The Quiet Move to Quality Assets: What Investors Know That You Don't
Robert Owen- May 2
- 3 min read
Updated: May 3
The turmoil of the ‘Orange Peril’ in the US continues to spook stock markets. 2025 looks like a flat or negative year for stock market returns – possibly a good entry point for a new opportunity or continuation to grow your share portfolio. >> Catch up on my February update << .
Debt Recycling
Debt Recycling could be considered an option. A bit of buzzword over the last couple of years with the stock market outperforming averages. Essentially, you are borrowing against your home, investing in the stock market and claiming a tax deduction on the borrowed / reborrowed amounts. The income from the investment is then put back against the loan and you can repeat – gradually you replace bad debt (non tax deductible debt) with good debt (tax deductible debt).
Basically, if you can earn 9.2% on the stock market (historical average of capital gains of the ASX including dividends – excluding dividends is 6.5%), but your interest rate is below 6%, you’ll benefit by 3.2% (before tax considerations). Assumes a return of 9.2%, which in this climate is no certainty!
This level of return is also achievable with a carefully selected investment property (balance of rental and capital growth). You can still use the tax benefits of debt recycling for this purpose.
A strong shift toward high-quality hard assets continues. The Melbourne property market stands out in particular, with its median dwelling price currently ranking sixth among the capital cities (CoreLogic 1st April 2025). This is historically unusual, and I firmly believe this imbalance will correct in the coming years. While markets across the board have shown recent improvement, Melbourne remains my short-term pick.
Fixed vs Variable
This old argument continues with the banks lowering their fixed rates ahead of forecasted RBA rate reductions, the next is anticipated to be 20 May 2025.
As an example, Macquarie has a current fixed rate of 5.19% for 2 years with variables around 5.89% for owner occupied, this is 0.7% discount (fixed relative to variable). It is instructive of their thinking. The lower rate is tempting but these banks are not in the game of losing money. If they are setting the fixed rate at 5.19%, you may expect the variable to drop below that in the next two years. In the main, I am sticking with variable.
Numerous studies show generally you are better off on a variable rate rather than trying to outwit the fixed rates. However, you may consider a hybrid (split of fixed and variable) if you want a foot in both camps and some certainty of repayments.
Election and Housing
Not much from either party really. However, expect tightening of tax incentives for investment properties. Buried in the budget papers was Labour’s plan to not allow negative gearing tax offsets for 2nd and more investment properties on new purchases after 30 June 2025. This plan has to pass parliament and existing properties would be grand fathered from the new legislation but it outlines their thinking.
If Labour forms a minority with the balance held by the Greens or Teals expect this come to fruition. If you are considering that investment property, you should act before 30 June 2025 is my advice rather than waiting.
Funding for Pre-fab or Offsite Construction
Finally, some good news!
A few of the banks are finally embracing modern construction methods of pre-fabrication in a factory and assembly onsite. Traditionally, lending was virtually impossible for these methods. But a few lenders on my panel are waking up and I can now offer you these options.
There are still some restrictions but give me a call and we can deep dive. (This is something I care about personally - we built our home using prefabrication, and I really believe it’s a smart way to help tackle the housing shortage).
Time for a mortgage check-up?
Reviewing your home loan from time to time is a good way to check it is still helping you achieve your financial goals and has all the features you need.
Arrange an obligation free appointment with our trusted broker, Robert, today.
Call 0414 941 115 or email rob@loanstriker.com.au to discuss your options. If you prefer, book an appointment online.
The information provided is general in nature and does not constitute personal financial product advice. It does not take into account your objectives, financial situation, or needs. Before acting on any information, you should consider its appropriateness in light of your own circumstances.
