One of the first things you should do is talk to your lending institution or a mortgage broker. Your lender should be willing to work with you to find solutions to your repayment problems so as to avoid a mortgagee sale.

Most lenders offer repayment holidays of up to 90 days, which may be enough to let you build up your reserves or pay off other short term debt so as to reduce your weekly outgoings.

Another option may be to convert your mortgage to an ‘interest only’ mortgage. This will have the effect of reducing the amount of your repayments because you are not paying back principal. Yet another option is to extend the term of your mortgage, say from 20 years to 25 years, which will also have the effect of lowering your repayments.

All of these options should be seen as short term solutions because ideally you should pay off your mortgage as quickly as possible.

A mortgage broker may be able to help you shop around for a mortgage at a lower rate of interest, however bear in mind that depending on your circumstances, there may be penalties involved in repaying your existing lender, so get this information from your lender first.

Selling your house because you can’t keep up the mortgage payments should be a last resort. Real estate agent fees, legal fees and removal costs will eat into your deposit, and there is always the uncertainty of whether property prices will move ahead by the time you can afford to buy again.

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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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When a homeowner has problems making their mortgage payment at the end of a month, how short are they? Do they not have any money for the payment? Or is the struggling homeowner coming up just a few hundred short. With a mortgage payment of $1000, for example, that might only be $100-300.

If every month a consumer’s budget keeps coming up short, it is time a look at where the money is going.

One of the areas to look could be the monthly cost of food. Do you REALLY know how much of your paycheck is going into the fridge and eventually the mouth?

To keep things simple, a single person could break down their food costs to an average of $2.00 per meal eating at home. In one month that could be around 100 meals.

That equals $200 per month-eating at home-in a perfect world. Everyone knows people eat out at least 5-10 times a month. How much does that cost…an additional $50-150? I’m not suggesting NOT eating out, but being aware of how much you are spending doing it. That means your food cost could jump to the $300 or $400 level without really knowing.

If a person is a “big eater”, that $2.00 per-meal cost could easily double or triple, especially if a person is not a good grocery shopper. Now the “eating at home cost” goes to $400-600. The eating out cost could be an additional $300-400.

Wow! That is $1000 per month for just one person-just on food. Think of the cost for a family of four (with poor eating habits).

Much money is wasted. Imagine if a struggling homeowner could save their home AND cut their food budget in half. A person could really set themselves free. That’s empowerment! TAKE CONTROL OF YOUR BUDGET, MORTGAGE AND FINANCIAL FUTURE.

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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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Fixed rates in New Zealand are currently way too high. Floating rates are at about 5.75% with fixed rates running at about 6% for 6 months upto a whopping 8.5% for 5 years.

Usually although in theory you would need to pay a fee for re-fixing a mortgage, but this is waived. Now it seems the banks are being a lot less keen on waiving that fee.

An ASB Bank document obtained by the Herald on Sunday said it introduced the new fee schedule to “reflect the time and complexity in providing the best in customer service”.

The fees would now apply from a series of dates between March and May.

While the document shows that the cost of the fees is reducing in some cases – from $250 to $50 – brokers say the customers will have a tougher time getting fees waived.

This is something we have had with ASB for about 2 years now. They wont waive bank charges, though they are still not charging us for new loans as we re-structure our lending. But to be honest – the cost of banking with them is going up, and the service is going down. I am certainly not getting “the best in customer service”. In fact – I’m getting lousy service – I just have to pay for it now.

So you do need to be careful. And you do need to shop around. Loyalty to a bank is frankly silly – they just do not deserve it – so if you are coming up to renewal time on your mortgages – shop around and go with whoever sweetens your life the best. Bear in mind that here in New Zealand one mortgages can splint up into several parts. That can add up if you get charged the full $250 to re-fix each part of a loan.

The only customers not having to pay fees for refixing a mortgage were those referred to as a “high value clients”.

The bank said in the document that fees were required by law to be “fair” and represent the cost of handling a loan. It said the fees were changing to “fairly reflect the time and resources we allocate to client interactions”.

The document also showed the ASB Bank was wiping a $500 contribution previously given to customers to help pay for legal fees.

Well, I’m certainly a “High Value Client” at ASB, but they still don’t give a damn. I have however managed to get them to reimburse us some legal fees that we have incurred because their loans department keeps stuffing up. So much for paying for service huh?

So be careful. Shop around, and make sure that paying off your mortgage is a high priority. That’s the one thing that will give you leeway to make your own choices and switch banks. Although the recession is basically over – the fallout from it could last years. The place we see that most is in the cost of mortgages and the unwillingness of banks to lend money to people who need it. Having small mortgages means the banks love you because you are a low risk to them. That’s a good position to be in!

Thanks to Christine for the heads-up!

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2010 will bring a lot of change not only in the Mortgage world but also in the Real Estate world, more on that in a while.

From a Lending perspective the market has tightened further but this week two Banks have re-entered the 90% market so the choice is getting better and so criteria should ease – it needs to! Lo Doc continues to be difficult which restricts many Self Employed people from buying. We have seen many clients this year with good deposits, great track records but because the Accountant does what he is paid to do, the Financials don’t reflect the true income so the Banks say ‘no’. This will ease in early 2010 with not only the Banks looking at high deposit Lo Doc business but a couple of Specialist Lenders poised to return to the market. This is good news all round. Entries at Baycorp (now Veda Advantage) also reached record highs and Mortgages for those with adverse entries can be done, at about double the interest rate charged by the Bank in the initial years. This again should change next year as more Lenders are due to re-enter the New Zealand market.

Regulation of the Mortgage Industry takes effect in October/November 2010 following Europe and Australia. Many think this will reduce further the number of Brokers but increase the level of protection for the Borrower. I for one welcome this, as a Mortgage is probably the most important financial decision we will make and it is important that the advice given is correct. This includes mortgage finance, investments and insurance.

One of the biggest changes in years in the Real Estate business took effect in November with the new REAA regulations coming into effect but there is more to come.

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