Clitheroe's take on interest rates, super and tax debates

Mortgage regrets rise as rates climb higher

The Reserve Bank’s February rate rise of 0.25% has pushed the average mortgage rate to 6.22%, up from 3.45% last April.

According to Finder this could see homeowners with the average mortgage of about $600,000 having to find an extra $12,000 annually – or around $1,000 each month, to service their home loan repayments.

Not surprisingly, that’s leaving some homeowners feeling like they've bitten off more than they can chew.

Finder says more than 1 in 5 homeowners admit they borrowed too much. Younger property buyers have been hardest hit – with 1 in 4 Gen Z buyers saying they overextended themselves on their home loan.

If that sounds like you, it’s important to take control of the situation as soon as possible. There’s no easy solution, but the key is to talk to your bank at an early stage to discuss a possible reduction in payments, a loan restructure or maybe a payment break.

If you’re a first homeowner, think about getting some paying housemates, or consider moving back in with family and renting your home out. In the meantime, take a long hard look at how you can cut living costs to make it work.

Super disruptors more likely to disappear than disrupt

Running a successful super fund is no easy task in Australia’s competitive market.

In the space of just a few years, almost all the superannuation ‘disruptors’ with products purpose-built for younger Australians, have either collapsed, been shut down or failed to resonate with their target market.

Super disruptors burst onto the scene in 2014 with the launch of Future Super and Virgin Super, quickly followed by the likes of Grow Super, Zuper, BrightDay and GigSuper.

At the peak, 30 challenger brands were hoping to take on the established industry and retail funds.

But by the end of 2022, only 14 super disruptors were still standing, and several more have closed their doors in early 2023.

The Federal Government’s decision to allow Australians to withdraw up to $20,000 from super during the COVID-19 pandemic was a major factor in some disruptors disappearing.

“Poor product design didn’t help either,” says Alex Dunnin, executive director of research and compliance at Rainmaker Information.

“The median expense ratio for disruptor superannuation products being 1.15%pam, was 10% higher than the Rainmaker 2022 MySuper fee benchmark of 1.06%pa. Their high fees were a symptom of their lack of scale,” he adds.

The surviving disruptors include Future Super, Virgin Money, Spaceship, Crescent Wealth and Verve Super.

A lot not to love about stamp duty

In the lead-up to the March election, the NSW government and opposition have competing policies to offer first homebuyers a way to avoid or minimise stamp duty.

The Grattan Institute describes stamp duty as a “bad tax” because it taxes homeowners every time they move, merely because they have moved.

It also acts as a de facto tax on divorce. When a separating couple sells the family home as part of an assets split, each member of the couple needs to pay stamp duty to purchase again. This is a big reason why more than half of Australia’s divorced women don’t buy a home again within a decade.

Since the start of 2023, the Perrottet government is giving NSW first home buyers the option of paying an annual land tax rather than stamp duty on first homes valued up to $1.5 million.

Labor NSW has pledged to abolish stamp duty altogether for first home buyers purchasing properties worth up to $800,000. As it stands the current full exemption cuts out on homes worth over $650,000, which doesn’t buy much in Sydney.

The Grattan Institute suggests that both major parties’ policies amount to little more than first home buyers’ grants by another name, which will likely push up prices. It notes that boosting housing supply can make homes more affordable though it’s not an overnight solution.

Paul Clitheroe is the Chairman of InvestSMART Group and Chairman of our Investment Committee. Click here to learn more about InvestSMART's Diversified Capped Fee Portfolios.