Every year, the University of Otago publishes a Food Cost Survey which is available at http://nutrition.otago.ac.nz. Click on the consultancy section and then food costs. This survey calculates the weekly cost of purchasing a healthy diet for men, women, adolescents and children in major cities and looks at basic, moderate and liberal budgets. It’s no surprise that food costs for a teenage boy are around $107 per week compared to $85 for a grown man! A moderate budget for a couple and two children under the age of five living in Auckland is around $255 per week. For a couple with two teenagers the cost is around $359 per week. Use this guide to set a strict budget for your food, so you don’t eat your money!

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First of all, check with Work and Income to ensure all available benefits are being received such as accommodation supplements and disability allowances. Check with the local council on eligibility for a rates rebate.

If a large sum of money is needed, the cheapest option to consider is to borrow from family members. This should be done with the assistance of a solicitor to prevent any problems with gift duty or issues that might arise on death.

Unfortunately, children don’t often have money to lend. Borrowing from a bank is a possibility and can usually be done by way of an interest-only loan. While this will help keep repayments small, they still need to made and this can be stressful.

Selling the family home and buying a cheaper house is another way of getting access to funds. This can be an expensive option once all the costs associated with selling, buying and moving are taken into consideration.

Home equity release schemes are proving to be very popular as a last resort option. If you need funds for home improvements, such as a new roof or painting, then taking out a loan will enable you to preserve the value of your house.

Choosing a home equity release scheme is something that needs to be done with caution and is best done with independent financial and legal advice.

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This is my take on a couple of recent articles, however what most ‘pundits’ seem to miss is that property should always be a long term investment and everyone actually does need somewhere to live!

Mortgage affordability is set to improve through July/August as average two year mortgage rates have dropped slightly so house prices are expected to remain stable.

The national average house price rose 0.7 per cent to NZ$352,500 in June from May, which is down around $8,000 from the record high in March.

Our Affordability Report measures affordability nationally and regionally, taking into account house prices, interest rates and incomes.

Affordability improved significantly in Auckland, Northland and Queenstown as house prices dropped, but worsened in Christchurch where prices rose.

Southland, Otago and Manawatu/Wanganui were in the best position whilst the Central Otago Lakes region continues to be the least affordable.

Levels of affordability hit in early 2007, near the peak of the housing boom, were at their worst as interest rates were a lot higher too. People still bought and sold property!

In other words now is a pretty good time to buy.

Nationally affordability has eased with a mixture of July fixed mortgage rates having dropped and house prices being subdued. These falls in rates are not a result of global price cutting, more local Banks cutting margins.

The Reserve Bank lifted the Official Cash Rate to 2.75 per cent from 2.5 per cent on June 10 and economists expect it to increase it again to 3 per cent on July 29.

Many home owners are still on fixed mortgages, but an increasing number are choosing to float given floating rates at just under 6 per cent are still cheaper than longer term fixed rates at around 7 per cent. Due to reducing medium term fixed rates and the possibility of rising floating rates a lot of people are mixing floating and fixed.

The average 2 year fixed mortgage rate, which has been among the most popular with borrowers in recent years, was flat at 7.19% in June. Since the end of June the average two year fixed rate has dropped to 6.98%, this reduces the monthly cost but not by much.

House sales volumes flattened off in the last three months of 2009 and early 2010 as first home buyers and rental investors stayed away. The OCR hike in June and the May 20th budget moves to remove depreciation as a taxable expense for property investors has seen house sales drop a further 20 per cent during May and June. The reality of the Budget is that 90% of Investors will pay less than $40 a week more in tax and most of this will be passed on in rent hikes. The number of sales is expected to remain flat until Spring so Buyers actively looking can expect to do a ‘deal’. I always advise getting a pre-approval first, this adds to the bargaining power later on.

Affordability is hardest in Auckland, Wellington, Christchurch, Hamilton and Tauranga for those on a single income, but homebuyers in smaller provincial cities will find home ownership much more affordable.

On a positive note I’ve noticed the Banks are easing criteria, particularly in high 80% plus loans, its all depends on track record and servicing. In the last month or so nearly a third of my business has come from the UK or Australia, so maybe they know something……….

Finally regulation was proposed for the Mortgage and Insurance industry, that has now changed (it will NOT be regulated!) but I will be sitting my exams soon to add to those gained in Europe, I still feel its good knowing you are working with a qualified Professional!

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Market volatility is what generates the return on your investment, and you can therefore use volatility to make money. With experience we find that most events in life that are volatile or uncertain still follow a reasonably predictable pattern over time.

In financial markets, making observations about the way markets have behaved previously in similar conditions should enable you to take the right actions and to reasonably predict the outcome.

Markets move in cycles and as surely as the sun will rise every morning, markets that have dropped will rise again. The question is, how far will they drop in any downturn and how long will it take before they start to rise?

When markets are uncertain in the short term, there are some important principles to consider before you invest. More than ever, the two key principles of liquidity and diversification apply. In simple terms, that means you should aim to invest in things that can easily be converted to cash again (don’t put your money into investments that are locked in or for which there are few buyers and sellers) and spread your money among many different investments rather than trying to pick winners. One of the most effective ways of achieving this is to use another basic investment principle, called dollar cost averaging. That simply means drip feeding small amounts of money on a regular basis into a diversified investment. Contributions to KiwiSaver are a good example of this.

For long term investors, short term market volatility will seem of little consequence in years to come.

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Start with the basics. Focus on your goals and objectives. If you have long term investment goals, remind yourself not to get too distracted with short term changes in the market. Reversing your strategy will cause you to lose value and lose time – both key ingredients for achieving your goals.

Review your attitude towards risk and reassess whether your investment strategy is a good fit for your risk tolerance. When things are going well in investment markets it is easy to take on more risk than you should. Find the right balance between risk and return so that you can achieve your goals while taking an acceptable level of risk.

Stay diversified. Markets can change quickly, and moving all your investments into one asset class might work in the short term, but it means you are taking on more risk by having all your eggs in one basket. Don’t sell in a panic or you will crystallise any paper losses. Selling up and putting all your money into very safe investments will lower your return, possibly making your goals harder to achieve.

Evaluate all the options you have. This might mean getting more information from an expert who you trust. Make sure that any advice you get is from someone with a balanced or independent point of view who can point out the downsides as well as the advantages of different investment options.

Confident investors have a long term plan that they stick to, they do their research, they aren’t swayed by emotions such as fear or greed, and they are successful at building wealth.

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Firstly, we are seeing a decline in property prices as winter sets in. Some property investors have reacted to the last budget by choosing to sell and this has had an impact at the lower end of the market.

Mortgage interest rates are expected to increase over the next few months and this will help keep property prices in check.

The second piece of good news for first home buyers is that from 1 July, 2010 you can you use some of your KiwiSaver funds for your house purchase providing you meet certain criteria.

You must have been a member of KiwiSaver for at least three years and the house you buy must be one that you plan to live in yourself for at least six months.

You will be able to withdraw the contributions you have made to KiwiSaver plus your employer contributions and investment returns. As well, you may be eligible for a subsidy of $1,000 for every year you have been a member of KiwiSaver up to a maximum of $5,000. To be eligible, your income and the value of the house you are buying must be within certain limits.

Thirdly, you may also be eligible for a low deposit loan through Housing New Zealand’s Welcome Home Loan scheme.

With this scheme, you can borrow up to $200,000 without a deposit and up to $280,000 ($350,000 in some areas) with a 15% deposit on the amount above $200,000. That means you can buy a $280,000 house with a deposit of $7,500 and your KiwiSaver money (contributions plus subsidy) will count towards your deposit.

Now is definitely a good time for first home buyers.

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One key advantage of a line of credit is that if you run short of funds you can spend or withdraw up to the limit that has been set. This means that you can pay all your spare cash into your line of credit to keep the balance and the interest down, knowing you can grab it back at any time. If you have a mortgage, the best return you can get for your emergency savings is to ‘invest’ it in a line of credit. The return you get will be the interest you save on your borrowing.

Some mortgage brokers and lenders advocate using a line of credit as a transaction account for receiving income and paying all your living expenses. In theory, this will ensure your loan balance is kept as low as possible. In practice, this system usually fails because unless you are very disciplined it becomes almost impossible to keep to a budget. It is better to instead make a regular payment each payday into your line of credit to reduce the balance.

Some banks are now offering customers the ability to offset balances in a range of accounts, which is a great way to keep your savings separate from your mortgage. You will only pay or earn interest on the net balance of the range of accounts. The more you save, the more you will crunch your credit!

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Traditionally, fund managers have had full discretion to invested funds based on expected financial return, however investors are now demanding more information about where their money goes and whether they are unwittingly supporting the expansion of companies that are harming society or the environment. Responsible investing describes an investment strategy which seeks to maximize both financial return and social good.

In the early days of responsible investing, funds typically used what is referred to as a ‘negative screen’ for selecting investments, which means they avoid investments in such things as tobacco, alcohol, gambling and armaments. Later came funds using a ‘positive screen’ which means they sought out investments in companies whose products are good for society or the environment, such as companies involved in clean technology (eg wind farms or water purification).

More recently, fund managers are using a range of environmental, social and governance (ESG) criteria to assess companies. As responsible investing grows in momentum, fund managers are using the voting power they have as shareholders to directly influence the ESG policies of companies an approach sometimes referred to as ‘shareholder activism’.

The evidence clearly shows that companies with sound ESG policies also produce excellent financial returns, so that responsible investors can indeed be rewarded for their contribution. For more information, contact your adviser or the Responsible Investment Association of Australasia www.responsibleinvestment.org

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Money borrowed to purchase a house that you live in yourself is referred to as ‘bad debt’ as opposed to ‘good debt’ which is money borrowed to purchase a property or business that makes an investment return. Bad debt should always be kept to a minimum and repaid as quickly as possible.

The starting point with managing your mortgage is to buy a house that is well within your budget. Save a good deposit and buy the lowest value house you feel comfortable living in. Interest rates on mortgages can vary markedly over time and this is a trap when interest rates are low. A mortgage that is affordable at a low rate of interest may be beyond your means when interest rates rise.

It pays to divide your mortgage into several chunks over different terms, with some on a floating rate and the remainder fixed for different periods. This helps to minimize the risk of paying too much interest over the term of the mortgage or paying high penalties if you need to break your mortgage. If you are disciplined with your money, it can be helpful to have a line of credit that is only used in case of emergency. You will only pay interest on your line of credit if it is used.

Try and pay your mortgage off as quickly as possible by focusing on the chunks of your mortgage that are on a floating rate or fixed for a short term. Repaying debt should take priority over any long term saving other than KiwiSaver.

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