Ep 81. Rates Are Rising - Here’s What to Do with Serena Lu from Funding Lab
Interest rates are rising, the cost of living is climbing, and uncertainty is dominating the headlines. For buyers already feeling stretched in a fast‑moving property market, it can all feel overwhelming.
In this episode, Michelle sits down with mortgage broker Serena Lu from The Funding Lab to unpack what rising rates actually mean — for homeowners, first‑home buyers, and investors — and what smart planning looks like in a shifting lending environment.
Drawing on her background in credit assessment and years of working with borrowers across Sydney, Serena breaks down how rate rises flow through to repayments, borrowing capacity, valuations, and lender behaviour. She also shares the practical steps buyers can take right now to protect their position and stay ahead of the market.
This conversation is designed to give you clarity, confidence, and a realistic understanding of how to navigate lending in 2026’s risk‑aware environment.
What You’ll Learn in Today’s Episode
How rising rates increase repayments and reduce borrowing capacity
Why pre‑approval timing matters in a fast‑changing lending environment
How banks assess owner‑occupiers vs investors
Why valuations are becoming more conservative — and what that means for buyers
How work orders, cladding and waterproofing issues impact lending
The financial‑hygiene steps that strengthen your borrowing position
Why online calculators often mislead buyers
Why waiting rarely improves affordability in a rising market
Speakers in today’s episode:
Michelle May - Michelle May Buyers Agents
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Please note that any views or opinions presented in this podcast are solely those of the speakers, and do not necessarily represent those of any business. These views and opinions are general in nature, and do not take account of your personal objectives, financial situation and needs. Please consider whether it applies in your circumstances and seek professional advice wherever appropriate.
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Michelle May
Hi and welcome back to the Buy Your Side podcast. My name is Michelle May and this podcast is all about helping you make smarter property buying decisions. Now, we are in March and the world is ever-changing at a rapid rate. We have a very certain world stage in Australia. Things are uncertain, high cost of living, now we've got petrol shortages at the pump, but also interest rates are rising.
So as you know, this podcast is all about helping you get the tools to make better informed decisions in your property buying journey. And to this effect, I have invited Serena Lu from the Funding Lab, an excellent mortgage broker who I've worked with on quite a few occasions now to help us get some perspective around these interest rate rises, what to do, what not to do. Serena, thank you so much for joining me today.
Serena Lu
Thanks for having me, Michelle.
Michelle May
It's good to see you because the interest rate rises, It's in every paper. Every radio show is talking about it. It's on the news and it's obviously adding anxiety to what is already a fast-paced moving property market. People aren't sure what to do. You know, the world is a very scary place at the moment. So I'm so glad you're here to talk us through.
What is actually happening in mortgage land and borrowing land. So my first question to you would be what actually happens when interest rates rise and what is the effect, the knock-on effect on borrowers?
Serena Lu
Yeah, great question and so timely. When rates rise, if you've already got a mortgage, everyone's going to feel the pain of that repayment increase because the interest expense increases. So to give so little bit of context, if we have a $1 million loan, a 0.25% increase is an additional $2,500 a year. We've just had a February rate rise and a March rate rise. So we've already had 0.25% in terms of interest rate increase. This translates to about 5,000 per year and that's after tax money for most people who are not investors. From that perspective, if you think about the cash flow impact that it might have on a family household and expenditure, it's quite significant. And the market consensus right now is that there may be a further rate rise in May with a subsequent one in the latter half of this year.
Given the inflationary environment further rate rises next year as well. So if you think about that and we have a 1% rate rise over the course of this year in total that's $10,000. Over $800 a month.
Michelle May
Yeah, and that's for the people who obviously already own a property, have a mortgage already. But what has it meant for, so from the beginning of this year we've had these interest rate rises, what has that meant for people who want to get into the property market and get a pre-approval now? How much of an effect is it having on them?
Serena Lu
Correct.
My suggestion is to get your pre-approval as soon as possible and with the lender that will guarantee the pre-approval limit provided their conditions are met over the approval period, usually 90 days. And the reason for that is with every 0.25 increase, this translates to something like $50,000 reduction in your borrowing capacity.
Michelle May
Wow, $50,000.
Serena Lu
So as a ballpark figure, if you think about that, and that's interest rates alone, if you think about the two rate rises we've had, if you started your search at the beginning of this year in January, suddenly, if you need to go to renew your pre-approval and you haven't purchased and it's expired, it could be faced with a hundred thousand reduction. But more importantly, interest rates aren't the only factor that is adjusting right now. We also have household expenditure
and increasing. Everyone's feeling it with the inflation and the cost of living. That translates to how banks have to look at your budget and your cash flow. And so they have minimum standards that they reference and they'll take the higher of what you declare or their standards.
Michelle May
Right.
Serena Lu
So we've got multiple moving parts. We've got the policies changing and we've got interest rates rising, which both erode foreign currency.
Michelle May
So is there actually a different assessment for property investors versus owner-occupiers? Is there a difference when it comes to interest rates for example or the assessment even?
Serena Lu
There's no distinct policy but there are different ways it's perceived. So investment is perceived as riskier and as such it also attracts a higher interest rate premium. So sometimes you'll see a difference between the owner-occupied rates and the investor rates. At different points in the past that could have been half a percent. The margins are a little bit different. I've noticed in recent months that the owner-occupied rates are adjusting much faster than the investor rates are present. So it's actually a good time for investors to have a look and maybe even lock in some decent rates before they rise even further. The way that the banks look at two profiles though is essentially because I have a credit risk background. I actually started in accounting and then I moved to credit assessment before I became a frontline portfolio and realized I prefer clients. So with the credit assessment side, when you think about the real underlying risk and the root cause, most people will do much before they give up the family home. They will sell the car, they will reduce their expenses and therefore the inherent risk in owner occupied loans is lower. Whereas with an investment you're more likely to sell it if you are under financial pressure or you know the markets well and so the transaction is much more transactional.
Michelle May
Of-course, well ultimately it's about wealth creation isn't it? There's no emotional attachment, there's no need to provide a roof for my family so of course that's going to be much more...
Serena Lu
Correct. Yeah. So the fundamental need isn't as strong. So from that perspective and from a loans perspective, there are some differences in how they're assessed. The real difference I see is when it's a risk on and risk off environment. So the credit cycle and it is a cycle is sort of offset from the economic cycle. Normally you have your ups and your downs and when times are good, lending policy can be quite open and risk-taking is, I guess, rewarded a little bit more. But when times are tougher or there's greater uncertainty, rightly so, the banks are a bit more prudent in how they assess things. They still apply the same set of policies and look to have a consistent standard. But the appetite or the portion of their book they might lend to different sectors or different density or different types of properties, that all varies a little bit.
Michelle May
Yes, I understand that. So for potential buyers who are in this situation right now or people who already have a mortgage, what would you say, what would your planning strategies be moving forward? We are in this very uncertain environment. You're saying, okay, we've had these interest rate rises. There's more to come, most likely. I think most people would agree with you on that. What are some things that people can do?
Serena Lu
Yeah, look, I've got two main types of clients. The first one are homeowners and the other are investors looking to grow their wealth and both will be impacted. Let's look at investors first because I believe a lot of your audience would relate to that and be looking to grow their wealth.
The investors can borrow less as interest rates increase, as can the broader market. can borrow less because repayments cost more. That means that anything in terms of equity release or in terms of trying to maximise how much you can borrow because you want to purchase that house and land package as opposed to an apartment, those factors are impacted significantly.
By this I mean borrowing capacity is reduced and you might be able to take out less in equity release to form the deposit for the next purchase. Whether you are a homeowner looking to buy a bigger family home or whether you're an investor trying to release those funds for investment, that can be negatively impacted. We spoke about borrowing capacity reducing earlier in the episode. $50,000 or $100,000 can make a big difference in your deposit.
That's just the current impact.
When it's a risk off environment and things are increasing in risk, the banks can adjust their policies around fringe areas like equity release, what might be termed walk around money or money that they just give you without once it's released into offset account or released without many controls as to how you apply those funds, the appetite for that can reduce. So I've seen, for instance, when times are good, some banks will release 80% of the equity against a property very few questions asked When it's a conservative environment, they might cap that at 200- 250,000 or they might ask for further paperwork like a Statement of advice as to how you're to invest that, any exchange contract for a Investment purchase or property purchase if the reason for the equity release is to purchase another property.
Michelle May
Yeah, right.
Serena Lu
There's a lot.
Michelle May
Is that where we are? Is that where we're at already? Or do you see that coming?
Serena Lu
I see that coming, I still see the opportunities for equity release where possible. And the reality of the situation is with property prices the way they are, Michelle, you would know this better than I would, the deposit levels required are much higher nowadays. So people are requiring that equity release or they're required to sell other assets to form up the deposit or even bridging facilities. I'm seeing an increase in those too.
Michelle May
Yes and so owner occupiers, first home buyers. We need to get those people a helping hand here. What do you see for them? What can they plan to do strategy wise? Is there anything that can help them in this environment at all? What would you suggest even before they potentially come and see someone like you as a broker? Is there something that they can do?
Serena Lu
Definitely.
Yes absolutely look there's great courses that I just heard about to help you get informed.
Michelle May
Better home buying. Get in there everybody.
Serena Lu
And honestly, just knowing what questions to ask is so invaluable. But essentially, get your pre-approval as soon as possible. It'll preserve your borrowing capacity a little bit. There are things that you can do even before talking to a broker, as you mentioned. Things that you can clean up, so to speak, like any facilities that you are not using. Some of the common misconceptions are clients will come to me and say, I have no debts. And I'll be like, that's wonderful. Let's explore that a little bit further and then subsequently, you find there are credit card limits and whilst you know they pay it off which is a fantastic position the banks look at the limit of the credit card so if you're not using any of that limit just go in and reduce it or cancel the card and look at it after and prepare yourself to the best you can. If you've got a hex balance that can also impact your borrowing capacity so you may want to lodge your tax and clear that as soon as possible or look at you know have a discussion with your broker about should I pay this off from the deposit funds, will it increase my borrowing capacity? What is restricting my borrowing capacity? Is it my income or is it a different factor like the deposit? And right now, whilst it's such a tough environment for first home buyers and we need to give them as much support as possible, there is a lot available out there in terms of government support and concessions and grants and first home buyer placements, etc, make use of them, because when I was buying, these things weren't around.
Hopefully, you know you can Utilize all these tools combined to help you in your situation but other than things that you can do is you know close off your after pay? You don't think of them as step facilities but some banks will and these credit card or debt facilities in terms of after pay or zip pay, the buy now pay later. They might have a four or five fold impact So you might think oh, you know, it's a $10,000 credit card limit. I pay it off every month, but that translates to a $50,000 reduction, and again, some people have two, three, four cards.
Michelle May
Right, okay, yeah, let's start with that. So it's like financial hygiene in a way, right? You know, like you got a floss between brushing, let's clean off your finances.
Serena Lu
Absolutely. Have a look at your pay slips. Are there any deductions that you've volunteered that you can have a look at? Try not to get a car loan unless it's a real need. A car loan can also erode your borrowing capacity significantly. It might just be $50,000, but again, it might translate to five or six times reduction in your home loan capacity. And that correlates to the car loan term being much shorter. So it's often it's over three or five year period.
Michelle May
Exactly. Now, you deal with a lot of buyers, whether they're owner-occupiers or investors. So let's do a quick fire round, common misconceptions and myths, all right? See if you could answer this in a couple sentences or less. I can still borrow the same as last year.
Serena Lu
Right so we talked about interest rates increasing and policies changing.
Michelle May
No, because what I've noticed is that as soon as the RBA announces it in the afternoon, or the next day, the banks are onto it. It's like when there's an interest rate, when it comes to your savings, they don't do that. They don't give you your increased money, but as soon as they can take more off you, they're onto it.
Serena Lu
Yes, look, I used to work in the banks and I still have many friends and clients that work in the banks and some of these departments have pre-prepared communications and these comms, whether it's a rate rise or a rate hold, it's already prepared ahead of time and it goes out almost immediately so I hear you on that.
Michelle May
Yeah right, press a button. Now I can save more by waiting.
Serena Lu
Look you can save more by waiting but can you save more than the market pace and how much the market is growing by? I have a few clients that eventually, and I suggest this now in this current market to look at buyer's agent because if you can buy three months, six months, twelve months earlier, if you go and track the property prices back then compared to now and the fact that you might be paying rent in the interim.
It's worth it. It's definitely worth it. And my clients who have missed out have continued to say yes, but unfortunately the market has just gone beyond them. So they've had to move from townhouse to apartment or house to townhouse and that's the unfortunate reality that we've been living in. So I definitely recommend, you know, speaking to the wider team and seeing how quickly things are moving, how things moved in the past, how they're going to move in the future but the Australian property market has been fairly consistent.
Michelle May
Well, I mean, if you look at what the medium growth in Sydney alone was like 8% over the last year but that's all of Greater Sydney. That doesn't include great properties in blue chip suburbs that would have gone well above that 8%. So unless you're making, more than that, I'd say waiting is definitely a loser's game.
Serena Lu
Yes, I agree and a lot of my clients are telling me they're uncertain about AI disruptions etc. So the case for a pay rise isn't very strong in the current environment. If anything they might get the token 2% or 3% in consideration for a bonus but nowhere near that 8 % and then you overlay that with inflation. Correct.
Michelle May
Yes, you're actually taking a step back. Next one. Online borrowing calculators, tell me. I think I know what you're going to say here. This is a little bit like mine but domain and real estate say the property is worth this much.
Serena Lu
Yes, it's a great parallel actually that you draw. Look, these calculators are there to help in some ways, but they're also very static and point in time. They don't take into account these updated policies and they don't, it's like user error. If you tell me to go use a particular technology I'm familiar with, I might not put in the right assumptions and I get some sort of output. You know, even with Chat GPT, I might put something in and then what comes out isn't always technical.
You're right and so that's that's concern with these calculators that they're outdated or that we put in things that may not be correct and you don't always see what to double check so if you put in your income as you know monthly instead of fortnightly you get a vastly different figure and if this website calculator hasn't been updated for three years you get a very different figure.
Michelle May
Yeah, exactly. I think AI and auto calculators, and auto valves, it's great. I wouldn't even say that. It's just a tool out there. But just take even chat GPT, for example, you know, people are coming to me going, well, I put the Strata report in chat GPT and I think it's fine. I'm like, no, no, no, absolutely not, because it missed page 2346. that they're actually got, structural issues in the third basement down and all that. I've been working with Chat GPT to try and train it in such a way and it still can't do it. Even with my guidance, it doesn't beat talking to a real human who looks at all the different angles of in your case, what is your real life situation? have you thought about this? Have you thought about that? That something an online calculator just can't do.
Serena Lu
Absolutely, some real examples I've come across, for instance, are if you're on maternity leave and you just assume that your salary before maternity leave is taken as X, then you put in a figure and you might overestimate it, which puts you at risk because then you go and you sort of speak to a buyer's agent or you speak to a real estate agent selling it and you tell them, you know, I have a budget of X, but really the banks might look at it and say, well, actually that was casual income. We might have to discount it by 20% or you know I have clients who are overseas and they have a foreign currency component to their loans and so again that might have the discounting to account for that risk but then the foreign exchange overlay which further discounts it or someone assumes that their bonus can be taken into account but some banks want to see two years worth of bonus. They've only received it for one year so if their bonus is a significant part and for some people it is, it could vastly overestimate the borrowing capacity and what I saw during COVID was even with pre-approvals was that clients would get an assumption in their mind but it would be reassessed because things are moving so quickly and when it's reassessed the borrowing capacity comes in lower.
Then they're at risk because they may have actually bid on the property and their deposit is in jeopardy. So we really want to avoid that and my advice is always to get a pre-approval. I've been working long enough to remember the days when you didn't need a pre-approval and I could confidently with my credit background give an estimate but nowadays I want to see that in writing just to protect my clients.
Michelle May
Well, yes I know. I think people have been listening to me for a while and would know this already. We aren't actually my agency, my buyers agents and I, we don't take on anybody who is not pre-approved and ready to go because I always liken it to shopping without your wallet. You know, you go to Woolies, you have a full car, you get to the cash register and oops, you can't pay because it is particularly in Sydney where you even, in private treaties you're in a much stronger position if you make an unconditional offer you go to auction it's an unconditional offer or an unconditional bid you're locked in so the risk of not having your finances sorted is just far too great. So on go on..
Serena Lu
I was going to share just with first home buyers seeing that, I always say give it a go. But if you can get an expert team behind you, do so because sometimes with first home buyers, they'll go and make that bid and they'll miss out. Unfortunately, the competition is just very intense. I've heard of 20 registered bidders, for instance, and they and I'm sure I think I've heard from you that there's even been higher than that in need but essentially once they get outbid the agents who you know they sell in the same local area start to get a feel of where their limit is as well and so the negotiating power gets eroded and if they need to renew a pre-approval and it takes another three months that borrowing capacity reduction might even reduce their ability to negotiate so working with an expert team in a coordinated manner is infinitely helpful to them in just securing the property that they want.
Michelle May
That makes absolutely sense. Next one. All lenders will offer the same borrowing amount.
Serena Lu
Okay, so that's definitely not the case. There are different lenses.
Michelle May
Tell us more. Who is the best one out there? Because I mean, as far as we're all concerned, they're all a little bit evil, aren't they?
Serena Lu
Yes, look, there's no best lender. It's the most appropriate lender for my client's goals. Right, so if you want an equity release to buy that next property or buy the family home upgrade from an apartment, there are certain lenders that I like and look at more favorably. If you want to know the most that you can borrow there are certain lenders that would actually as a result their policies result in an extra 100,000 for example in borrowing capacity and that might just be because they have a reduced assessment buffer, someone more conservative. It might be that they offer better discretionary interest rate reduction so therefore your borrowing capacity increases because repayments are lower. So there's different things to look at but also the discounting side. So if one bank discounts bonuses by 20 % to adjust for variability and another discounts by 40%, or if one bank's policy is to reduce rental income by 20% versus 30%, these factors when combined have a material impact on how much you can borrow and I've seen a different swing and the other major impact is valuation.
Michelle May
Wow
Serena Lu
Right now in a sort of risky environment, the variance in the range of valuation is immense. It increases every time we get to this part of the cycle see just this week I've had almost a 200,000 variance on a property. Established property, no renovation, perfectly fine, no work order. It's just a difference between the age AVMs across two different banks.
Michelle May
And was that property bought in a private treaty sale or auction? Do you know?
Serena Lu
This one, this particular one was a refinance.
Michelle May
Okay, refinance. I see.
Serena Lu
So the risk is higher with existing loans, a purchase, if it's arm's length with agents, the banks tend to, you know, that's at market price and fair value. So they tend to lean towards a contract of sale price, particularly if there was an auction. I've yet to see in this current environment any contract of sale variation. That's not to say that it doesn't happen in an extreme risk environment. The valuers become more I guess conservative themselves before it even gets to the banks because the banks are relying on their expert opinions and their license and the fallback on their PI if needed for risk transfer.
Michelle May
Yes, I mean, it's passing on risk to everybody, right? It just goes down the line. First of all, you know, your pre-approval is always conditional, right? It doesn't become unconditional until you sign a contract to sale and then the bank passes it to a valuer who then, does the conservative and because they don't want to take, they don't want to take on that risk. So it's all, it's just moving down the line. I mean, the last time we were in this more high risk environment.
I did hear many more private treaties coming back with evaluation lower than what was on the contract of sale. It's never happened to me in the time that I've been working as a buyer's agent, because if you're out there, you need to do your due diligence when it comes to your pricing research. Please be very conservative when it comes to that, because it can happen that all of a sudden you're left with a shortfall.
Serena Lu
Yeah, agreed.
Michelle May
What in your experience, if that's ever happened in the past, how tricky is it to get your clients out of there? Do you just simply go to the next lender along the line?
Serena Lu
Yeah, that's a fantastic question, Michelle. So I have seen that happen. I've gone through two or three cycles and key, I guess key risk areas would be, for instance, a building with a work order. The value may take an extremely conservative opinion on that building until the work order is completely removed from any register.
Michelle May
So just to explain to some people listening, what is a work order, what do mean by that?
Serena Lu
A work order might be some sort of, I guess, rectification works on a building.
The ones that I've come across would be fire cladding non-compliance on the outside with aluminium cladding that needs to be replaced. It might be fire alarm systems, which are very costly and retrofitted. But it could also be structural issues or waterproofing issues. And there's the larger ones. It might be that the roof is no longer sealed or the balconies have re-waterproofing requirements.
Michelle May
Yeah, and if you're in New South Wales, you know that if a building has a work order on it, this is now part of material fact that has to be disclosed. There is actually a register online where you can find work orders that have been laid on buildings. But obviously you can never ever purchase into a strata complex without reading your strata report. Please.
Serena Lu
And that's where a good solicitor conveys a service agent worth their weight in gold. So in those situations...
Michelle May
Because you need to understand that this can now, as you hear from Serena, impact your valuation as well and your borrowing power. Yes.
Serena Lu
If it comes back short, if it's just a little bit. So I've gone through a situation with a client where, you know, it's just 50,000 in variation. So I've caught up with the value and I've just had a conversation and asked, what is your concern? What would make you comfortable? And he said, look, if we can get something from Strata confirming the works are completed and it's simply a matter of registration, now, registration and removing it from registration, he may have a look at that. So that's one way that could be the first avenue, particularly if my client is know rate locked or has an advantageous interest rate, I will try that avenue first and then failing that, yes absolutely we'll go and look to different lenders and see what their valuation comes back with and you know often if they're working with a good agent, buyer's agent or a solicitor and they have five days calling off and they haven't waived it within that timeframe we can get a quick valuation to see if there's any concerns. The one thing I will say is as the risk environment increases, whilst AVM, that's automated or desktop analysis for evaluation may be undertaken, when it gets to assess a stage, If the assessor is actually really prudent or knows the area and understands that it's a high-density area, they are well within their rights to reorder evaluation and request a short form or full evaluation inspection.
Michelle May
Right. And of course that becomes more likely the closer you get to 20% deposit or less, right? The higher the risk for the bank, because ultimately the bank doesn't care about you, let's be real, they care about their investment into the property, whether you pay it off at the end of the day, they just need to make sure they get their money back. So if you've got less of a deposit..
Serena Lu
Yeah, look, I was an assessor. Yes.
Michelle May
They're going to go right, we're going to inspect this property, you just mentioned high density risk. I've heard of this thing and I've spoken about this before, the sort of these blacklists that certain lenders have, because I think most people are not aware of this. Do you know what I'm referring to?
Serena Lu
Yes, so they might be studying buildings or developers that the banks won't go near. So the banks are a large organisation and they might actually lend to developers on the one end for construction and then they might on the home loan end lend to buyers. If they've had a bad experience with the developer, they may not wish to fund a particular building or one that's developed. But on the flip side, it might not even be that dier, it just may be that the banks have already extended a certain amount of lending to the developer so they've got exposure to that area. And so as a developer sells, they're actually looking for repayment of that loan and payback and reduction of debt. So if they're lending to the home loan side as well, overall they're not getting that reduction that they were anticipating. So they may cap and say, we only lend 70 % LVR in certain situations and they won't go to that 90 % LVR even with LMI. So the situation you have when valuation is short is that you might be able to go to LMI in absolute need. For my clients I'll try the valuation first, I'll try the bank first failing that they have LMI backup but if you're faced with a high density restriction or building restriction and it varies from bank to bank as to you always have to ask that bank specifically if this building is on their register.
Michelle May
Yes. That's what we always advise when we're working with our clients, right? We will hone in on a certain unit and we will do our due diligence. then one of the final steps that we do before we go to auction or before we make an offer is say, go back to the client and say, listen, go back to your broker, go back to your lender and say, I want to spend up to this much based on the pricing research we've done on this particular address.
Have you got any red flags? Because then if there are any, they would let you know at this stage, correct?
Serena Lu
What a fantastic step. Yes, that's a really good step because without checking that it's hard to know. And these registers aren't publicly available, you have to go into the portals and they get updated all the time because construction periods are 18 months or two years. So the turnover is complete.
Michelle May
Yes and of course, as you know, there might be a particular building in a particular suburb that may have high exposure from Commonwealth Bank, but as time progresses, you know, new buyers come in, they may go with a different lender altogether. It may not, you know, it changes, like you said, all the time. Yeah, if there's one thing you should do is talk to your lender about this before you take that next step of signing the contract.
The next thing I wanted to talk to you about, so I'm getting you off the hook with these fire questions because you've done very well, thank you. Risks in a rising market rate when it comes to the lending side of things. Are there other things that people need to think about? You mentioned a different assessment. More conservative way of lending to people, Are there any other things that obviously we touched on valuation a little bit? What else is there that you could think about for the future that might be something that could become a concern?
Serena Lu
I didn't really delve into it earlier but cash flow management and then future mortgage stress is definitely something to think about. I've talked about cancelling cards etc but then have a look and this is outside of you know what Michelle you and I might do but have a look at your budget and look at where you can cut expenses. If you want to restructure the mortgage to help with cash flow there are certain ways to do that as well. So you might extend out your mortgage term, now, you've had the mortgage for two or three years. Let's refinance it push it out to back to 30 years that will reduce your obligated repayment each month But I still recommend that my clients put their salary directly into the offset account or make the extra repayments At least it's not an obligated You know repayment that they're under strain to meet but just put in additional as you can and a lot of my clients when we first meet and it's the first encounter, they're a bit shy in telling me that their goal is to reduce debt. And I say, no, please tell me my goal is to reduce debt. You all want the home, the investment portfolio and the wealth creation. It's not the debt that we're after and it's looking at how we achieve that.
For those clients that really think that they may struggle, always say front footed, call the bank, see if there's anything you can do to get yourself into interest only for a period of time, know ahead of getting yourself into trouble and have those discussions. There are teams in the bank that still do that and can help you and give you a temporary sort of arrangement as well. The concern that I would say or the thing that I would say about that is going to it knowing that.
These arrangements could be registered in terms of hardship. So when you go to borrow later down the track, they could be flagged as financial hardship indicators. And you might stay for six to 12 months as well. So a lot of limits further down the track than say, OK, we need that completely clear. So you might be in your situation for then 12 months. And a lot of people don't think about it, even when it's just, you know, it's easy to refinance the credit card and transfer the balance and then think well I can get interest free for six months and and I had someone refer to me who who had this situation where they thought well you know Amex was telling me it's fine I can I can just have six months interest free and then then resume but then they had a financial hardship indicator which excluded them from a whole panel of different banks and if they spoke to their their broker maybe they could have just equity released that ten thousand dollars instead of putting themselves permanent record in that sense, yeah.
Just being aware of it and working with different options. So that's the main thing I would say in terms of a rate rising environment to be aware of how you structure things. Don't just put everything on the credit card and then you know I've had clients that have had last minute realised okay this private school fees are coming around and they put the entire amount on a credit card and next month rolls over and so plan ahead and give yourself a bit of a buffer. Split your loans into fixed and variable to give yourself flexibility, protect yourself from the rising rates, but at the same time give yourself that offset account that you can draw from and put back into.
Michelle May
Yeah, this is just a question. Are offset accounts typically only against variable rates or only against fixed or can they be against either or both?
Serena Lu
Yeah, look, they're mostly against variable rights.
There were some lenders that came into the market that tried a product fixed with offset, which is fantastic because if you have one of those products, it's invaluable. Fixed duration is usually one, two, three, four, maximum five years and the cost goes up as you go normally. But they'll come to an end and I've got a few people, you know, with it reverting back to variable, but they're usually against variable interest rates. And so you might want to keep a component
variable for that purpose even if it's 50,000 or 100,000 that also gives you the ability to put in extra cash if you get a bonus if you come into any inheritance that sort of thing to make use of that facility.
Michelle May
Yes, because overpayment, extra payments, like you mentioned, can significantly reduce the interest you pay over the term of the loan. But there's a different amount typically between what you can overpay on a fixed rate versus what you can overpay on a variable, right?
Serena Lu
Correct, yes. There's often limits. So with some banks it might be 10,000 per year. With others it might be 15, etc. But there are often limits. And the reason behind that is a lot of the banks then package up home loans and they wholesale sell a group of home loans in a process called securitization and the repayments and the regular payments behind that are valuable to the investors that buy it. So they want that guarantee of cash flow. So that securitisation process allows them to generate more funds then they can raise to break down into smaller parcels for home loans.
Michelle May
Okay, yes that makes sense, that we are back to interest rate rises and it's kind of the holiday of having low interest rates is a little bit over and done. Do you foresee the pre-approval time sort of taking longer as banks are getting more risk-averse potentially? I mean, is there such a thing as an average? People always ask me how long it takes to buy a property and I say, whoah,
my crystal ball is still with Amazon but is there like an average time that one can expect a pre-approval to take and are you foreseeing that it's going to blow out a little bit?
Serena Lu
I love your questions Michelle. Yes, another great question. Definitely. So when the banks have low volume of applications, they can move really quickly. If you don't have much work going on, you can process things quickly. But in terms of the hierarchy of what they prioritize, if you're looking to buy and you absolutely need to get a pre-approval, unfortunately, pre-approvals is at the lowest end of the pecking order. So the banks will look to see if any contracts are exchanged and you know there's a settlement date they will look to assess that first. They will also look to assess any refinance because there's a guaranteed loan at the end of that. With pre-approvals that's the last thing they sort of get to and at the moment it can take three or four weeks for pre-approvals to get assessed. At the best of times it's one week so we're seeing a three or four fold blowout in the SLAs that the banks
Michelle May
Okay, wow already
Serena Lu
Thank you. Yes and they're also I guess taking more time to look into the details and ask questions in this risk-off sort of environment and you know with pre-approvals as well there's banks that fully assess and banks that just automate and whatever inputs you put into their system it will just rely on that so with a few if it's a non-cookie cutter sort of application I actually request that the banks have a look at it.
Michelle May
Yes, because it's just it's not the same as those auto things online still, right? It's still a different process. So you still need to talk to a human and I think I made a post about this on social media the other day that I have never had a client who has come in with a pre-approval from a bank. This is just slightly off topic, but on topic also, who's coming with a pre-approval because they've gone directly to their bank and then we've recommended brokers such as yourselves and they've always come back with a better deal. Whether that's percentage or more money or just better terms overall. So it's really worth you taking your time when you know talking to someone like Serena to get it done properly and if it takes four weeks it takes four weeks right.
Serena Lu
Yes.
Michelle May
There one last thing before I let you go? I've taken so much of your time already. If there is one last thing that you would want people, before they come to you, to think about when it comes to borrowing or getting a mortgage in this kind of environment, the rates are rising, what would you say to them?
Serena Lu
Look, I like to empower people and I like them to achieve their goals. I find in this environment, people get scared and more conservative, myself included. You think about buying that extra splurge or not and whatnot, but in this environment, a lot of people exclude themselves. So they say, maybe I can't borrow or I can't buy that.
Michelle May
Serena, thank you so much. You've really helped me in this conversation. So much knowledge you've brought to the table here in this risky environment that a lot of buyers find themselves in the insecurity that is happening around the world. So if a buyer were to come to you or somebody wanting to get into the market, what is one piece of advice that you'd want them to walk away with?
Serena Lu
I think the most important thing is to not limit yourself. I find a lot of people have fears around or just thinking that they can't do it. Find the right people, surround yourself, and have that initial conversation. A lot of the time it's an obligation free to have a chat with yourself prior to excluding yourself. So think about things or thoughts that my clients have told me that have stopped in the past. I don't have the deposit.
I have helped my clients build from a 2 % deposit and secure the first home guarantee scheme. I'm not just going to turn you away and say, look, sorry, I can't help you, but how do we get there? We have a roadmap. And then, you know, maybe some of my clients aren't great at negotiation or they're too busy. I have some very talented clients who are barristers or special counsel and they negotiate better than I will, but they don't have the time. And if they
entered the market just six months earlier, it would have saved them a great deal. So engaging someone like yourself would just help them along and just to get context for the market. Sometimes the things that delay my clients would be just thinking that a listing price, for instance, is what is suggested online, but they go to the auction and it's suddenly 100,000 or 200,000 more or even higher still. So I know that if I speak to you, you would have prepared them for that. They've spoken to me, I would have said, let's get your maximum pre-approval limit and then work within that. I've had clients where the 5 % genuine savings that you have to show for a first-home guarantee, was just a little bit short. So what did we do? We looked at the rental ledger in lieu of savings because it was something that would have been saved had they not and that's within policy acceptance. Or we looked at releasing extra super that they had paid and it's not that much I don't recommend trying to drain one's superannuation they had their purposes but if it's just a little gap and it's going to get you into the market that much quicker save you that much more rent you can look to build that back in retrospect so build the right team ask the questions and you'll be surprised at how quickly and how much more we can do things as opposed to finding a moment where you're not exhausted because we all get these times where we know we should be doing this or that and then thinking and ironically.
I've been in business now for seven years and I plan on being around much longer so my clients tend to stick with me for long time but ironically I'm finding more and more that it comes to public holidays when my clients finally have a break and the time to look at the important things or the big goals that they have so I get a flurry of inquiries over Easter but I've learned a lot of
clients know now. This Easter I'm going to Tasmania, I'll be hiking and possibly with zero reception so please reach out earlier or I'll have someone monitoring my inner box for those who are buying but yes if you don't hear from me and honestly often I'm quite responsive so if you don't hear from me in 48 hours I'm still alive and I will get back to you.
Michelle May
So funny. You see, I'm working in this new studio setup and we just lost a bit of video before and now we're losing my background. I don't know what's happening, but I think as long as they can see and hear us, that's all good. I mean, I couldn't agree with you more. It's those times when everybody else slows down. That's when they all reach out to us because,
Michelle May
It is really important to reach out to people like yourselves and myself as well because you just don't know what you don't know and you don't know the right questions to ask to get the answers that you never even knew you needed to hear. Which actually brings me to the end of this interview with you. Thank you so much Serena for coming here and taking the time to speak with me about this. It's been such an eye-opener.
Serena Lu
Thank you, Michelle.
Michelle May
If people want to get in touch with you, how would they best do that?
Serena Lu
Please come to my website. It's www.fundinglab.com.au You can book an appointment with me directly through there. Just call or email me, my contact details are on there and reach out. Start the journey early and build your team. Put your team together. So if you want to work with Michelle or with myself, subsequent to those conversations, connect with us and that way your whole team is working towards your goals.
Michelle May
Yeah, absolutely. I couldn't have said it better myself. Although I have something coming up that might help you as well. I wanted to mention that I have a clarity challenge coming up. Tuesday to Thursday, the 14th to 16th of April. And that's where we're going to talk about the short episodes where I'll do a live session with you if you're interested. It's exactly what you just mentioned, Serena. It's about the buyer confusion loop. You're excited.
Michelle May
You start off with all the right intentions, but then potentially you get too many conflicting noises, too many conflicting pieces of advice. You get overwhelmed. You delay because you get that, what am I supposed to be doing? I don't know. So I'm just going to hold off. And then you get overwhelmed and you do nothing. And then you leave time out of the market. The market changes. As you know, it's a rapidly changing environment. The buyer confusion loop.
So I wanted to talk you through that with my three-day Clarity Challenge 14th to 16th of April. There will be a link to join the wait list for that. But also if you want to learn more about how to buy properly without the confusion and the stress, my first home buyer course called Better Home Buying is launching the 18th of April. I'm so excited. This has been my life's work. 18 years of working as a Buyer’s agent.
It's an eight module course with an online community live sessions with me if that is of interest to you Again, there'll be a link in the transcript or on my website You know, I would love for you to join me so we can get you into the property market by better than you ever could have thought Serena, thank you so much for your time. I hope we can have another chat soon, everyone. Thank you so much and until next time
Serena Lu
Thank you, Michelle. That sounds like a fantastic course. I wish I had it when I was buying. We'll speak soon. Bye.
Michelle May
Thank you very much, Serena. Talk soon, bye.