*&*# you, Barefoot: Anger grows as rate crisis looms

If you don’t own at least 20 per cent of your home, Scott Pape says you’re effectively trapped, as it’s highly unlikely another lender will offer you a better rate than your current bank.

So … it seems that many readers are worried about the state of my mental health.

Like Raffy, who wrote:

“Last week’s column on interest rate hikes was a bit more adversarial than normal. Given you’re out helping the community, I just wanted to ask how YOU’RE doing?”

Thank you, Raffy – I’m doing okay, though I certainly copped it in the inbox this week.

Here’s a cracker from Linda:

*&*# you Barefoot

Dear Scott,

As you enjoy your perch high up without mortgage stress, you won’t join in our ‘pity party’. Yet my heart breaks telling my kids they can no longer do swimming lessons, no longer go to birthday parties, and no longer afford new shoes (cue the Supa Glue advert), among countless other sacrifices.

Meanwhile my husband and I have added second jobs in our evenings and weekends to deal with the devastation caused by the rate rises and cost of living. For the first time in my life, I’ve started lining up at food banks each Tuesday so our children can have fruit and bread.

We can no longer do the Buckets. Our Fire Extinguisher account is extinguished. Our Mojo has no mojo. And so, despite our best efforts, here we are. *&*# you.

Linda

When interest rates rise it takes a lot of bloody hard work to get the banker off your back.

Hi Linda,

I understand where you’re at right now... and just how stressful, and scary it is... though it’s not that stressful or scary for your bank.

They would have modelled the scenario we find ourselves in – where 800,000 borrowers will see their home loan rate go from 2 per cent to 6 per cent – but they decided to err on the side of their... bonuses.

Let me explain:

At the height of the pandemic the RBA flooded the banks with billions of dollars at the super-low rate of 0.1 per cent to support the economy.

The banks shovelled out this money as quickly as they could... and for that round of limbo lending they made it super simple for borrowers to shimmy across the line: they assessed them on the rosy scenario that rates wouldn’t go higher than 3 per cent.

Wrong!

So are the banks fretting about their stuff-up?

Nah.

Do you know the old saying, “The bank wouldn’t lend me money if they didn’t think I could pay it back”?

Well, it’s true.

The banks know that the vast majority of their customers are like you, Linda – they will sell off their kidneys to keep their house.

Yet it gets worse.

If you recently borrowed more than 80 per cent of the value of your home – which I have always advised against! – you’ll find that you are effectively trapped. And your bank knows it.

Why?

Because the bank made you buy a very expensive insurance policy in case you defaulted – called Lenders Mortgage Insurance (LMI) – which can cost (you) upwards of $15,000 and is not refundable if you move to another lender.

Realistically, if you don’t own at least 20 per cent of your home, you’re about as popular as Malcolm Turnbull at a Liberal Party fundraiser: it’s highly unlikely another bank will offer you a better rate than your current bank. And that means once your fixed term ends they don’t have to do you any favours. After all, where else can you go?

Nice, eh?

Linda, I’ve spent years in the financial trenches with people who have their backs to the wall.

And I can tell that you’re going to make it.

Reason being, you’re doing whatever it takes to keep food on the table and a roof over your head. And it takes a lot of stress, and shame, and sacrifice, and bloody hard work to get that banker off your back.

So you’re right, I don’t pity you. I admire you and the grit you’re showing.

You got this.

Tread Your Own Path!

The financial dominatrix

Dear Scott,

Your column gave me an idea for a novel! Do you remember the question you answered yonks ago from the lady who said: “I’m a financial dominatrix. Do I have to pay tax?”

I just had to find out what a financial dominatrix was! I found it so fascinating (a fetish where someone wants to be cursed and dominated financially), I just had to write a novel about it. My novel is called My Human ATM and it can be found on Amazon. It’s about Liza, who goes from financial doom to financial dominatrix. So thank you for the inspiration! Your column helps and enlightens in so many ways.

Rowena

A lot of people feel like they’re being squeezed for every last dollar right now.

Hi Rowena

Well, that was unexpected.

So this morning I downloaded your book and gave it a read. It’s like fifty shades of finance!

As a middle-aged house-husband, the closest I come to romance these days is looking longingly at the nuts on my trees. Your book was the spiciest stuff I’d read in … well, ever.

It didn’t exactly poke my goat, but then again I don’t think I’m the target market!

A question for Mrs Barefoot

Hi Scott (and Liz),

Since 2017, I’ve followed Barefoot to a ‘T’ and managed to purchase a home at the ripe old age of 25. And then in walked the man of my dreams and – BOOM! – love struck! So should I sell my house, or should we borrow on the equity to make our family home dreams come true? I’d do anything for him but I have this little Barefoot voice in the back of my head: safety, safety, safety! Everyone I speak to says, “Never sell”, or “It’s our biggest regret!” I know Liz sold her home to buy the family farm, but does she regret it?

Tina

Scott Pape and wife Liz on their property in Victoria. Picture: David Geraghty,

Hi Tina,

First a disclaimer: my wife is a television producer, not a financial adviser (and, even though she’s married to the Barefoot Investor, she cares as much about money as I do about reality television).

Still, I dutifully asked her whether she regretted selling her (tiny) studio apartment.

Her response: “No, not really.”

I’ve often thought it would be nice to still own that tiny little dogbox (with an oven her brother found on the side of the road). Not because it was a good investment, but because it was such a huge achievement … and a great lesson for our kids, especially our daughter.

Yet, at the time, we couldn’t comfortably afford to keep both. We were starting a family, and the wisest financial decision was not to take on additional debt and financial stress.

We sat down on a Barefoot Date Night, ran the sums, and made an emotional but sensible decision together. That’s the story we’ll tell our kids when they’re older.

So that’s the first thing to discuss after you order wine at your next Date Night!

You Have Been Warned

Hi Scott,

Over the last few months, in the face of rising interest rates and inflation, I’ve noticed a pretty significant increase in anger from your readers. So my question to you is, why do you think so many Australians have put themselves in these difficult financial situations thinking that the good times would never end? After all, you’ve been telling the Australian public this for years!

Thanks to you, I have a nice little nest egg, I’m comfortable with my mortgage payments if rates continue to rise, and I’ll be sure that, no matter what, I keep treading my own path. I’m sure I speak for many when I say you’ve helped prepare us financially for the good times and for the bad times that inevitably follow. I owe you a beer.

Dan

Now is definitely the time to batten down the hatches.

Hi Dan,

The truth is it’s been hard to cut through.

Most people’s lived experience is interest rates going down and house prices going up.

Remember, less than a year ago our government was campaigning to ‘help’ low-income single parents buy a home with just a 2 per cent deposit!

Good on you for battening down the hatches. I hope you enjoy a few frothies on me from your Splurge account!

Information and opinions provided in this column are general in nature and have been prepared for educational purposes only. Always seek personal financial advice tailored to your specific needs before making financial and investment decisions.

Originally published as *&*# you, Barefoot: Anger grows as rate crisis looms