Rising Tide Blog

Radio Host: The Reserve Bank of Australia has moved ahead off fears about deflation, deflation means falling prices. I thought that was a good thing but apparently, it’s a bad thing! Cutting its official cash rate by a quarter of 1% to a historic low of 1.75% which in retail banking terms means around 5%.

Chris Browne is the founder of Rising Tide, a Melbourne based financial services company. Chris, Good morning to you!

Chris Browne: Good morning!

Radio Host: If you’ve currently got a bank loan, for example, Westpac 5.43% but you’ve actually got an existing loan with Westpac and they’re giving you 4.75%. Will they still pass on the quarter of a percent off that lower rate?

Chris Browne: It’s a case by case event, what I would recommend that you do if you think that your bank hasn’t passed on that 25-basis point discount, give your banker a call or give the branch a call and ensure that they do! They do have the flexibility to pass it on to the consumer.

Radio Host: At some stage everything goes up, at some stage interest rates will go up. What can you lock in at the moment as an interest rate?

Chris Browne: Variable rates are in the 4s, fixed are in 5s. I don’t like having all of my eggs in one basket, so personally I have half of my mortgage on a fixed rate and half my mortgage on a variable. Just because we don’t have the crystal ball to predict what’s going to happen in the future.

Radio Host: If you look at that rate and Westpac is 5.43% and you know some customers paying 4.75%, can you ring your bank and muscle them into giving you the rate of 4.75%?

Chris Browne: Absolutely! Take the statement in, show your mates bank statement that shows they’re paying 4.75% and you’ve got to tell them that you’ll walk in the event that they don’t match it. To be perfectly honest I wouldn’t even be asking them to match it, I’d be asking them to better it.

Radio Host: Prices will rise, we already have a fear of whether young people are going to be able to afford a house. This will cause them to go up even more, will it not?

Chris Browne: I think the big thing that people need to understand is we are at 50-year historic lows when it comes to the cash rate. If you’re looking to invest in an investment property, shares or purchasing your own home, expect interest rates to go up by about 2% over the next 5-10 years because the last thing you want to see happen is that they rise and you need to sell the investment as you can no longer afford the repayment.

Radio Host: Interest rates couldn’t possibly get any lower than they are now? From the point of view of someone who’s going to obtain a mortgage. You would be far better with a fixed rate wouldn’t you, because it couldn’t possible go lower?

Chris Browne: The variance between fixed and variable isn’t as demonstrably different to what it’s been in the past, I still like the idea of footing both because if you look at other countries their cash rate is even lower than ours.

Radio Host: They have had interest rates in Japan in the not too recent past, of 0%, haven’t they?

Chris Browne: And that is exactly right! So, they can still go down from here believe it or not!

Radio Host: Yeah but they’ve been in recession for 20 years or something in Japan, haven’t they?

Chris Browne: We just don’t know what the future holds for Australia and I don’t want to preach doom and gloom but I think you just need to edge your bets.

Radio Host: Now inflation, we’re well aware of it. Inflation has been occurring all my life, what about deflation? Where’s either happened or what does that mean where the economy is concerned?

Chris Browne: I’ve just been focusing on the inflation rates, at the moment the RBA want to see inflation rates at 2-3%. Surprisingly it’s actually sitting at about 1.5% and that has led to the flash of interest rates today and that Is what I’m primarily focusing on at the moment.

Radio Host: Good on you Chris! Chris Browne, Founder of Rising Tide Melbourne Financial Services company.