me – and they made my life simple – which I love!).
Chat GPT: the rules of prompting have changed
I am going back a while in AI terms; I’m talking 6 months ago, when Matt Lakajev first taught me to take advantage of ChatGPT and LinkedIn. He was ahead of his time (check him out on LinkedIn: Matt’s Profile. Matt used to fire off instructions to ChatGPT and it worked brilliantly – so much so that my three pillars on my website, BIR Finance, came from what he espoused.
Anyway, things have moved on rapidly in the world of ChatGPT prompts. Forbes gave this update on prompts to structuring your Prompts strategically.
- Role and objective: Tell ChatGPT who it should act as and what it’s trying to accomplish
- Instructions: Provide specific guidelines for the task
- Reasoning steps: Indicate how you want it to approach the problem
- Output format: Specify exactly how you want the response structured
- Examples: Show samples of what you expect
- Context: Provide necessary background information
- Final instructions: Include any last reminders or criteria
Australia - king of the property market?
You do wonder how we do it but for a long period of time, Australia’s love affair with property has given us some weird comparisons compared with some of the countries we most closely identify with.
Here are some eyebrow-raising stats for you, courtesy of Macro Business, which talks about a potential housing bubble:
- CoreLogic’s latest monthly chart pack valued Australia’s housing stock at $11.3 trillion as of the end of March 2025, with the average home valued at exactly $1 million.
- The value of Australia’s housing market relative to its economy is among the highest in the world, more than doubling the United States.
- Australian households carry some of the world’s largest debt loads, driven overwhelmingly by mortgage lending.
- Interestingly, back in 1995, our ratio was below all of the countries shown bar New Zealand. Along with Canada and New Zealand, our ratio has risen sharply – unlike the US and to a lesser extent, the UK
- In 1990, nearly two-thirds of bank lending was for businesses, and only around one-quarter of the lending went to mortgages. Thirty-five years later, this has flipped around, with nearly two-thirds of bank lending for mortgages versus only one-third for businesses. The crossover point? around 2000.
As AustralianSuper’s Chief Executive, Paul Schroder said at the AFR Business Summit:
“All we’ve done is pour all of this money into houses, which has deprived the economy of heaps and heaps of productive capital,” Schroder said.
“We’ve got all this money in domestic houses and we’re not backing business, we’re not creating new things, we’re not driving productivity”…
And of course, with the election upon us, both major parties continue down the home ownership path with what can only be described as inflationary property measures.
AUKUS - back in focus
When AUKUS was all the rage just a few short years ago (pre-Trump), everyone was in favour, except a few (Paul Keating comes to mind).
I recently read a piece in the Asia Times, which took a different view to the suitability of AUKUS for Australia. And to a layman like me, it seemed to make some sense. But, to stress the point, I am a layman when it comes to issues of defence!
The author is Albert Palazzo, who coincidentally just released a new book on the subject: The Big Fix: Rebuilding Australia’s National Security.
A quick Google search shows Albert is a Professor at the University of New South Wales. He is described by Google as a military historian and strategist known for his expertise in Australian defence issues. He has contributed significantly to discussions on Australia’s defence strategy and military history, focusing on threats facing the country and the role of the Australian Defence Force. So he is a serious dude when it comes to matters of defence.
Key points from Albert:
- For more than a century, Australia has followed the same defence policy: dependence on a great power. This was first the United Kingdom and then the United States. Nothing new here. Except we have a rather different approach being taken by our good friends in the USA these days. I don’t know if anyone really knows where the US is heading (and what will be the cost they require us to pay).
- Albert supports the concept of the strategic defensive philosophy which he says is best suited for status quo states like Australia; the status quo being defined as “we are happy with what we have”. He goes on to say the needs of status quo states can be met without recourse to intimidation or violence. These states tend to be militarily weak relative to potential aggressors, and, they aren’t aggressors themselves. If war eventuates, Australia’s only goal is to prevent a change to the status quo.
- He also observes that defense is naturally a stronger position in war compared to attack. “It is harder to capture ground (including sea and airspace) than it is to hold it. All aggressors must attack into the unknown, bringing their support with them. Defenders, by contrast, can fall back onto a known space and the provisions it can supply.”
- The wide water moat surrounding the Australian continent greatly complicates and increases the cost of any aggressor’s effort to harm us. Our task, under strategic defensive, is to make any attack prohibitively expensive, in terms of equipment and human life.
- Long-range strike missiles and drones, combined with sensors, provide the defending nation with the ability to create a lethal perimeter around it.
Against AUKUS, he raises the following points:
- Australia has no need to operate in distant waters, such as those off the coast of China.
- In addition, Australia can afford so few vessels that their deterrence effect is not credible.
- The nuclear-powered submarines will not be available for a long time. Our need for protection is now.
- Long-range strike technology means the sea can now be controlled from the land. Rapidly improving sensors make it impossible for attackers to hide on, below or above the surface of the ocean.
- A better bet would be for Australia to invest in uncrewed surface and sub-surface maritime vessels to patrol its approaches, as well as large numbers of land-based launchers and missiles.
Is a balloon car loan the right choice for you?
Considering a Car Loan with a Balloon Payment? Here's What You Need to Know
When applying for a car loan, one option you might encounter is the balloon payment structure. This arrangement allows you to make lower monthly repayments by deferring a portion of the loan to a lump sum due at the end of the term. While this can ease short-term cash flow, it’s essential to understand the implications.
What Is a Balloon Payment?
A balloon payment is a significant lump sum due at the end of your car loan term. Instead of paying off the entire loan amount through regular monthly repayments, you repay a portion upfront and defer the remaining balance to the end. This final amount is the balloon.
The Pros
- Lower Monthly Repayments: By deferring a portion of the loan, your regular repayments are reduced, making the loan more affordable in the short term.
- Increased Cash Flow: The savings on monthly repayments can free up cash for other expenses or investments.
- Flexibility: If you plan to sell or trade in the car before the balloon payment is due, you can use the proceeds to cover the lump sum.
The Cons
- Larger Final Payment: At the end of the loan, you’ll owe a significant lump sum, which could be challenging to pay unless you’ve planned ahead.
- Higher Overall Interest: Since interest is calculated on the full loan amount, you may end up paying more over the life of the loan.
- Depreciation Risk: If the car’s value drops below the balloon amount, you could end up owing more than it’s worth.
Recent Trends in the Australian Car Loan Market
In 2025, the Australian car loan landscape has seen several notable trends:
- Extended Loan Terms: More buyers are opting for longer loan terms, with seven-year car loans becoming increasingly common.
- Interest Rates: Car loan interest rates have been fluctuating, with rates typically starting around 6-7%. It’s important to shop around and compare offers.
- Balloon Payment Options: Many lenders offer balloon payment options, allowing for lower monthly repayments. However, as noted above, it’s crucial to consider the long-term financial implications.
In Summary
A balloon payment car loan can offer short-term financial relief through lower monthly repayments. However, it’s essential to plan for the lump sum due at the end of the term and consider the potential for higher overall interest costs. If you’re unsure about whether a balloon payment structure is right for you, I can help you weigh up your options and make an informed decision.
