Vincent Turner
10th May 2023
Some history before we get started
It has never been a tougher time to buy a property in Australia. Decades ago houses and apartments cost around 4 - 5 times annual household income. Over the last 30 years this has gone north of 10 times average household incomes, but that doesn't tell the complete story. Nearly two decades of cheap money (low interest rates) meant that whilst houses cost more the monthly repayments on those houses offset a lot of those rises in terms of affordability.. Many commentators suggest that the low rate environment even caused the rise in prices but it’s more complex than simply rates and that is an article for another day.
What it looks like now, how rates are set
Since the RBA started their ‘belt tightening’ exercise in mid 2022 (alongside other federal banks globally) rates have been going up. At the time of writing the federal rate has gone from 0.1% to 3.60%. Whilst not the only factor that impacts the rates you and I pay on our home loans it's the main one. Most lenders get money from either depositors (banks) or other investors and they price their expected return (cost of funds) on some measure of the cash rate plus a set margin. As a result when RBA cash rates go up the cost of funds go up for lenders and thus the cost of mortgages goes up. For those in the industry we have simplified this greatly but the principles at play here are accurate. As Australian and other governments globally have increased cash rates the overall cost of money to lenders has gone up.
In practical terms for the typical consumer this means rates have gone from 2 - 3% to 5 - 6%. In turn this means the monthly repayment on a $600k loan has gone from $2530 (3% over 30 years) to $3597 (6% over 30 years).
As well as being over $1000 more a month for the customer it also has another impact. Borrowing power has gone down drastically.
Link between rates and borrowing power
Lenders/Banks each have a unique calculation for their borrowing power or ‘serviceability’. The calculation that looks at your personal and financial situation and says ‘this is how much we are prepared to lend you’. The amount between the 25+ lenders we have at UNO varies hugely for the exact same customer scenario (yours!). It’s one of the key reasons people should see a broker. At UNO we’ve built a real time calculation engine for working out lenders borrowing power highly accurately in a single place. It’s one of the reasons you shouldn’t just see a broker, but a UNO broker.
In any case, back to borrowing power. Whilst they all vary widely in how they determine how much you can borrow ALL of them take into account the repayment you will make on the new loan you are going to apply for.
Put bluntly, as rates go up, borrowing power goes down. A lot.
A single person earning $90k per year, with a credit card of $10k and a side hustle for some extra income could potentially borrow between ~$350k and $800k from the 25 lenders we work with assuming rates at 3%. When rates move to 6% this goes down to $325k - $600k, every single lender goes down.
Property buyers aren’t the only stakeholders who are impacted. When people can’t afford to buy homes this is bad for buyers but also impacts the developers of property who will find it harder to sell the homes they have built or are building.
This problem for both buyers and sellers of property has created the perfect storm for a shake up in the way property, especially new property developments are sold
Enter Abodable
Abodable was started a few years ago by Jake Baird, who had both bought property and had sold it. On going through the property buying process himself and being part of a property marketing and sales company he observed the flow of money.
Property developers typically pay around 3% to a property marketing and sales company for selling their developments. Translating this it’s around $18,000 on a $600,000 unit or $27,000 on a $900,000 house and land package. That’s big money for what is essentially a matchmaking service.
It’s done that way as that’s the way it’s always been done.
Property development is ultimately a numbers game. The sooner you can build and sell your current development the sooner you free up the capital to fund your next (larger) development. The marketing cost is seen as a cost of sales that every just wears and ultimately factors into the price of the property (ie you, the customer, wears it)
Abodable asked the question. Why? Why not operate a leaner organisation, built on technology that could showcase a far wider range of available properties? And why not pay its team to provide more of a concierge than a sales experience? and why not take the lion’s share of that sales commission and literally hand it back to the customer?
It may seem too good to be true but it isn’t. Hundreds of happy customers later Abodable is leading the way in making the purchase of newly developed property more enjoyable and financially rewarding. It depends on the property but Abodable will rebate up to $50k back to the buyer on settlement. It depends on the value of the property and the development itself (some developers pay higher commissions).
So why did UNO get involved?
First and foremost UNO wanted to find a way to partner with Abodable as we have a shared set of values. We jointly believe in innovation and delivering higher value to customers (even if it means giving up some of our margin). We are both focused on customer experience and creating more transparency. More than that we both believe in a fair go. The current model doesn’t feel overly fair on consumers so if more people knew and used a service like this we at UNO think that would be a step in the right direction.
But our reasons for partnering with Abodable run deeper than this. If you remember back to borrowing power, there has never been a more critical time for how you buy a property and how you organise your property finance to be coordinated.
Put simply, if you can’t borrow enough to buy the place or the finances don’t stack up then even with a hefty rebate you’re not going to be buying a property. Borrowing power is a moving target. Rates change, lenders change, customers finances change. Keeping your property buying concierge in close quarters with your mortgage broker can streamline and improve the customer experience and the outcome.
However, whilst keeping the lines open is key, ensuring the broker and property concierge are not conflicted is also critical. This is why there is no flow of money from referral in either direction for the services provided. If Abodable refers you to UNO, we don’t give them a referral fee. Our UNO brokers don’t earn a referral fee for suggesting you explore using Abodable to find and buy a property either. In the spirit of full disclosure UNO founder, Vincent Turner, is a mentor to Abodable founder Jake Baird. Vincent mentors/advises half a dozen startup founders at any given time.
So what does the partnership deliver?
The UNO and Abodable partnership is focused on creating three things for you the customer
- A financial benefit for using the service, in the form of the Abodable rebate, up to $50k
- A coordinated experience where the UNO Broker and the Abodable Concierge are able to jointly assist you in their respective areas (requires your specific consent)
- A bonus for using both services together, the UNO bonus cashback, set at $1k regardless of property purchased
The entire financial outcome for you is funded through the commission that would have otherwise gone to a more traditional property marketing & sales agency (or avoided if you went to the property developer directly)
As a customer you can start in either place, either by checking out some of the hundreds of developments available on Abodable or by booking in a time with your UNO broker or our customer care team who will assign you a UNO broker
