Lending

Westpac have entered the Welcome Home Loan (WHL) market, the first of the majors to do so. As we come out of recession and the Banks gain more confidence in the property sector others should follow. Housing New Zealand have the final say with any WHL, so it doesn’t matter which Bank provides the funds, have a look at www.welcomehomeloan.co.nz for details. They are strict!

GE and Wizard have been bought by Pepper Home Loans out of Australia. There is talk of Pepper opening here but nothing confirmed. I’ve had several people contact me regarding refinancing for a better rate. Can be done and depends on circumstances.

NZF Home Loans have been sold to Resimac, Australian again. The sale is completed and we expect new products later in the year. This with Liberty and a couple of others is beginning to open up lending again, again showing confidence in the New Zealand property market.

Liberty have re-launched their Lo Doc product with lower rates and lower fees. Minimum trading period is 12 months, no penalty for overpaying and rates from 7.05%. This s the only true Lo Doc mortgage product currently in New Zealand and is selling well.

Liberty also have a 90% loan at 5.75% which can be used as a standalone Investment property mortgage. Most other Banks limit this to 70 or 75%.

All high LVR products (with the exception of the Welcome Home Loan) require at least 5% of the deposit to be saved and any debt (GE Cards etc) must not exceed the level of deposit. This is a requirement of the Mortgage Insurer so even if the local branch says OK, it probably won’t be. Gifted deposits are OK but there are rules, it pays to find out first.

Larger Finance Company loans are on rise. This is party because in some cases more than one can lend on the same property and create a joint first mortgage. Very useful for development deals or large semi commercial deals where servicing can be difficult to prove. Rates are in line with the risk, so expect around 10% and 2.5 to 3% in fees. Can also be used for refinancing in the short term to clear up arrears before returning to the Bank in six months with a clear record.

The Market

Overall we are seeing a bright start to the year with enquires well up and loan approvals increasing. There is a general air of optimism and first home buyers are very active this month. The OCR according to BNZ last week, will remain the same for the rest of the year, before coming under pressure to rise. I agree with this and so it seems do most of the Banks as fixed rate money is out of fashion and so to attract more business I’ve seen two year fixed rates as low as 5.49%. Compare that to the rates a couple of years ago! The Banks are also easing a bit so those unable to borrow last year are finding it easier now. All helps the bottom of the market, which of course flows through the whole market over time.

Prices

Prices are undoubtedly firming and in most City areas on the rise. There is simply little supply and a stronger demand, particularly at the lower end. Rural prices are softer and Lifestyle blocks continue to be burdened by oversupply. Perhaps the trickiest market is Apartments and Townhouses as Banks are limiting their loans on these to around 70%.

Debt Management

This is still an area of concern for Banks and the Government alike. Too many people have too much debt and I’m often asked if say $25,000 worth of debt can be rolled into a mortgage taking the LVR over 100%. The answer is no it can’t! So general advice is get rid of the debt and save before asking the Bank for a mortgage. Another area of concern is large debt and small deposit. All Banks, when lending at 90% plus, require at least 5% of the deposit to be saved (except Welcome Home Loan). This can be Kiwisaver or Savings but not a gift or sale of a car.

and Arrears

So far this month I’ve either stopped the mortgagee process or re-financed 5 people in trouble. Only one had made any contact with their Bank, the others had been hoping it would all come right. It doesn’t come right unless people act quickly and once the formal process of repossession starts it’s almost too late as funders don’t like taking on a debt from someone who has clearly not responded to their current situation. I am always around to talk people through (just spoke with someone as I write this) and provide quality advice as to what to do.

Regulation

This has been with us since July last year and little has changed. There is no legal requirement for formal qualifications in either the mortgage or risk insurance space, I find this amazing. All that is required is for a person to be registered as an RFA and if selling insurance, have PI cover in place. We are fully qualified and would urge anyone dealing with a Broker or Adviser to make sure they are dealing with qualified person, after all a mortgage is probably the most important financial decision you will ever make.

Success Rates

As we qualify each mortgage in-house to decide which Bank or Lender will provide the best solution, our success rate in 2011 was a little over 90%. Many of our Lending partners comment on the quality of our submissions, why settle for anything less.

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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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Retirement is seen to be the ultimate but somewhat elusive goal that we all aspire to and for which financial planners chide us that we must be well prepared. In their book Avoid Retirement and Stay Alive (Harper Collins, 2007) David Bogan and Keith Davies put forward the idea that no one should feel compelled to retire and indeed no one should want to retire.

The key message of the book is not that everyone should work hard until the day they die. Rather than retirement being a life changing experience that takes one overnight from being a productive worker to being permanently on holiday, it should be a seamless process where life is a continuous combination of productivity and pleasure, with the balance between the two simply adjusting over time.

There is a common expression that life is journey, not a destination. Too often we are so busy focusing on how much better our lives will be in the future that we forget to enjoy the present. There is no reason why we have to wait until we are no longer working to enjoy travel and leisure activities. Similarly, there is no reason why we have to feel that after a certain age we are useless to
society.

The concept of retirement is a modern one. Early last century, the average person was lucky to survive into their sixties and if they did, they were likely to be ill or frail. Retirement on a pension was intended to allow such people to have a few meagre years of life without having to work while frail. Thanks to improved lifestyles and modern medicine, it is not unrealistic these days to expect to live thirty years in retirement.

Somehow the concept of retirement changed to one of forcing people to give up a productive life on a given date. Continuing to be productive in retirement doesn’t mean however that you have to stay working in a job you don’t enjoy. There are many examples of people who use their later years to work at things they really enjoy or are passionate about. Some even choose this time to set up new businesses.

On the flip side, if you plan to have an active, income-producing retirement, there is no reason why you can’t do now some of the things you were planning to do in retirement. If travelling to Peru or learning to play golf are on your wish list find a way to make them happen today. It’s easy to have excuses. If only I had more time… if only I had more money…. if only I didn’t have children to worry about….

Doing fun things while you are younger and being more active and productive in your later years have been shown to help people live healthier, longer and more meaningful lives. Taking regular breaks is crucial to your physical and emotional well-being and new experiences let your mind know you are still alive. You are in charge, so make your own decisions about how your life will be lived.

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The Consumer report was based on a mystery shopping survey which involved 11 mystery shoppers seeking advice from 33 financial advisers. Of the 33 advisers, only 3 were deemed to have given ‘good’ advice based on the Consumer assesment criteria. Moneymax was asked to prepare a pre-retirement plan for a mystery shopper. A pre-retirement plan is one that is prepared for a person who has a mortgage and little in the way savings but who wants to get ahead. I spend many hours giving free advice to such people and in some cases I prepare a basic written plan for $600-800 plus GST depending on complexity. The true cost of preparing these plans is at least $1,600. Detailed plans cost around $2-3,000 and this is beyond the reach of people with no savings. My plan for the mystery shopper was rejected on the basis that it was not sufficiently detailed.

To maintain public confidence in the work of the Code Committee, I offered my resignation from that Committee to the Chair, Mr Ross Butler. Mr Patrick Middleton of Westpac offered his resignation for the same reason. Both resignations were accepted and Ms Annabel Cotton, the Commissioner for Financial Advisers, has stated publicly that these resignations do not in any way reflect our competence or our contribution to the Code Committee. A copy of the media release from Annabel can by read by clicking here.

Consumer Report

The Consumer Report has been condemned by the financial advice industry as flawed and sensationalised. You can read some of the industry response on two financial planning websites, Good Returns (click here) and Financial Alert (click here). I have written a letter of complaint to the Chief Executive of Consumer and you can read a copy of that letter by clicking here.

I was asked by Asset Magazine to write an opinion on the Consumer report. This will be published in the next issue of the magazine and you can preview the article titled ‘Why Consumer was Wrong’ by clicking here.

Support from Clients and Colleagues

I have been overwhelmed by the support I have received from both clients and fellow advisers over the last two weeks. I remain passionate about my profession and being able to help people make the most of their money. If you have any concerns about what you have read or heard, please contact me.

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