Here’s what you need to know today

• Australian Treasurer Jim Chalmers will announce a $900 million National Productivity Fund, which is designed to encourage states to pursue pro-competitive policies such as cutting red tape, streamlining commercial planning or zoning changes. (Capital Brief)
  
  

• As Australian economists digest what Trump’s economic policies will mean for the Australian economy, interest rate forecasts are changing. HSBC now believes there is a 25% chance there is no rate cut in 2025 and Fortlake Asset Management put the chance at 50%. Meanwhile, CBA still believe the first rate cut in February 2025 is a “safe bet”. So, we guess, whatever you want to hear you can find a forecaster that confirms it. (AFR)
  
  

• Alphabet’s self-driving car division Waymo has made its automous vehicle ride-hailing service available to the general public in Los Angeles. Waymo launched its first Uber-like robotaxi service in Phoenix in 2020, then expanded to San Francisco before moving to Los Angeles. Meanwhile, Tesla’s Cybercab is preparing to launch in California and Texas in 2025 and Amazon’s Zoox (originally an Australian startup) is preparing to launch in Las Vegas and San Francisco next year as well. The era of self-driving cars is fast approaching. (Reuters)
  
  

• In the surprising news of the day: Darren Woods, CEO of ExxonMobil, has asked President-elect Trump to keep the US in the Paris Climate Accords. Obama signed the US up for the Accords in 2016, only for Trump to pull out in 2017. Biden re-entered the Accords when he became President in 2021, and all expectations are that Trump will pull the US out again. (New York Times)
  
  

• More announcements are being made about Trump’s cabinet picks. Senator Marco Rubio is expected to be named Secretary of State and noted China critic Michael Waltz is expected to be named National Security Adviser. But the most notable nomination is Elon Musk and Vivek Ramaswamy will lead a new department, Department of Government Efficiency. (New York Times | NPR)
  
  

• The picks of Rubio and Waltz are going to matter for Australians. Both have been vocal in asking US allies like Australia to do more to stand up to China. Rubio is particular has also been a vocal supporter of the AUKUS partnership, but expect the new administration to ask more of Australia in the Indo-Pacific region. (AFR)

What the…?

One thing we’ve learned over our years at Equity Mates: there’s a lot of different ways to make money in the stock market. Yet, we still think this is one. The Cut has a feature on ‘financial astrologers’ an emerge group of financial influencers that use astrological charts to make investment decisions. 🤦 (The Cut)

Investing is a lifelong journey

Here’s what you can learn today.

Community Question: My parents want me to buy a house, but I’m not sure it’s the right idea. I’m still studying a PhD and don’t want the financial stress of paying it off. I have $90,000 in savings/deposit. I’ve been listening to the podcast and like the idea of stocks.

What can I say to my parents about the cost of property to convince them it’s not a good idea?

We put this question to Patrick Malcolm, Senior Partner and Certified Financial Planner at GFM Wealth Advisory

Firstly, congratulations on what you have achieved so far with your savings.  It is a great effort.

The best way to approach your parents is to explain what you have detailed in your question: That it would be tough for you to purchase a property as you don't want the financial commitment while studying for your PhD.

Practically, it would be difficult for you to purchase a property in Sydney with the deposit you have accumulated, as disheartening as that may seem!

Generally speaking, it is best to have accumulated a 20% deposit plus funds for Transfer Duty; however, some lenders offer home loans to borrowers with low deposits.  Generally, a home loan of up to 95% of the property value is the most a lender will provide.  These loans are riskier for the lender, so they mitigate the risk by charging Lenders Mortgage Insurance (LMI).  LMI helps protect the lender if you can no longer repay your loan.  

LMI can be expensive.  It can be paid upfront or sometimes added to your loan balance.

With $90,000, you could purchase a property in Sydney for $700,000 and cover a 5% deposit, the Transfer Duty and estimated LMI of around $30,000.  According to the latest data, the median house price in Sydney is $1.65 million.

It is important to note that while paying LMI can get you on the property ladder earlier, there are significant risks:

You could have difficulty refinancing with low equity: If you buy a home with a 5% deposit, you’ll have 5% equity until the property value changes or you start paying down the loan.  You will find it difficult to refinance your loan until you have more equity.  You may be able to refinance but will have to pay LMI again until you have at least 20% equity.

There is also an increased risk of negative equity: If the property’s value declines, you risk going into negative equity as your LVR is already high.

This is even before discussing loan repayments, which would be $3,971 per month ($47,652 per annum) on a $665,000 loan assuming an interest rate of 5.94% p.a.  This is before the additional ongoing costs such as insurance, rates and other property maintenance.

The important thing is to make sure you commit to your investing plan.  I don't think this will be a problem for you, given that you have already accumulated a large amount of savings.  A mortgage can be a forced savings plan, and the costs make it expensive to get in and out of the market, often making property an excellent long-term investment.  However, with discipline, this can also be applied to investing in the share market.

I wish you the very best of luck with your PhD.  Education is also a great investment!

Want to speak to a financial adviser? Fill out the form on our website and we’ll match you with one of our hand-picked financial advisers.

Today’s sponsor is Australian Property Scout

Join Sammy Gordon, regular Equity Mates property expert, with co-host Jimmy Ibrahim and APS Strategist Luke Teeuwsen for an in-depth discussion on how much capital you actually need to get started in property investing.

From the decision of purchasing a house vs a unit, to the buffers required in a portfolio and low-doc lending, they explore various strategies in detail. Our experts also discuss alternative ways to enter the market, whether it’s through a family guarantor, borrowing at a 105% LVR, or even picking up a second job.

If you’re looking to break into the property market but unsure where to start, this episode is a must-listen! Tune in to this episode on the Scouting Australia Podcast on all your favourite listening platforms.

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