[transcript]
Healthy mortgage market means healthy banking sector, which means we get money at the cheapest price in the world, which means the banks in theory can lend you the money at a competitive, reasonable rate that allows you to go and buy something and you're not going to get stormy. They, too, don't want to nail you because they want to keep their mortgage book good quality because they get assessed on their mortgage book by the regulator and the regulator makes them hold capital against their book.
The better the quality of their book, in other words the less stress they have in their book, the less capital they have to hold as a bank. The less capital they have to hold, gives them a greater return on equity. The ROE is the thing that drives banks decision making. The bigger the ROE, the bigger banks will have to lending more money.
There's this fine balance in banks and people like me, between keeping my interest rate at a price that gives me the maximum margin, but also allowing me to have it at a low enough rate to maximize my flow in and to keep the quality of my book without stress. We know that we have stress numbers that we have to maintain and those stress numbers are very important to us. That's about keeping the interest rates, or the margin I should say, we can't determine the interest rates. The Reserve Bank does it, but the margin for risk, that 300 base points I was talking about.
Keeping that at 300 is probably as much as they're ever going to get. It's never going to go beyond that. When I ran Wizard, it was 120 base points. 120 base points above the cash rate. That's a very important graph for Australians to understand how good quality this base. That's across the nation. You might have worse in the Gold Coast and better in Brisbane, or visa versa. Worse in Tasmania than it is in West Australia, worse in Tasmania than it is in Sydney. That's a national number.
Property Club 20th National Conference
