Defence: Are you stress testing?

So now that the easy money party is starting to come to an end, what defensive measures do you have in place? Google tells me that the long term average interest rate is 4.5%, what rate are you stress testing at?

In my case, my lifestyle won't be affected up to 8%IO or 7%P&I, at which point I'll have to start reducing discretionary spending or dip into my buffer. I also have a huge cash buffer.

What's your plan?

 

20,000 new daily cases of COVID in New York and Pfizer now saying that COVID will be around until 2024.

So expect the Central Banks to keep printing money and thus keeping rates low for quite a while yet.

We ain't anywhere near out of the woods.

And if the above continues to fuel the market then expect APRA to clamp down further but any tightening of monetary policy is many years away.

 

Good if you're done buying but it affects serviceability if you're still looking to buy.

 

My response to incoming surprises.

 

When there is a calamity I find I do the best.

 

The bank stress test your application at 6% over the remaining P&I period (the number of years after an IO period expires). In theory people should easily be able to service their loans for the foreseeable future.

The reality however is that people spend more than they think they do. Most people declare about half what they actually spend.