On today’s episode,
Bernadette is with crack mortgage broker, Louise Lucas. As CEO and founder of The Property Education Company, Louise helps guide property investors and first home buyers in structuring their finance to maximise returns on investments.
Listen to Episode 35: Louise Lucas: Mortgage Broker On A Mission
Bernadette covers,
- Louise was inspired by her father
- She helps people avoid property investment mistakes
- The state of play in terms of money
- What does “assessment rate” mean?
- The situation in terms of living expenses
- Her view on the going interest rate in today’s market
- The state of the market in Melbourne
- The fall out from the Royal Commission
- The benefits of working with a mortgage broker
- Louise’s 3 top tips for smart property investing
Episode highlights
01:06 – State of play with finance.
03:21 – Primary role as a mortgage broker.
04:52 – Lending and living expenses.
07:13 – Assessment rate.
10:00 – In terms of interest rates.
12:38 – After the Royal Commission.
14:38 – Check your credit file.
17:37 – The brokers commission structure.
19:38 – Property is forgiving if you hold long enough.
21:57 – Free advise are often perpetrated by non educators.
23:24 – Get structured and get a plan in place.
23:54 – Keep your accounts clean.
Transcription
“I have had a vast and long property experience, I’ve learned so much and I’ve learned the hard way. That’s why I love talking about it now. Because I don’t want people to make the mistakes I’ve made.”
Intro
Hello It’s Bernadette back with She Renovates, the podcast for women who want to create an income and a life they love through renovating. And today I have a special guest in my friend and awesome mortgage broker, Louise Lucas. Louise has a business which is called The Property Education Company and she is a cracked mortgage broker.
Bernadette: Is that the right word?
Louise: Cracked up or cracked is good. I’m not sure but either way we give it a crack every time. So there you go, Bernadette.
Bernadette: Welcome Louise!
Louise: Thank you. Delighted to be here with you. So much fun. We love talking property don’t we Bernadette?
Bernadette: Good. How’s your week been?
Louise: Oh my gosh. Well anyone who was holding back and we didn’t have many holding back prior to the election but they’ve certainly woken up since. It’s absolutely frantic.
Bernadette: That is awesome. Okay. Well I’ll get into what the state of play is with finance in a minute. I better not get too carried away. So my first question is and everyone gets the same question. Can you give us a bit of background on your property journey?
Louise: Delighted. Well my parents were very much into buying property and renovating or selling. In fact, we were once driving around on a Saturday morning in a small street down here in Melbourne. And Dad pulled up, heard an auction going on the other side of the road and let his hand up and said “That’s going cheap, let’s buy it!” and put his head up and bid and watched. And they said, “Sold! To the man in the car!” Which was absolutely hilarious. And then he goes, “Hey, kids be quiet. I’ve got to go and have a look at this.”
So they were very keen on property from an early age. It was my experience and dad used to say to me, “Gosh, if I hadn’t realised how I could borrow and leverage I would have done a lot more earlier!” And that may be what it took to get me into finance later on.
But when I married my husband had a couple of properties and we bought and sold, renovated, done dual locks, done three on a block, bought houses, lifted all Queenslanders onto sites and split blocks and done all sorts of things since. So I have had a vast and long property experience, I’ve learned so much and I’ve learned the hard way, Bernadette. That’s why I love talking about it now. Because I don’t want people to make the mistakes I’ve made.
Bernadette: Yeah, we’re both in that bucket, unfortunately. Well it’s unfortunate for us but fortunate for the people we work with now.
Louise: That’s so true. Yeah and I loved I was paid to do it but I didn’t wake up knowing all of this stuff. I actually learned it and that’s why I love talking about it because I can give them the benefit of it. So it’s really good.
Bernadette: Exactly. So that sort of was what got you into your business. You want to just tell us really quickly what you do in your business?
Louise: Yeah. My primary role is mortgage broking but we do help people and guide them through making offers and getting them to buy. We’ve also had an online course and I’m about to relaunch it on “How To Buy A Property” just to give people the nuts and bolts of how much deposit you need, what are the actual steps to buy. And so it’s very practical, very hands on. We are the entry level for investors and for first time buyers. So we’re trying to help people who’ve never really been told and they’ve been asking their parents and the butcher, the baker and they’re getting all sorts of wrong information from lots of people and then they sort of come back to us and go, “Look we just want to cut through the crap. Dare I say, get a straight answer. Can you please help us?” Yes. So that’s what we primarily do.
Bernadette: Great. Excellent. And of course you were amazing in helping our eldest daughter Hannah.
Louise: Oh, gosh. If they were all as easy as the gorgeous Hannah!
Bernadette: That was her first time, but it wasn’t – it was the second wasn’t it?
Louise: It was. She’s a delightful person and easy and super responsive, very organised but naturally she comes from you. I can’t comment on her further, but on another I can.
Bernadette: Yeah that’s good. So tell me what’s the state of play in terms of money at the moment?
Louise: Well it’s interesting I’ve just been today at the MFAA of the Mortgage and Finance Association of Australia is a conference in Melbourne and they’re going into bat about lending and living expenses which has been the big agony for people who are dealing with broking at the moment. They’re trolling through people the last 3 months at least of your living expenses. So be warned people have a look at your average spend for the last 3 months in your savings account. The accounts that your pay go into and any credit cards and see how much you’re actually spending because this is what we say, today they were laughing and saying, “Well how many Uber eats you’ve done in the last month?” And what a lot of nonsense it is that lenders are actually getting into this and asking. It’s such an impertinence really. You would mind less if people were out there defaulting madly but they’re not. So I believe with the assessment rates changing hopefully this month. APRA have said they will no longer mandate that people have to use assessment rates over 7% and the majors always use 7.25, so always a .25 higher.
They actually say they’re going to reduce that and it’s out for discussion at the moment. One of the lenders came back today and then reduced to 7% but we suspect it’s going to go lower. We’re hoping that will make a huge difference in the amount that people can borrow. And it just is common sense. There’s no point charging people 3.49 on an actual home loan and then expecting them to service at 7.25 you know 2 1/2% or a 2% buffer is clearly plenty of room and that’s what it always was. And then it got, you know during the GFC and that period then all these little rules snuck into the system to try and make and limit the damage. And that’s what we’ve ended up with. It’s very complicated, over regulated area in my view. So we’re hoping that with the changing assessment rate things are going to loosen up dramatically.
Bernadette: Louise, can I just jump in there for a minute? For the newbies that might be listening can you just explain that terminology assessment rate?
Louise: When people apply for a loan the bank actually tests your interest rate instead of say you’re paying 4% they’re automatically testing you at 7.25. So if they’re told by anyone that they can’t service a loan it has to do with that assessment rate. That they’re testing your repayment ability against a loan with a repayment of 7.25 which is quite dramatically different to the 4% you’re currently paying.
It’s a huge extra buffer or security blanket in the system for the lenders. Now we understand that they need to have a buffer. Absolutely common sense. But to have such a high buffer it seems like it needs time. It’s time to move it down and we’re hoping that this June. Now the election’s over. The RBA had one rate cut. We’re hoping this will be the next trigger to move things along in lending.
Bernadette: Exactly. Yeah. In terms of the living expenses do you think that’s going to relax as well?
Louise: I think it will become more streamlined. Well that’s what we’re hoping. You can’t have one lender saying, “Oh you know what size dog do you have?” To someone else saying, “Oh, that just looks fine.” It’s ridiculous and out of hand and you’ve got to troll through and pick every item and give an average for 3 months and say “Right, well if they choose to spend this” If they’re already paying, too. This is the crazy thing. If someone’s already got a loan, they’re already paying at say 5% interest rate and we want to refinance them for 3 1/2 and they go, “Oh! Their living expenses are too high!” Well seriously, they’re already paying 1 1/2 higher than you’re going to charge them.
It’s like, they’re already managing. But what they are looking for is Can you pay your repayment plus possibly leave something in your account? Some people we get a crazy slack with their attempts and maybe run it in a negative occasionally just get overdrawn because they go, “Oh, it doesn’t matter! I’m gonna be paid in a couple of days, whatever.” Do not do that before you go for a loan.
The other thing that I must warn people they’re looking for is online betting or gambling of any sort. Let’s rule out that behaviour for three months before you go for a loan. It’s dangerous behaviour. And banks don’t want to see it. So be very warned about that sort of thing.
Bernadette: Yeah. Okay and in terms of interest rates where do you think they’re heading?
Louise: I think they’re going to stabilise now. I personally don’t see if we get this change in the assessment rate. But hopefully we’re not such a stuffed economy that it has to go lower. Because that leaves almost nothing in the tank. Should the world economy falter. So you’re hoping that they won’t feel obliged to reduce rates again and that things will start to pick up and that this last rate cut will actually trigger a reversal and people will become more confident and positive. Start spending again, all that sort of thing.
Bernadette: Yeah.
Louise: What’s your view? What do you think? I mean no crystal ball. Who knows? But I just feel that the assessment rate, and that change is so profound. If I can change the way people borrow that will increase things in property which is the fundamental part of our economy.
Bernadette: I would agree with that. I really don’t know. And I’m with you, I don’t think anyone really knows. I’ve sort of felt that there’s been one coming for ages and I was surprised they didn’t do it closer to Christmas. So now that we’ve got it. Yes. I hope it doesn’t go any further down. Things pick up and so the economy gets better. And so that we don’t need it.
Louise: And people don’t realise when interest rates are going up they go,” Oh my God! Interest rates are going up!” But that generally means property prices are going down. These two swings around and it’s not a bad thing.
Bernadette: And the market in Melbourne that’s still pretty in the doldrums?
Louise: A lot of our first time buyer clients are out there competing very vigorously in the 500-700 mark. And it’s hard. Really competing to get property. So they’re getting them but they’re working for it. I don’t think it’s quite as dramatic as they think. Generally the top end is what drops first and they’re the ones bleating and crying but I don’t see in the lower end of the market. It’s nowhere near the problems. There’s no way they’ve gone down 20%.
Bernadette: Firstly, before we get to that. What do you say has been the value that you bring to a client as a broker as opposed to actual? I’ll step back a step. We’ve just done a survey. Well we did it a while ago but I’ve just had the report done on it. What it said was, we’ve mainly surveyed women in property that women prefer to use a broker as opposed to bank to the tune of 2 to 1.
Louise: Yeah that’s good to hear.
Bernadette: Yes. So I thought that was interesting given the whole carry on after the Royal Commission.
Louise: I think the Royal Commission in the end did as a power of good. Because anyone who didn’t understand what a broker did was now getting involved in having that conversation. And a lot more clients were actually recommending their friends because they’re going, “Are you crazy. Why would you come back?” And the other thing is I think the banks have left themselves open with their branch staff. Who previously might have had some unwritten authority to approve things now.
Now I have a much more rigorous credit checks etc. and we’ve been scared by what’s happened by the Royal Commission. They’ve already been in that space. We’ve been working with the rules in place for years. There’s no escape from that for us. And so we understand.
People have come to me. And they say, “I’ve always bank with so-and-so and they’ve just refused me a loan.” And I’m getting that all the time at the moment and I go, “There’s no way that they should refuse your loan it’s just cause you’re with the wrong bank for you at this time”. And that’s because of their policies and that’s where the benefit of a broker can bring. Because we understand the different policies, the lenders can say, look they don’t like that sort of person you need to go somewhere else.
And there’s unwritten rules often that they might not want you to know. But we know from experience or hopefully they are written and they’re quite clear and we can help you guide you through that.
Bernadette: Yeah exactly. And the other thing that a lot of people don’t know and this is where you’ve come unstuck when you go down that path of going to the bank and they turn you down then you have to go to someone else. Is that it goes on your credit file.
Louise: Absolutely.
Bernadette: And that’s another benefit that I really see with working with a broker. If that broker, if their decent will look after your credit file by making sure that you meet the criteria before you get there.
Louise: Yeah absolutely. And on that note everyone should check their own credit file by going to mycreditfile.com.au. That’s run by the Equifax group from America who absorbed data. However, a client of mine recently had a loan approved and received a spam email which she didn’t realise and she asked me, “Oh I received this and it says it reports from the lender and says check here to check your credit status”. So be warned people if you get an approval through and then you get something that asks you to click through something to check your credit. Be warned, that’s a spam email.
Bernadette: What are they doing. Are they tapping?
Louise: I don’t know this. We checked our systems and our aggregator who monitors our software and says that nothing is leaked from us, but we’re not sure. Maybe the conveyances because I know we’re not in the ACT. Someone had a conveyances email intercepted and they directed that the $400K grand got deposited into some spammers account.
Bernadette: Which is what happened to one of our students and she is now my J.V. partner to be honest. What had happened, she had done this project with someone and the deposit was to come from the real estate agent that conduct her account. And this crooks intercepted that email where she gave them the bank details and changed it to their bank details. But it was really fortunate because apparently normally they will use a new bank account every time. They’ve used one that they used before and the bank quarantined it. Otherwise she would’ve lost about $60K.
Louise: Wow. Well these people lost $400K.
Bernadette: Whoa. Yeah.
Louise: So that’s why at settlement we actually usually advise people to put it in the account with the bank where you’re actually getting the loan from. So they can actually complete the transfer for you.
Bernadette: Yes but with the deposit goes into a trust account with the agent. So we make a policy don’t give bank details via email. Bring them up or do it by snail mail.
Louise: Yep. Well and we always use a portal for our bank statements. We’re very concerned about that, too. Because people were sending all manner of stuff. And a client basically just handed his password as well I said, “No no no no no. I don’t want any of that!” He said, “Because I trust you.” I said, “Of course you trust me but I still don’t want your password”.
Bernadette: The other thing we need to address is the fact that the brokers commission structure doesn’t really work for renovators that are buying and selling in the same year.
Louise: No. That’s so true. And so if someone came to me and said look I’m going to do a flip. We are clawed back within any loan that is changed within generally two years. So if the loan is rewritten within two years then we don’t get paid. And I don’t know how any of you would feel but working for nothing is not my game and it’s not fair. But I understand from the lender’s point of view because they are not making money either. It’s all very well for people to say, “Oh yes. But you know I’m allowed to do this” Well, maybe you just need to pay for it. It’s different. You could get a line of credit, the possibility against the equity in your own home. That depends how much you need to buy.
But the other thing on the flipping thing so I get it. If anyone comes to me and says, “Oh, we’re flipping” Then we’re going to have to charge you. Because it’s crazy. And sometimes I refer them back to their own lender and say, “Look, why don’t you ask them first because they’ve already made money from you and they might be happier to do it”. However, flipping as a strategy, I generally find people don’t make money flipping.
Bernadette: We do but we discourage students from doing it because it’s a really short sighted strategy and it’s just like a job. Like the project I did with Hanna. There was no way we could have done that any other way. And from my point of view I would prefer not to be flipping at all because it’s also the highest risk and plenty of people do lose money on it.
Louise: Property is very forgiving if you hold long enough. Generally you’ll make money. It’s just people often sell the year before then the market goes up in their area. It happens all the time.
Bernadette: I know. Yesterday I was talking to this young woman, actually I met her. She actually stayed in one of our projects. We had it on Airbnb and when it was finished. You remember our charity project?
Louise: Oh yes. You are a reaper on that!
Bernadette: And she’d say, “There you go, there’s a good application for flipping.”
Louise: You are very clever. Not everyone does it like you and the other thing is you need to have all your trades lined up. You need to know who you’re using, what you’re doing. It’s not something you just wake up tomorrow and go, “Oh good I’m going to do that!”
Bernadette: She went to one of these bloody property things and they advised her to sell one of these positive property, positive cash flow things. I’m all for positive cash flow, but they advised her to sell her house in Melbourne and buy apartments out in the woods in Queensland and here and there. He did that and you know what happened don’t you?
Her place in Melbourne doubled in a very short amount of time, but she’d sold it so she didn’t benefit it. And these lemons have just done nothing.
Louise: Of course. Well a part of their money will be carted. I find that really insane. How could you not ask where are people making their money? That’s what you should be asking. How are people making money off you in this transaction? Oh they’re getting a great big fat kickback from the apartments they selling.
Bernadette: I’m not sure that they’re off the plan. Maybe they were. I’m not sure but.
Louise: And yes it’s inevitable.
Bernadette: So sad but you know what. Someone that’s not educated hence that’s what we do. You’re really relying on people that they think are the authority.
Louise: That’s the other thing – advice. That they think free advice is often they perpetrate as educators but they’re not educators at all. And when people actually say I’m going to charge you for this because my advice is valuable then maybe you should take notice of that.
Bernadette: I really agree with that. And in actual fact our policy with our students is if you’re flipping and you need to work with a mortgage broker mostly they need to work with a mortgage broker because they’re challenged in terms of getting finance. You have to pay for it.
Louise: We appreciate it.
Bernadette: Just make sense. To do that and get someone who’s going to look after your interests than the alternative.
Louise: Yeah well it was like I was doing a loan for a client recently who’s older aged and when we saw an investment but then the banks make it difficult for that sort of thing. Anyway we got it through and he goes, “So that was all incredibly painless!” That was because you didn’t see all the stuff that I was doing in the background to justify it. Well very excellent landing!
Bernadette: Paddling underwater.
Louise: That’s what it was. And I said, “So I’m really glad you found that so painless because it certainly wasn’t for myself!” Anyway. That’s OK. That’s why we’re here.
Bernadette: Right. So is there anything else that we should talk about?
Louise: No I say, “Just come and ask the questions.” I never mind seeing people early, too. If they want to set up a plan for 12 months. Or they think they want to do something and they don’t know how to structure themselves or get organised and learning early. Please do that before you go rushing to realestate.com. Come up and get a plan in place then. I don’t care if I could make out for months and then we get them and they already know the rules around what apply to lending.
Bernadette: What are your 3 main top tips? This is a lot.
Louise: Keep your accounts clean. So if you’re going for a loan within 3 months spend a little to keep them always in the black. Cut out any after pay and get rid of any unnecessary credit cards, going to car loans unless you really get some benefit from work or you self-employed don’t do loans for the sake of it. All those sort of things it’s all good common sense. That just applies.
