The New Zealand Mortgage Mag by Tarawera Publishing

mortgage the new zealand

Volume 11, 10,Issue Issue3,4,April June2011 2011

mag

advice for lenders and advisers

Where to go when the bank says...NO ! Meet some of the

non-bank lenders

Revisiting your Facebook strategy Good Broker Bad Broker Picking future rate rises

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Inside

mortgage the new zealan

mortgage the new zealand

advice for lend

ers and adviser

mag

advice for lenders and advisers

Meet some of

Revisiting you r Facebook stra tegy Good Broker Bad Broker Picking future rate rises

To find out more about our new TotalCareMax Home Loan Develo Mortgage Instalm pment Manag ent Insurance er, on 0274 757 Sovereign on cover, speak to 225 or email 0800 500 103. Nick Russell, nick.russell@s overeign.co.nz or call Sovereign Assuranc

e Company Limited. All applications are subject to individual considera

Contents Editorial

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non-bank lenthe ders

Buying a house is one of the most expensive purcha their lifetime. So, it makes sense ses a person can make in to protect it. Our new TotalCa reMax Mortga ge Instalment provides cover Insurance does for mortgage just that. It specific repayments in totally disable ally the event your d. An added bonus client becomes is that redund optional benefit ancy cover is availab . le as an As Mortgage Instalment Insuran ce is part of the have the opportu TotalCareMax nity to offer other portfolio, you risk products lifestyle require to complement ments. your clients’

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W h e re to go whe b a n k sa ys ... N n th e O!

He lp you r clients Where do you go when the bank says no? While there are far fewerthe non-bank pro ir big gest asset tect lenders in the market than a couple of years ago we discover there are actually still quite a few options available to brokers. In this issue of the NZ Mortgage Mag we talk to these lenders and find out what they are offering you and your clients.

10032 1210-Help

Volume 11, 10,Issue Issue3,4,April June2011 2011

tion. Condition s apply.

8/12/10 3:32 PM

Below the radar the important business of lending goes on

People and DIARY

People movements and upcoming events

News

What’s happening in the broker industry

Housing commentary

Ups and Downs of the property market

Lead Feature - Non-bank sector

Jenny Ruth reviews the state of the non-bank sector

BAD BROKERS

The case of Kapiti Coast mortgage broker Kerry Buddle

My Business

We talk to Justin Mogford of Priority Home Loans

Sales and Marketing

Paul Watkins outs the Facebook Balker

Interest Rates

What’s the outlook now?

Insurance

Steve Wright asks - Insured all the important stuff?

Legal

Avoid the GST trap warns Jonathan Flaws

NZMBA

Messages from the Chairman

Coach

Mark Sutherland says seeing is achieving

June 2011

the nz mortgage mag

EDITORIAL

Below the radar the important business of lending goes on It’s funny how things go in cycles. One of the things we hear often is that there is a dearth of non-bank lending options available in New Zealand. It’s true that many of the non-bank lenders that were around in the 1990s have disappeared thanks to the global financial crisis and the finance company collapse in New Zealand. However a few of the names which had some brand awareness, such as Cairns Lockie and NZF have survived. In fact it looks like NZF is about to get a new lease of life soon. For this issue of the magazine we decided to have a look around and see what other options are out there. Part of the idea came from snippets of information we heard about private funders being in the market. One of those I found out about at the beach over summer when I met a mate from primary school, Bruce Darwin. We have discovered that there are plenty of non-bank lending options available to brokers, particularly for those difficult loans banks won’t do or for bridging finance. No doubt there are some others out there as well. One of my wishes would be to see this non-bank sector flourish and provide other options for brokers and lenders.

Welcome to the new world

Head office 61 - 63 Marguerita St, Rotorua PO Box 2011, Rotorua Phone: 07-349 1920 Fax: 07-349 1926 editor@mortgagerates.co.nz

Managing Editor and Publisher Philip Macalister

SENIOR WRITER Jenny Ruth

Staff writer Benn Bathgate

Sub editor Margie Macalister

Contributors Jonathan Flaws, Christina Leung,

You will get this issue of the mag just before we enter the new world of regulated advice. It’s been a painful process, particularly for advisers seeking to gain the AFA status. Mortgage brokers have got off lightly – so far – however the process hasn’t been cheap. The latest piece of news is the cost that will be placed on all players to fund the watchdog – the Financial Markets Authority.

Darren Pratley, Mark Sutherland, Paul Watkins, Stephen Wright

Graphic Design Angela Croft

It does seem ludicrous that the industry has to fund the FMA. Whether the new world ends up meeting the goals set out by the government is a moot point. I’m on record expressing serious doubts already.

Advertising sales

However, things have been happening which needed policing. The most high profile of these in the mortgage broking world is the case of Kerry Buddle down in Kapiti.

sales@goodreturns.co.nz

TV One’s Close Up has been pursuing this story giving it some oxygen. In this issue Jenny Ruth looks at it from the broker angle. Read her story, starting on page 18, and make your own conclusions on what happened.

Freephone: 0800 345 675

Subscriptions Dianne Gordon Phone 0800 345 675

Thoughts for Christchurch Our thoughts are with our mortgage broker colleagues in Christchurch who have suffered yet more hardship. A fund has been set up to help brokers in Christchurch and we would encourage you to make a contribution to it. Here at The Mortgage Mag we have put our hands in our pocket and helped out.

Philip Macalister Publisher

Philip Macalister, Managing Editor and Publisher of The NZ Mortgage Mag

the nz mortgage mag

The NZ Mortgage Mag is published by Tarawera Publishing Ltd (TPL) in conjunction with the New Zealand Mortgage Brokers Association. TPL also publishes online money management magazine Good Returns www.goodreturns. co.nz and ASSET magazine. All contents of The NZ Mortgage Mag are copyright Tarawera Publishing Ltd. Any reproduction without prior written permission is strictly prohibited.

The NZ Mortgage Mag welcomes opinions from all readers on its editorial. If you would like to comment on articles, columns, or regularly appearing pieces in The NZ Mortgage Mag, or on other issues, please send your comments to: editor@mortgagerates.co.nz

June 2011

the nz mortgage mag

PEOPLE & DIARY

people

DIARY leighton Langley has joined the Ginger Group as its new National Sales and Distribution Manager.

Leighton Langley

Langley joins Ginger Group from a role at Sovereign, where he was responsible for the creation and growth of Sovereign’s aligned distribution channel, Sovnet, which has been credited for that company’s industry-leading position. Ginger Group CEO David Whyte says, “It’s a coup to have Leighton join our team. He has more than 30 years’ experience in all facets of the financial adviser sales and development business, and has worked in a variety of distribution models and complementary management roles. “The Sovereign channel that he created has been recognised as an industry model, and he understands exactly what advisers seek and need. He is driven by a desire to help them operate productively and fruitfully as they grow their own businesses, which accords with Ginger Group’s goals.”

Event: Date: Venue: Info:

Ginger Group Conference July 3-5 Rydges Lakeland, Queenstown www.gingergroup.co.nz

Event: SHARE Symposium 2011 Date: July 7 Venue: Te Papa Tongarewa 55 Cable St Wellington Info: SHARE Symposium 2011 - Choose Your Attitude - International speakers - Interactive workshops Sharing knowledge SHARE delivers a full day symposium programme designed to inspire and invigorate. Email events@sharenz.com

Langley’s role will involve assisting advisers to adjust their businesses and services to the new regulatory environment. He says the new regulations “present tremendous opportunities for forwardthinking practitioners. The new marketplace will see advisers enjoying a more versatile relationship with product suppliers, the freedom to develop adviser businesses without undue constraints, and greater capacity to grow and prosper.”

Newpark adds two BDMs Newpark Financial Services has appointed two new Business Development Managers to the team.

Jon-Paul Hale

Event: NZMBA Conference Date: August 4 and 5 Venue: Spencer on Byron - 9 Byron Ave, Takapuna - Auckland This year’s NZMBA Conference Info: features Greg Frost from the USA, who is one of the best mortgage trainers in America and Mike Walsh from Australia talking about the world of IT and how it affects you and your business. Also speaking is All Whites coach Ricki Herbert.

Jon-Paul Hale is well known in the industry having previous roles at Sovereign and New Zealand Home Loans and will bring great benefits to both Newpark and our members.

Email: cheryl@nzmba.co.nz (Also see the NZMBA news on pages 32-33)

Neill Nixon has joined Newpark from a well known Auckland brokerage and will be a huge asset to the team going forward as Newpark develops more value adds to concentrate on adviser productivity. Newpark says it will endeavor to recruit top people to help deliver its services to the market and our members. Neill Nixon

IMPORTANT ECONOMIC DATES Event: Date:

OCR Announcement July 28

Event: Date:

Monetary Policy Statement and OCR September 15

Event: Date:

OCR Announcement: October 27

Event:

Monetary Policy Statement and OCR December 8

Mortgage Link adds brokers Mortgage Link has two new advisers joining existing businesses in Otago and in the Wairarapa. Beth Aporo has joined Mortgage Link Wairarapa, based in Masterton. She has previously been supporting Stephen Oldfield (Business Owner) and Sharon Kent (Registered Financial Adviser) for three years. Mortgage Link Otago has appointed Penelope Jaggar to join its existing team of Jill Clearwater, Glenda French and Michael Walters. She has a background in sales and real estate and will be developing her own networks under the Mortgage Link Otago brand.

the nz mortgage mag

Date:

June 2011

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June 2011

the nz mortgage mag

NZ NEWS NEWS

FEARS FEES MAY FORCE MORTGAGE ADVISERS OUT OF INDUSTRY The Ministry of Economic Development’s (MED) preferred funding options for the Financial Markets Authority (FMA) is likely to result in a reduction in non-aligned mortgage advisers.

This is the view of both NZMBA CEO Darren Pratley and Professional Advisers Association (PAA) Mortgage Chair Ian Webb. “The NZMBA is very concerned at the way this has been suggested, Darren Pratley 82% of all advisers in the financial services industry are under a QFE environment, how can this be weighted to put so much financial pressure on the adviser industry?” Pratley said.

This concern of an unequal burden was also shared by Webb, who said, “these costs should be shared amongst the entire industry and not unfairly burdened on the individual adviser.” Pratley said that while mortgage brokers accept the need to improve the financial services sector, with the levies at the suggested levels “you drive people from the unaligned space, you encourage people to work within a QFE model, which means they become product sellers not product advisers, and secondly you drive people out of the industry of giving advice so the consumer actually loses on both counts.” This fear of a loss of advisers was echoed by Webb. “For many, the costs of registration, education, disputes resolution, CPT and regulatory compliance, offset with pressure

Pero sweeteNS BROKER OFFER For the first time in three years, Mike Pero Mortgages is actively seeking to recruit new franchisees, particularly in Auckland. Chief executive Shaun Riley says while the company has continued to run its generic advertisement on Trade Me, it has become more Shaun Riley proactive and wants to sign up between six and eight new franchisees in Auckland. The company, which is jointly owned by the NZX-listed NZF Group and Australia’s Liberty Financial, has made a number of changes to its franchisee agreement as part of this drive. Riley reluctantly agreed “there’s a perception that the (Mike Pero) franchisee conditions are onerous,” but says the group has quietly gone about changing those conditions without fanfare. “A lot of things have changed in our business which haven’t been announced.” For example, previously new franchisees joining the group in major cities had been required to be part of the Mike Pero “corporate office environment” which cost them $1,700 a month. Now, the group will allow franchisees to work from their homes, using the corporate office facilities on a much more informal basis and paying far less material fees of about $100 a month.

the nz mortgage mag

Riley says the group has also changed its financial model, allowing franchisees to keep more of their earnings as their earnings grow in size. “We wanted to change our model to suit the current environment.” The Mortgage Mag understands Pero’s used to take a flat 40% of the commission income its franchisees earned in exchange for providing back office, call centre and marketing and advertising support for what is arguably by far the strongest brand in the mortgage broking market. Riley won’t confirm this and says he doesn’t want to go into the specifics of the new deal the group is offering but says franchisees have to earn a minimum amount of commission first before the new deal kicks in. Riley says franchisee numbers have remained stable at 43 during the three years he has been with the company, although there has been some movement within the group with some internal sales and some departures offset by new recruits. As well as the depressed environment of the past few years, the group has been preoccupied with getting up to speed on the new regulatory requirements as well as with launching Mike Pero Real Estate and so hasn’t been actively recruiting until now, he says. But now the Auckland housing market is showing distinct signs of reviving, Riley says. Potential recruits don’t have to be mortgage brokers already because the group provides full training and mentoring, he says.

on reduced revenues, will likely cause a further reduction of mortgage professionals within the important market space,” he said. “While mortgage advisers will enjoy, and even welcome the benefits of the FMA, the proposed fees may likely see a further reduction in mortgage advisers in an important industry. We would question if this is a positive and enhancing the financial literacy of New Zealanders.” Pratley also said he feared that despite the consultation process the MED would press ahead with its preferred option – a combined FAA/FMA levy that would charge AFAs $1,715 and RFAs $1,140. “So far, when I’ve seen preferred options those are the ones that seem to come into place the quickest.”

Wizard loans get Peppered GE Capital has completed its exit from the New Zealand home loan market selling its mortgage book to Australian non-bank lender Pepper. Pepper Australia is buying A$5 billion ($6.6 billion) of mortgages created by GE Capital Australia and New Zealand, including the Wizard Home Loans book, in one of the largest whole loan transactions in Australian history. The portfolio comprises A$4 bill of Australian prime mortgages, A$0.3 bill of Australian specialist mortgages and A$0.8 bill of New Zealand mortgages. The sale includes home loans from the original Wizard Home Loans mortgage book and GE Money home loans originated through third parties including brokers and aggregators, GE Capital said in a statement. The default rate on the Wizard book was around three per cent - about 2.5 times higher than the default rate on the loan book of the average bank. GE Capital now has eight strong businesses in Australia and New Zealand in areas such as credit cards; aviation finance and fleet management and leasing. It also specialises in personal loans, corporate and structured finance; inventory finance and insurance services. Pepper’s managing director and chief executive Patrick Tuttle said the acquisition would allow Pepper the opportunity to expand into prime residential lending.

June 2011

ADVERTORIAL

Your 1st Choice for non-Bank low doc loans Southern Cross Finance has operated in the 2nd tier property finance market since its inception in 1997. The global financial crisis and subsequent cooling of the property market prompted the directors to refocus Southern Cross Finance back to its core business which has always been short term residential bridging finance. It’s what we know and what we are good at, says Grant Clifton, sales manager. Southern Cross has always had a core Value of helping and lending to those people who fall outside of traditional banking guidelines. We take a very humanistic approach to helping those with various financial issues and guiding them back onto the right track. Once we have written a deal we don’t just forget about the client, but encourage them to keep in contact with us and their broker to ensure their stay with us is smooth. If they think they are going to miss a loan payment we encourage clients to keep in touch and advise of progress they are making to rectify the situation. Unlike other lenders in our market we prefer to work with clients to rectify the problem, rather than taking immediate recovery action and selling them up. The second tier market is a fantastic market for brokers to become involved in as it offers the chance to work more closely with your client to provide a solution over a period of time and the chance to re-finance them once they are ready to go back to a bank. Brokers get the chance in many cases to turn a very stressful time for their clients into a win/win situation. Grant likes to operate a fast no-nonsense approval process, with minimal loans conditions. Having being a broker previously he understands the importance to brokers of getting a yes or no quickly so they can remove

June 2011

the client from the market. Southern Cross lends to a very wide range of clients from people who can’t meet bank servicing criteria, self-employed with no financials, adverse credit, older borrowers and people wanting to borrow for business purposes (cash-flow injections, asset purchases or tax payments). Everyone is different and bank’s lending criteria all too often, tries to fit everyone in the same mould, which doesn’t work. The Directors of Southern Cross are very proud that the company has remained profitable right throughout the recent GFC period where most of our competitors have failed. In fact we have been able to continue lending and establish a very successful contributory mortgage company to operate alongside Southern Cross. SCFL Nominees (the contributory mortgage company) allows Southern Cross to assign suitable 1st mortgage deals to investors, thereby freeing up further funds for Southern Cross to lend. The nominee product we have established is very unique in that the investor actually has their name on the title as mortgagee which gives them some extra piece of mind with their investment.

Your 1st Choice for non-Bank Low doc 1st Mortgages • No nonsense fast credit decisions • Minimal Conditions • B ridging Finance, credit impaired, Low doc • B uilders loans & residential development • Small 2nd Mortgages (under $50k) Auckland: P: 09 535-2239 F: 09 535-3639 Wellington: Michael Tresch P: 04 499-1149 F: 04 472-9894 Anytime: Grant Clifton M: 021 440-143 E: grant@scfl.co.nz www.scfl.co.nz

If you would like some more information on how we can assist you and your clients please give the team at Southern Cross a call, Head office 09 535-2239 mob Grant Clifton 021 440-143 or e-mail grant@scfl.co.nz

the nz mortgage mag

Resimac eyeing NZ market NEWS

Australian non-bank mortgage lender Resimac quietly set up a New Zealand office last year although it’s keeping a low profile while it considers the opportunities which may be available in this market. Headquartered in Sydney, Resimac is one of the heavyweights in the Australian residential mortgage-backed securities (RMBS) market – it was the first issuer in 1988 – which might have become moribund (as it did in New Zealand) but for Australian federal government backing. The government invested A$16 billion (NZ$21 billion) in the market during the global financial crisis and in April this year pledged a further A$4 billion. More recently, the Australian RMBS market has been showing signs of revival with ING selling A$800 million worth in early June of which the

government bought A$206 million. Resimac was founded in 1985 by the New South Wales state government which sold out in 2003. Its current 80% shareholder is Ingot Capital Management, a company controlled by Duncan Saville who is one of Infratil’s directors. Other shareholders include Westpac, National Australia Bank, Macquarie Bank and Credit Suisse First Boston and it also has standby support from Perpetual Trustee Company. It operates mainly through mortgage brokers although it also has a retail Hemisphere Financial Solutions brand. Its website says it has issued nearly A$12 billion through 18 domestic and international RMBS issues and it has a residential loan servicer ranking from Standard & Poor’s of “strong.” Resimac has been eyeing the New Zealand market for some time, having

announced in October 2009 a strategic alliance with NZX-listed Allied Farmers, which famously bought the Hanover assets in a debt-for-equity swap, and its now defunct finance company, Allied Nationwide Finance which would have seen it invest up to $7 million in the group. The investment never eventuated and the finance company went into receivership in August last year. Resimac isn’t lending in New Zealand yet and it doesn’t seem to be very active in Australia at the moment either. On June 10, The Australian newspaper reported non-bank lenders such as Resimac, which had accounted for more than 15% of the Australian mortgage market in 2003, accounted for just 1% of mortgage lending in April.

For more on these stories visit the BROKER NEWS section at www.goodreturns.co.nz

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June 2011

the nz mortgage mag

Majority stake in NZF Homeloans to be sold

NEWS

NZF Group says it is in the final stages of mutual due diligence with an unnamed Australian private company which is expected to take a majority stake in NZF’s home loan division. NZF says the Australian company “is vastly experienced in the Australian RMBS (residential mortgage backed securities) market and will add significantly to the current operations of this division.” NZF already has a 50:50 joint venture with Australia-based Liberty Financial which owns the Mike Pero Mortgages franchised mortgage broking group and which has recently formed a real estate venture. Liberty, which has been operating since 1997, is an active RMBS issuer. While NZF reported a $4.8 million net loss for the year ended March, its home loans division made a $2.5 million operating profit, down from $4.2 million the previous year, reflecting fair value adjustments and higher funding costs. “The process of finding the right business partner has been an extremely long and difficult process as most interest to date has been purely predatory with interest not focused on any partnership process,” says managing director Mark Thornton. NZF has been looking for fresh equity since early last year.

The home loans division’s loan portfolio fell slightly from $200.5 million to $196.9 million in the year ended March, mainly because NZF temporary halted new origination during the due diligence process until this week. “The proposed joint venture is very exciting as it will produce a financially strong entity with stable and experienced management and a proven track record, able to offer a product range into the New Zealand non-bank financial sector which, as a result of the recent global financial crisis, has seen competition in the local sector virtually eliminated,” Thornton says. Thornton says Westpac, which recently extended NZF’s $225 million RMBS facility until October 18, 2012, has been privy to the new joint-venture negotiations. “The proposed transaction will provide a significant amount of cash at group level which, in turn, will enable the subsidiary, NZF Money, to recommence origination to its specialised area of low-geared, shortterm residential secured lending which was its core business prior to the Mark Thornt on GFC,” he says.

MORTGAGE LINK TEAMS UP WITH NEWPARK Mortgage Link is moving to handling its clients’ insurance needs in-house and has formed an alliance with Newpark Financial Services which will see the latter effectively acting as aggregator for Mortgage Linkoriginated insurance policies. This means Mortgage Link is moving away from referring clients to specialist insurance advisers. “Many in our business have tried referrals and it often just doesn’t work,” says chief executive Rod Templeton. Called “Ensure,” Mortgage Link’s system will see its licensees collect from their clients all the information necessary to assess their insurance needs at the same time as they collect the information required for a mortgage application, Templeton says. “By adding, literally, a few extra questions, we’re able to have all the base information to address and advise on insurance needs,” he says. If the mortgage broker has sufficient skills, they can provide suitable advice directly otherwise the information will be sent electronically to one of two insurance specialists at Mortgage Link’s head office. “The big difference with our solution is each adviser takes responsibility for meeting their client’s needs – the client doesn’t have to go to a different face or, more importantly, a different brand.”

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No longer a member of the NZMBA? To keep getting the NZ Mortgage Mag and to keep up with all the best broking news subscribe today for only:

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Don’t have a 20% deposit? You still have options. Now breeeaathe. For more information contact your local ASB branch of broker affiliation, local broker centre or go to asb.co.nz

ASB’s terms and conditions and ASB’s current disclosure statement are available free of charge from any ASB branch or online at asb.co.nz. ASBmortgage Bank Limited. June 2011 the nz mag

HOUSING

Ups and

downs of the property market

The pace of sales picked up in May, particularly in Auckland, although prices are still falling, writes Jenny Ruth. Darren Gibbs at Deutsche Bank sees this as favourable. “The fact that prices were down in May probably helped generate the increase in sales,” he says.

Darren Gibbs

“It may be an indicator buyers and sellers are coming back together which makes for a more active market.” For many months the market had been characterised by a refusal of sellers to accept their properties might not be worth as much as they hoped while buyers were unwilling to pay their asking prices, key reasons why activity dwindled so much. The Real Estate Institute’s latest data shows 5,766 houses sold in May, up from 4,987 in April and 10.8% more than the 5,206 sold in May last year. Auckland’s 2,188 sales were 16% higher than in May last year. The sales pickup was despite Christchurch sales remaining subdued in the wake of its earthquakes. The national median sale price slipped to $350,000 from $360,000 in April and was the same as the median price in May last year. The institute’s house price index, which smoothes out distortions arising from more or fewer expensive or cheaper houses selling in any one month, fell 1.8% in May from April and was down 0.7% on May last year. The index is now 5.8% below its late 2007 peak. Taking inflation 14

the nz mortgage mag

into account, real house prices are down about 15% from the peak. The number of days it took to sell a house in May actually rose to 45 from 43 in both April and May last year. Chris Tennent-Brown at Commonwealth Bank of Australia says the median number of days to sell varies significantly from region to region with Chris Tennent-B rown Auckland being the shortest at 36 days. Surprisingly, Canterbury recorded the second shortest number of days to sell at 41 days – Canterbury sales picked up at a slightly slower pace, rising 8.8% in May from April compared with the national 10.3% lift. “It was pleasing to see property transactions in Canterbury picking up in line with the nationwide lift, despite the challenges,” Tennent-Brown says. “In Christchurch, we expect strong demand for properties which have not been damaged will support the prices of those houses that do sell.” At the other end of the spectrum, houses in Hawkes Bay which sold in May had been on the market 58 days on average, houses sold in Northland had been on the market 79 days and houses sold in Central Otago Lakes had been on the market a wearying 89 days. Gibbs says activity in some regional areas, particularly in Waikato/Bay of Plenty and Manawatu, is also picking up. Such areas are “obviously benefiting from

strong rural incomes and that gives it (the recovery in activity) a little more breadth than we had at the beginning of the year.” Craig Ebert at Bank of Craig Ebert New Zealand says sales volume was stronger than he had expected, although it’s still weak compared with boom-time levels when monthly sales often exceeded 10,000. “Activity is well off its lows and it’s heading in the right direction but it’s a very slow progression,” Ebert says. Bank of New Zealand’s June survey of 664 real estate agents found while there are upward price pressures in Auckland, that isn’t happening in the rest of the country. “Nationwide, the results show price rises are still not occurring on average, sellers are generally more motivated than buyers, there is little change happening with regard to investor interest in the market, though more and more first home buyers are appearing, and numbers through open homes keep improving,” says BNZ chief economist Tony Alexander. “The results suggest we are at the start of improvement in the housing market with Auckland leading the way,” Alexander says. CBA’s Tennent-Brown says he expects nationwide house prices are troughing out now and should increase by about 3% over the next year, although he hastens to qualify this by saying while prices will rise

June 2011

Statistics New Zealand’s figures showed consents in April were down 1.6% from March and down a whopping 33% from April last year. Excluding volatile apartment consents, the outcome was only a little better: April consents were up 3.8% from March and down 31% on April last year. Jane Turner at ASB Bank says the ex-apartments improvement was solely due to a partial recovery in Canterbury consent issuance and consents in the rest of the country were down.

Jane Turner

“This is a very disappointing result. We had expected that ongoing population growth and low interest rates would be stimulating building activity (beyond Christchurch re-building requirements),” Turner says.

The weakness “highlights the challenging economic conditions,” she says. BNZ’s Ebert says while the latest data is disappointing, business confidence surveys suggest consents should be picking up in three to six months time. Deutsche Bank’s Gibbs says unlike in previous recoveries, there isn’t any specbuilding of houses going on because there isn’t any finance available. “It could be the delay between (a pick-up in) existing home sales and construction will be a little longer this time,” Gibbs says.  Jenny Ruth is a senior writer with the NZ Mortgage Magazine and goodreturns.co.nz

NZ MEDIAN HOUSE PRICE (stratified median, 3 month moving average) THOUSANDS

550 500 450

Source: REINZ

Auckland Wellington Christchurch

400 350 300 250 200

Other North Island

150

Other South Island

100 Apr 00

Apr 02

Apr 04

Apr 06

Apr 08

Apr 10

the nz mortgage mag

COMMENTARY

in areas such as Auckland, in areas where population and income growth are less supportive there’s likely to be ongoing price weakness. BNZ’s Ebert says house prices in Wellington, with its shrinking public service, are likely to remain weak. The www.realestate.co.nz website, which lists about 95% of the houses available for sale in New Zealand, believes the Auckland market may now be tipping in favour of sellers again after two years of it being very much a buyer’s market. Its report on May listings showed the number of new listings at 9,898, down 3% from April and down 16% from May last year. Combined with increasing sales activity, that reduced available inventory sharply to 47 weeks’ worth of sales from 53.1 weeks in April. In Auckland, the inventory of unsold houses is now down to just 30 weeks, below that city’s long-term average of 34 weeks. Tellingly, in line with the sales figures, sellers’ asking prices, both nationally and in Auckland, were down 4% in May from April. Quotable Value’s figures, which lag those of the institute by several months and which are prepared on a three-month rolling average basis, are nevertheless telling a similar tale with house prices in May down 1.6% from May last year and down 5.7% from the peak. Chris Green at First NZ Capital says any increase in house prices is likely to be “very small single digit” and will probably be less Chris Green than the rate of inflation, meaning real house prices will continue to decline. The Reserve Bank’s latest monetary policy statement suggests it doesn’t think house prices are as over-valued as other market watchers. One of its graphs indicated it thinks house prices may be over-valued by as much as 10% ranging down to being slightly under-valued. “I would have though 10% to 15% would be a reasonable number for overvaluation at this point,” Green says. The central bank still expects house prices will grow at or below the inflation rate. One part of the market which remains extremely depressed is construction of new houses.

LEAD

The non-bank lenders

Jenny Ruth reviews the state of the non-bank sector and finds there are more than you might expect out there still providing a vital service. The non-bank residential mortgage lending sector has shrunk to a mere shadow of what it was before the melt-down of so many finance companies and the global financial crisis (GFC) and is likely to shrink even further. Reserve Bank figures show non-bank lenders accounted for just 2.3% of total housing loans in April this year. Back in April 2007, just before the GFC began to bite, they accounted for 5.3% of housing loans and had been growing in importance for several years. The Reserve Bank figures will shrink even further because they include only companies with total assets of more than $100 million. A number of mortgage books currently included are being run down and will soon fall below the central bank’s radar. But beneath that radar, a surprising number of companies have continued to operate throughout the GFC, mostly 16

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offering short-term bridging finance to those who don’t or won’t meet the mainstream lenders’ criteria. Typically, these organisations are financed by private investors and bank facilities with mortgage books ranging from less than $10 million up to about $80 million. They lend at relatively high interest rates - starting at 9.95% - and, reflecting relative risk, these days they generally won’t lend more than 70% of a property’s valuation. Currently included in the Reserve Bank figures are finance companies in receivership, such as Equitable Mortgages, as well as offshore lenders which used to be active in the housing loan sector such as GE, Bluestone and Liberty. The figures also include mainstream lenders which remain active lenders such as the Public Trust, which had a loan book of $215.7 million at December 31, 2010, and PSIS, which had $976.2 million at March 31 last year, mainly of mortgages, and a number of building societies such as the Wairarapa and Nelson ones.

But of the debenture-funded companies large enough to be included, the NZXlisted NZF Group, whose total assets at March 31 were $248.7 million, seems to be the sole survivor. NZF has just resumed lending again after a few months suspension, having become confident of securing fresh equity and the new business partner it has been seeking since early last year. Managing director Mark Thornton says his company remains dependent on mortgage brokers - and is one of the few lenders still Mark Thornton paying both upfront and trail commissions - to bring in business and it targets “non-bank prime clients who have wider horizons and who are open to a lesserknown financial services brand.” Unlike those operating in the bridging finance space, NZF clients have to have a clean credit history and proven debt-

June 2011

servicing ability, although it does offer higher loan-to-valuation ratio (LVR) products than banks will often accept. Companies operating in the bridging finance space: Basecorp Finance: lending manager Craig Rolls says of his company’s residential mortgage book of about $70 million, about 90% Craig Rolls of lending is on first mortgage security and the balance on second mortgages. “The type of bridging lending we do could be to an individual who’s got themselves in a predicament with a bank and the bank’s putting pressure on them to go,” Rolls says. If the borrower has at least 30% equity in the property, Basecorp, which has been operating more than 10 years, is happy to give them six to 12 months to sort the situation out, he says. Its typical interest rate is 11.99% plus fees

June 2011

LEAD

For many investors “finance company” is a dirty two words, others - particularly borrowers - appreciate the contribution they have made to growth in this country.

although it has charged as low as 10.5% on some deals. The company is funded by a mix of owners’ equity and bank facilities. Rolls describes the company’s services as “the sticking plaster” to help clients out of a difficult situation. “We certainly can’t commit our funds long term and people can’t afford to pay rates of 11% or 12% for any great length of time. ASAP Finance: director Adarsh Patel says less than 10% by value of his company’s $50 million to $80 million loan book is made up of residential loans and Adarsh Patel most of its borrowers are developers and investors, filling a small part of the gaping hole left by collapsed finance companies. “We love doing residential deals, don’t get me wrong, but the reality is there’s still very strong competition in the residential space,” Patel says. The key thing his company wants is for its borrowers to

the nz mortgage mag

LEAD

have a clear exit strategy. “It’s a temporary option. Brokers need to think that through,” he says. ASAP won’t lend less than $150,000 or for longer than 12 months, requires LVRs of no more than 75% and generally charges between 11% and 13% interest. ASAP, which has been operating about seven years, is funded by its shareholders.

them through the process. “That’s a nice easy transaction for us. It’s business that the banks should be doing,” Eastgate says. In other cases, clients might need rescuing from their banks and need time to sort out their difficulties but DBR wants to see clear exit strategies. “We never want to be on Close Up or something like that.”

Capital Securities: since 1996, Bruce Darwin has been matching each individual borrower to a specific investor whose name goes on the mortgage - sometimes Darwin himself - and Darwin manages all aspects of the loan through to repayment. Depending on the state of the market, he could be managing anything between $15 million and $25 million worth of mortgages at any one time, Darwin says. He will only arrange first mortgages, never lends more than two-thirds of a property’s value and only for a maximum 12 months, generally at 9.95% interest. “I’m a very hands-on lender,” Darwin says. “I go and look at every property and meet the vendor. I don’t trust valuations.” He’s only ever had one mortgagee sale, Darwin says. He describes his business as “messy loans. Banks don’t like messy loans.”

Cressida Capital: general manager Nigel Staples says although his company has been operating since 2002 when finance companies were mushrooming, it made a conscious decision not to use debenture funding.

DBR Finance: director Darryl Eastgate says his company’s residential mortgage book is about 80% of its business which is financed with $10 million of shareholders’ funds and a $25 million bank facility. It will generally lend up to 70% of a property’s value. A typical customer might be somebody with little debt who buys another Darryl Eastgate house with the intention of selling their existing home and then finds their bank won’t support

Instead, its about $25 million mortgage book Nigel Staples is privately funded and with bank loans. While it will lend up to three years on commercial loans, its residential loans tend to be six to 12 months and it will lend up to 75% of a property’s value at interest rates between about 9.5% and 10.95%. “Because of what’s happened in the last few years, it’s difficult to go beyond 75%. It’s like 70% is the new 80%,” Staples says. Pre-GFC, up to 80% LVRs were the norm, he says. As with the other companies, Cressida’s clients tend to be those who can’t satisfy bank criteria. “We often look at ourselves as a stepping stone.” Cressida has had only two mortgagee sales since inception, he says. Crown Finance: managing director Chris Arbuckle doesn’t want to say what size his

Chris Arbuckle

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Call Rod Templeton, Chief Executive 03 359 9819 021 856 189 rod.templeton@mortgagelink.co.nz

the nz mortgage mag

June 2011

Southern Cross: sales director Grant Clifton says bridging finance with first mortgage security accounts for about 90% of its $60 million mortgage book, although it will provide small second mortgages for up to five years. People can borrow for all sorts of reasons, including for boats or caravans, but all loans must be property secured, Clifton says.

Grant Clifton

The company charges between 9.9% and 13.95% for loans with first mortgage security and between 14% and 18% for second mortgages. Southern Cross, which was founded in 1997, is financed with shareholder funds and a banking facility and it also arranges contributory mortgages where investors get their names directly on the title of the property on which they lend. For example, Southern Cross may approve a $200,000 loan at 11% and offer its investors 8% or 9% to finance two-thirds of it. Like most, the company generally doesn’t lend more than 70% of a property’s value. While Southern Cross continued lending through the GFC, its book shrank from about $80 million a couple of years ago. “The reason why we’re still in business is we pulled back. We didn’t want to have large exposures to single clients,” Clifton says. While the company will still consider loans larger than $500,000, it will usually do them in joint-venture

June 2011

arrangements. Clifton says mortgagee sales are a fact of life in his company’s niche in the market but they have slowed since peaking in 2008 and arrears are currently at historical lows below 4%. Advantage Finance: lending manager Leighton Christoffersen says his clients don’t fit bank criteria but that doesn’t mean they don’t present good business. For example, he’s approved a loan to a builder who wanted to take a year off work to build a house on a section he owned. “The security’s fine and the plan is fine but for one reason or another it fails under the banks’ check list,” Christoffersen says. Advantage tends to be somewhat more conservative than other similar lenders, generally not wanting to lend more than 65% of a property’s value for a maximum 12 months. “We’re just really conscious of where the market’s at and where property values are heading.” He doesn’t trust valuations either. “Valuers are still valuing properties at what we think are around peak values. We take an extra margin off to give ourselves comfort.” That tends to pay off in keeping mortgagee sales low. “Usually, people are able to sort it out themselves. Because we operate at reasonably low LVRs, it usually means they have options to refinance or repay.” 

Jenny Ruth is a senior writer with the NZ Mortgage Magazine and goodreturns.co.nz

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LEAD

company’s mortgage book is but says “we see ourselves more as a boutique financier.” Exclusively funded in-house, it will fund residential construction and provides bridging finance up to 70% of a property’s value at interest rates between 10.5% and 14%, depending on the borrower’s risk profile. Crown, which was founded in 2005, generally won’t lend longer than 12 months.

FEATURE

New rules would have caught

Bad Broker Jenha White attended Loan Marketbroker Group’s firstBuddle New Zealand based conference The case of Kapiti Coast mortgage Kerry is a glaring example of in Auckland last self-regulation month and spoke to some of working, the key people. how industry simply wasn’t writes Jenny Ruth Buddle, accused in the newspapers and on television since mid-May of hoodwinking clients out of nearly $2 million, had been a member of the New Zealand Mortgage Brokers Association (NZMBA) until October 2007 when her membership was terminated. However, because she was able to join the Professional Advisers Association (PAA), Buddle still satisfied the Kiwi Mortgage Market (now Allied Kiwi) requirement of belonging to a professional association. She was therefore able to remain in business under the Kiwi banner, according to former Kiwi head Brian Greer. Kiwi didn’t remove her from its brand until May 31 last year. PAA chief executive Edward Richards says his organisation didn’t have any problems with her while she was a member and she resigned voluntarily. Her continuation in business wasn’t for want of a couple of fellow Kapiti brokers, Neil Thomson and Stuart Ayres, trying to get all three organisations, the NZMBA, PAA and Kiwi, to take action. Ayres, who is now manager of the government’s Financial Dispute Resolution service, one of four such schemes in the newly regulated environment, and who was one of the NZMBA’s founding members, says it was “just gut-wrenching” to see the damage Buddle was inflicting on her clients back when he first became aware of her. Typical cases he had seen involved Buddle refinancing clients 20

the nz mortgage mag

who should have been able to access loans from mainstream lenders with companies who provide what is only intended to be very short-term bridging finance with interest capitalising at extremely high rates. Buddle was collecting very high commissions on such deals.

Her continuation in business wasn’t for want of a couple of fellow Kapiti brokers, Neil Thomson and Stuart Ayres, trying to get all three organisations, the NZMBA, PAA and Kiwi, to take action. By the time such a loan had been rolled over a few times, and the client had approached him for help, the client’s affairs were in such a mess he was unable to rescue them, Ayres says. He and Thomson complained about Buddle to the NZMBA and then chief executive Megan Salt started the ball rolling with that organisation’s complaints procedure. As former NZMBA chairman Brian Berry told The Mortgage Mag back in 2003 (December/January 2004 issue), the way the complaints process was supposed to work was a disciplinary committee would be formed, made up of brokers from outside the particular broker’s community and the NZMBA’s solicitor. If, after a formal investigation, the complaint was upheld, the broker would be given the chance to appeal. If there was no appeal or if the appeal failed, the broker’s membership would be terminated. The termination would then be advertised in the

June 2011

None of that happened in Buddle’s case. Salt explains: “We had a number of complaints about her professionalism from other practitioners and, more importantly, from the public. “I instigated the complaints procedure (which incidentally was a written procedure available to be scrutinised by all members) and my treatment of Ms Buddle was objective, fair and professional. Given that her boss (Kiwi’s Greer) was on the board of the NZMBA, I followed procedures to the letter,” Salt says. “At the time, I was both criticised by Ms Buddle for going too far and by the various complainants for not going far enough.” But when Buddle failed to pay her membership fees, her membership lapsed and so did the complaints procedure. Greer remembers it somewhat differently: “My understanding is that Kerry was not terminated from NZMBA due to misconduct but more a pretty heated clash with Megan Salt.” Salt denies this: “I never had a row with Kerry Buddle. I am afraid that is not my style.”

“when Buddle failed to pay her membership fees, her membership lapsed and so did the complaints procedure” It seems rather than being shunned by her industry, Buddle was instead feted. Salt says despite the complaints against the Kapiti mortgage broker, Salt, as a guest at a Kiwi function, was put in the awkward position of having to present Buddle with an award. Salt says she was: “too lady-like to decline.” Thomson, who is still a Kapiti broker at Thomson Jones Mortgages & Insurances and who is part of the Allied Kiwi group, says while he was disappointed at the outcome at NZMBA, his understanding was Buddle failing to pay her membership fees was regarded as “a quick fix,” sparing the NZMBA precious cash resources. As for the PAA, “I brought it to their attention and they chose to ignore it,” despite a number of heated arguments, Thomson says. That was well before Buddle started borrowing money from her clients, he says. But could another Kerry Buddle continue operating for so long under the new government-imposed rules? It appears not. From December 1, 2010, all those offering financial services have had to be registered as either registered financial advisers, for less complex products such as mortgages, or authorised financial advisers and the register is publicly available on the Companies Office website at www.business.govt.nz/fsp/. A condition of registration is advisers must also belong to a dispute resolution scheme. The largest by number of members at 4,600 of the four available schemes is Financial Services Complaints (FSCL). Two of the other schemes are run by the Banking Ombudsman and the Insurance and Savings Ombudsman and the fourth, the organisation Ayres manages, has about 1,500 members.

can deal with complaints involving a monetary value up to $200,000 but can only award maximum compensation of $100,000 on any one complaint. While the dispute services will aim for mutual agreement, they can impose settlements on the providers when agreement can’t be reached. While binding on the provider, such settlements won’t be binding on the consumer. If a provider refuses to accept such a settlement, the dispute service can suspend their membership and the provider would then fail to meet their registration requirement. Under such circumstances, the provider cannot simply join another dispute service, Slater says. The dispute services will also co-operate with the new regulator, the Financial Markets Authority (FMA) which has replaced the Securities Commission and have a mandate to refer complaints to the FMA when they suspect serious misconduct or systemic issues are involved. “If we saw something similar to Kerry Buddle and there was criminal activity going on, we would encourage the consumer to go to the police,” Slater says. “We may even contact the police too.” Complaining to the FMA, which can also undertake its own investigations and impose a variety of penalties on erring advisers ranging from temporary suspension through to bans and fines, is also open to those finding themselves in the same position as Ayres and Thomson. “We expect there will be quite a lot of dobbing in,” says Mel Hewitson, the FMA’s director of financial adviser regulation. “There are those in the industry who are very professional. They welcome this new legislation because it helps to clean up their industry, get rid of the cowboys and enable the industry to be much more respected,” Hewitson says. While employees of qualifying financial entities (QFEs), such as banks, insurance companies and fund managers, don’t have to be individually registered, should a dispute service or the FMA start an investigation, the adviser concerned can’t circumvent that investigation by simply resigning, she says. The FMA will still be keeping tabs on QFE-employed advisers, requiring QFEs to periodically provide it with lists of their advisers, she says.

“We expect there will be quite a lot of dobbing in,” says Mel Hewitson, the FMA’s director of financial adviser regulation. “That helps us track them. We are conscious there might be a few that might try QFE-hopping. It’s going to be a lot more difficult for people to go under the radar if they’re doing wrong.” 

Jenny Ruth is a senior writer with the NZ Mortgage Magazine and goodreturns.co.nz

Trevor Slater, general manager at FSCL, says his organisation

June 2011

the nz mortgage mag

FEATURE

public notices of the broker’s local daily newspaper.

MY BUSINESS

Making Success a Priority

http://www.lumaxart.com/

Finding inspiration at home from an early age, it’s no surprise Justin Mogford has got off to a flying start, being awarded the Loan Market “Rookie of the Year” award in 2010 just six months after setting up Priority Home Loans. 22

the nz mortgage mag

June 2011

“

I started with the support of a family business. My father and step-mother are successful insurance brokers, it was a natural progression. Later I moved to a well known firm in Hamilton, followed by a successful firm in Cambridge.

“

Why mortgage broking?

“

” “

“

June 2011

I have got the back bone of the business set, it is now time to grow my settled loan volume.

”

What is the best business book you have read?

“

Good to Great by Jim Collins

”

is there a typical working day?

“

The day is normally planned the night before and I have set day and weekly tasks. I have tried to be at home during the horror hour to help my wife with the kids, this has worked well for us as it gives us the opportunity to catch up as a family before the kids go to bed. I then shoot out to any appointments at 7:30. I am finding I am having more appointments at the office now which is great.

”

who is the individual who has been most inspiring to you?

”

How did you learn the business and educate yourself? I had basic understanding of home lending and added to this with the start-up courses. The move to successful firms was also vital for me to grow as a broker.

”

What is the biggest challenge now?

“If clients have more knowledge of the home loan process and the correct structure in place after settlement because of my input, then I have succeeded.”

“The reward is helping clients achieve their goal of purchasing a property.”

Worst: Wrong market to go out on your own. Best: I was introduced to a points system to be proactive. You are rewarded different points for various tasks. I had a target of 20 points for the day and found I did whatever I could to reach it. I have recently returned to this as a gauge.

“I have got the backbone of the business set, it is now time to grow my settled loan volume.”

I have always had an interest in mortgage broking. This came about after we paid $3,500 to “Reduce our Mortgage Faster” roughly 14 years ago. At this time we were advised from our personal banker to stay away from Revolving Credit – instead by using this product we were able to pay off almost all the mortgage. We then transferred that property to a rental in a LAQC and purchased a new property.

If clients have more knowledge of the home loan process and the correct structure in place after settlement because of my input then I have succeeded in why I am a mortgage broker. The reward is helping clients achieve their goal of purchasing property.

”

what has been the best and worst advice you have received?

“I am grateful for the knowledge gained from brokers I have worked for but to have ownership of a business has been important to me.” I made the decision to start Priority Home Loans and make the step to building my own business. I am grateful for the knowledge gained from brokers I have worked for but to have ownership of a business has been important to me. I chose to be part of The Loan Market Group and am grateful to have them as my aggregator. The support I have had from David Hart to build my business has been invaluable. I have also had the opportunity to spend time with Bruce Patten and his team to gain some insight into a fantastic operation

Worst: Delaying hiring a PA Best: Valuing the relationships of referrers and choosing to “go it alone” to retain their support.

“

Being honest, I have had a number of people who have inspired me throughout my career. My parents both had successful businesses, my step-mother is still a successful insurance adviser and I now look up to the likes of David Hart and Bruce Patten as inspirations. I have been fortunate to receive continued support from Lodge Real Estate in Hamilton, from both the directors and the agents.

what is your biggest long-term goal?

”

“

Personal - Pay off the mortgage Business – Build a reputable business that is working for me.

the nz mortgage mag

” ”

MY BUSINESS

what have been the best and worst business moves you’ve made?

How did you get started?

SALES & MARKETING

The Facebook Balker If you are wondering why your Facebook page has less visits than a Christchurch china shop, perhaps you need to revisit your strategy writes Paul Watkins I often get asked questions like: So does it really work? Is it a fad? Can it really lead to referrals? Isn’t it a waste of time? It’s only for teenagers isn’t it? I don’t want a page because clients might think I’m stalking them. I don’t want clients knowing about my personal life. What on earth would I put on it? Who wants to read about mortgages? So you take a few minutes to set up a page –which is all it takes – and then wait… and wait… and wait. And nothing happens. Six months later just 15 people ‘like’ your page, most of whom are family and you have only posted 7 entries. It’s been a total waste of time. In fact this sort of approach can lead to damaging your brand. Unless you think it through before you set it up, it is definitely a waste of time. The whole social media thing gets so much hype, that many go into it without a strategy of any kind behind it. Few understand it or make an effort to use it to their advantage. But it can work and does work for some. What NOT to do is to set it up like an advertisement and then expect people to ‘like’ your page to read your constant self-promotion. Some businesses offer daily deals or specials, retailers being the worst for this. Every day there is a “Facebook only specials” at perhaps 25% off. They also offer coupons and other incentives to call in – all of which miss the point. The first thing to appreciate is that Facebook is a web site. It is searchable just like any web site is and therefore you must load your info page with key words that you know are searched. 24

the nz mortgage mag

Don’t make it read like its key-word filled however, make it read like you are telling someone what you can do. For example, you could write “We find the best rate mortgage for you, whether you are self-employed, salaried, after your first home, need a low deposit mortgage or want to restructure your loan.” You are better to make these separate sentences for each type of loan as the people who are self-employed will probably be searching differently to those who are after a first home. One could read “Are you worried that you may not get a mortgage since you are self-employed? We know how to structure your application to get you the loan you require” And then the next sentence in your info page could read, “If you only have a low deposit, that might exclude you from borrowing the required amount for the house you want. However we can advise

The whole social media thing gets so much hype, that many go into it without a strategy of any kind behind it. on which lenders may be able to help you?” Then, “After your first home? Don’t get the wrong mortgage as it may tie you up in financial stress for years.” Treat each entry as a different reader (target market) and therefore word each one differently. Who reads Facebook pages? The 20 to 35 age group are already huge users. The fastest growing group are those aged 35 to 65, sometimes referred to as ‘Facebook stalkers’ as they use it to keep an eye on their kids and/or grandkids. These are obviously

June 2011

power bills? The the item on saving on

‘Did you see checked it out’ you haven’t already

tips, links to funny videos, pics of themselves having fun and chatty items that solidify the relationship. This is how to look at your page. Think how the customer thinks. What do they want to know about your service that is of value to them? Post entries could be as follows:

werswitch.org.nz if

site was http://www.po

u save on

it and vege retailer, yo

a specialist fru buy your veges from u yo if t tha ow kn u ‘Did yo et charges’ at a typical supermark average 30% over wh

ently, their mortgage es falling so much rec rat st ere int th wi me up. This how co ‘A client today asked they had set the loan w ho s wa it – n so rea was a remain static. There repayments seem to can be fixed.’ accept a very high offers – you have to rd ca dit cre ur yo the free flights ‘Don’t be suckered by to be of any value’ interest rate for those

king to me. ur mortgage before tal yo to ce lan ba rd ca dit 6.8% bank and add your cre cheaper than paying ‘DO NOT go to your over 3 years is WAY % 23 the g yin Pa y. better wa There is often a much how.’ over 20 years. Ask me d le. Some are land an azing sections for sa am n ve se w sa d an Lane today t over $550,000. ‘I drove down Nelson house with land for jus e ng lou 2 , om ro ed example is 4-b er 7 Victory building packages. An are building at numb y the e us ho t tha en amazing. Have you se That sub-division is Place!!!’

Get the idea? Make them chatty, informative and easy to read. When you can, make them interactive. For example. ‘I just had a Russian student call at my door with a bag full of paintings. I nearly bought one. Are these guys for real? Has anyone out there ever bought one?’ Another idea is to add a quiz. People love quizzes. Put a link to your site that has the quiz on it. It may be ‘tell me the 10 things you find most annoying about banks – click here to fill in the quick quiz’ then the link to your site. Post short video clips. These could be from Youtube or just you with a handheld video camera. The latter can work very well as we discussed in the last edition of Mortgage Mag. This way you have a virtual presence in their lives. Video new team members and post a 30 second clip of them. But don’t make it a simple talking head, be creative. Making it interesting, informative and worth reading is what generates the referrals. Short, sharp and frequent is also the key. Daily posts are ideal. Take the first 5 minutes of each day

June 2011

to put a new post on your page. If you don’t want to do it, make it a task for your PA. As soon as you get ideas for posts, store them up. There is a simple piece of software that can post at scheduled intervals for you. So you can load the next two weeks worth and it just posts each day at the scheduled time. It doesn’t have to be a chore. Facebook works if you understand how to use it properly and appreciate that ‘social media’ means being social! It works even better when you tie it into other campaign activity, but that’s another story. 

Paul Watkins’ latest book, How to be a Big Fish is available through www.intelligentinvestor.co.nz bookstore. Paul can be contacted on paul@paulwatkins.co.nz

the nz mortgage mag

SALES & MARKETING

your target market. It also has a female bias in terms of time online, so keep this in mind when composing posts. The next point is to understand that the key is in the name. It is “social media”. As such the trick is to look at it in the light it was intended, which is as a friendship portal. Friends don’t offer “deals of the day”, rather they chat about things they have found, friendly comments,

INTEREST RATES

Rate rises creep closer The RBNZ held the OCR at 2.5% in June, as widely expected. However, the RBNZ’s by Chris Tennent - Brown perceived risks to its previous outlook have shifted. The RBNZ has become more comfortable that the wider economy is starting to pick up but less comfortable about the inflation outlook. Both of these factors raise the risk of earlier interest rate rises than we have previously thought. We have shifted our view of the first tightening to January, from March. A December hike is a risk, and this timing is implied by the RBNZ’s own interest rate forecasts. However, we still judge that the RBNZ has time to wait until early 2012, despite the discomfort over less favourable inflation developments. Even December could be too early to be fully confident recovery is firmly embedded – and last year was a lesson about lifting interest rates too soon. There is still far too much uncertainty about Christchurch’s reconstruction for the RBNZ to have a clear picture of when inflation from that source will appear. A large proportion of borrowers now have floating rate mortgages, and are benefitting from the lowest interest rates available. RBNZ data show that in April 2011, 52.5% of mortgages were floating, and a further 28% were fixed for less than 12 months. This contrasts to 33% of mortgages floating in April 2010, and 23% in April 2009. This mortgage market trend gives the RBNZ some leeway, and some comfort, should it become apparent that inflation is getting up a larger head of steam than currently forecast. When they come, rate increases will affect a significant proportion of borrowers very quickly, meaning monetary policy’s bite will be swifter than it has been for some time once rates start increasing. 26

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Exactly when the RBNZ resumes its tightening cycle will be heavily influenced by economic developments over the coming year. Borrowers need to be aware of the range of risks to the interest rate outlook. The 0.5 percentage point cut to the OCR in March has meant that floating rates are cheaper for longer than we were expecting a year ago. However, with OCR increases almost certain over the coming years, mortgage rates will eventually rise from today’s levels.

between the expected interest costs of floating versus fixing is reducing as we near the time we expect a series of floating rates increases. We expect the floating mortgage rate will lift from the current level in early 2012 in line with the expected OCR rate increases. By the end of next year, we expect the floating mortgage rate will be about 2% higher than the current rate. The expectation of eventual rate increases may start to prompt some

Another uncertainty is how far the OCR will eventually rise. Our 4.5% view is based on the RBNZ steering short-term borrowing rates back to around their historical average, but no higher. Given the current risks, it is equally conceivable borrowing rates could end up either lower or higher than average. Which mortgage strategy proves to be the cheapest is heavily dependent on exactly when the RBNZ resumes lifting rates, and also how quickly rates are returned to more normal levels. If the RBNZ is on hold for longer than we expect, floating will continue to be the cheapest strategy. In contrast, if the RBNZ resumes their tightening cycle sooner or raises the OCR more aggressively than we are currently forecasting, today’s fixed term rates will likely turn out to be a cheaper strategy than floating over the years ahead.

Floating pays off for now The floating rates remain the cheapest on offer. However, the difference

June 2011

Long-term rates provide certainty Whilst floating will continue to appeal to borrowers who want the cheapest mortgage rate, looming interest rate rises will make the benefit of certainty appealing for others. If certainty is something a borrower is willing to pay for, then now may be an opportune time to fix: the premiums for fixing around the 1824 month terms are low at present. The 6.4% two-year fixed term rate is 0.65% higher than the current floating rate. However, we expect the floating rate will be around 6.5% by mid-2012, and 7.8% by December 2012. The expected cost difference between floating for two years and fixing for two years is small, but is now tipped slightly in favour of fixing based on our forecasts. Over three years, there is very little difference between our forecast for the

interest expense from floating or fixing at the current three-year term rate. Beyond the three-year mark, mortgage rates look less appealing than the shorter-term rates. For example, our forecast interest cost of two consecutive two-year fixed term mortgages is lower than the cost from the current four-year rate. However, for those that value certainty over a long timeframe, there are several further factors to consider. Firstly, all terms on offer now are below their average level over the past 10 years. By this measure, the longer-term rates are reasonable at present. Secondly, although the biggest lift in the years ahead is expected for the floating and short-term fixed rates, there is also likely to be some modest upward pressure on long-term mortgage rates when the RBNZ lifts the OCR. Longer-term fixed rates are also likely to lift as confidence in the global economic recovery returns. We expect these influences will lift the four and five-year rates to around 8 to 8.5%. Finally, a wildcard for long-term rates over the next few years will be global government bond issuance. In order to reinvigorate economies, many governments are taking on huge amounts of debt. Investors may become wary of lending money to indebted governments

without extra compensation – in other words without being paid progressively higher bond yields. If this happens on a uniform basis it will lift global costs of borrowing, particularly at the longer terms at which governments tend to issue bonds. This would cause long-term mortgage rates to lift as well, even if the RBNZ kept the OCR low.

Weighing it all up There are no longer any clear-cut mortgage choices based on our forecasts. Factors such as how important it is to minimise debt-servicing costs in the short term against the certainty that fixed rates brings will also be influential for decision-making. Priority will be dictated by borrowers’ preference for maximising the chance of low debt servicing costs against smoothing the inevitable increase in mortgage rates. It is always important for borrowers to weigh up their own priorities and make the choice that looks the best aligned with them – it is not all about picking the lowest interest rate. The final factor to take into account is the inevitability that interest rates will be higher in the future. It is very important to make sure that finances have headroom to absorb the impact of higher debt-servicing costs than what are being paid now. 

THE EVOLUTION OF

HOMELOANS •Membership fees from $150 + 5% + insurance •Training and Software for home loans + insurance •Regulation specific documentation •Strong expertise in the home loans industry Taking your business to the next level Call Mark or Darren on 0508 367 867 WWW.TNPNZ.CO.NZ June 2011

the nz mortgage mag

INTEREST RATES

borrowers to move to fix the floating part of their debts. Assuming the RBNZ lifts the OCR in January next year, our calculations suggest floating could prove to be slightly cheaper than fixing for a year, due to the lower floating rate being paid over the coming eight months. However, for horizons beyond the oneyear mark, fixing may turn out to prove a cheaper strategy.

INSURANCE

You’ve insured all the important stuff?

Steve Wright divulges what disability (or death) can really cost a family Many people see the need for insuring their homes, contents, cars and so on. This is probably because the monetary costs of losing them (through fire, theft or accident) are obvious. The replacement values of burned out homes, stolen property and smashed cars are easy to quantify. The loss to a family if a parent dies or becomes disabled is not so apparent yet can easily be much greater than the loss of any house or car. Let’s explore the likely effect on an average family and while we do that consider your own circumstances. John and Jane are both 35, have two children aged 9 and 7 and live in a nice home in a nice neighbourhood. Their dreams are modest - they would like to retire one day with more than Government Superannuation and a mortgage free home, educate their children and, once the children have left home, take a trip around Europe. John and Jane both have good jobs and earn $40,000 per year each after tax – enough to cover their monthly outgoings (mortgage and rates $3000, other fixed expenses of $500 and average costs of food, clothing and transport for the month of around $2000) and save around $1000 per month toward educating their children and saving for retirement and their trip. Everything is on track financially. 28

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Scenario one Suddenly John becomes ill and unable to work, his employer pays his salary for 4 weeks until his sick leave is exhausted but John, whose condition is deteriorating, still cannot return to work. John and Jane survive the next few months on their savings but it is becoming obvious John’s illness will probably not allow him to return to work. Fortunately Jane still has her job but her employer is becoming concerned about all the time she has to take off in order to care for John and although being understanding, has come to the point where they cannot afford to continue paying Jane when she is not at work. John’s sickness benefit is also minimal because of Jane’s salary level. Their bank was good enough to suspend mortgage payments for three months but now require payment to commence. (As a result of the suspension of mortgage payments their mortgage has grown by over $8000!). Even though their savings plan has long since been abandoned, Jane’s salary alone is clearly not enough to pay their fixed expenses, let alone feed and clothe the family. The difficult decision is taken to sell their family home. Fortunately the real estate market is pretty good and they sell their home quickly and after paying off the mortgage and agents commission still manage to bank $10,000. This relieves some of the financial pressure and John and Jane move into rental accommodation not far from their old home. The rent is $400 per week. John

June 2011

and Jane’s expenses are now higher (rent $1600, other fixed expenses are still $500, leaving only $1100 for food, clothing and transport) which becomes a real struggle as John’s disability brings additional unforeseen expenses. Jane’s limit on her credit card is soon reached and when her car needs major repairs she is forced to find alternative finance. Soon her monthly interest charges and finance repayments start seriously biting into the family’s already inadequate food and clothing budget and it’s clear drastic action is needed. Less than a year after John first became ill, their dreams long since shattered, Jane finds new accommodation for the family at $250 per week, which puts an additional $600 per month into their pockets. Unfortunately the new rental accommodation is 40 km from their old home and in a very poor neighbourhood. The children, who have had to move schools just can’t seem to get on with other children in their new school and are very unhappy. John and Jane never seem to be able to make ends meet and their debt grows bigger and bigger. Jane starts working a second job but the pay is poor and it means she is never at home. Two years after John first became disabled, the stress has become too great and unfortunately John and Jane have split up. Jane still struggles to look after her children’s needs and John is completely reliant on what little he receives by way of social welfare benefits.

June 2011

INSURANCE

, h a e Y ! t h g i Wr

Scenario two After 13 weeks of being totally disabled, John’s Income Cover policy (which cost less than $10 per week) starts paying them a monthly amount equal to 75% of John’s income (and it could continue to do this until he reaches age 65!). Although their joint household income has reduced slightly, John and Jane tighten their belts just a little, reduce some but not all, of their savings and stay in their home. The children stay in their school and John and Jane stay together. John and Jane are very grateful their adviser sold them Income Cover insurance. In pure financial terms, the loss to the family of John (or Jane) dying or never being able to work again (financial death) is the present value of John’s (or Jane’s) after tax income of $40,000pa to age 65 or around $800,000. Plus additional expenses that typically come with being disabled. Why would you not want to insure this? 

Steve Wright is Risk Products Sales Manager at OnePath. The contents of this article cannot be relied upon as advice and as in all cases, a client’s specific circumstances must be taken into account before advice is sought or provided.

the nz mortgage mag

LEGAL

The GST Trap Jonathan Flaws explains how a mortgagee sale can turn sour for lenders, and possibly brokers, when GST enters the equation When you get down to the real basics of mortgage lending there are only two questions to answer: 1.

Can the borrower afford to repay the loan without causing hardship?

2. If the property has to be sold, will there be enough money realised from the sale to repay the loan? But simplicity can be deceptive and within each of these two questions are lots of other questions. Consider the second question; the only thing the lender really needs to be concerned about is the sum of money it will receive from a sale. In order to predict this at the time of making the loan, the lender needs to consider not only the value of the property but any payments that have to be deducted and paid to other parties before the lender.

“The snapshot of value will not reflect the changes that are likely to take place over the term of the loan.” Determining the value of the property at the time of making the loan seems to be relatively straightforward. A registered valuer inspects the property and gives a market valuation of the property at the time of inspection. Assuming the valuation is sound and the valuer has taken into account all of the relevant valuation issues, a valuation is only a snapshot of the value at one point in time and is generally based on a willing seller and willing buyer. Every time we help a lender to sell a property invariably it asks for both a “market” and a “forced sale” valuation. I assume that only the first type is asked for at the start because the lender applies the LVR to discount the value to a forced sale value. The snapshot of value will not reflect the changes that are likely to take place over the term of the loan. Nor can it, for 30

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property value will be affected by market fluctuations and the condition of the property which may deteriorate because it is not looked after or because of natural disasters, such as earthquakes. So value is always going to be something of a moveable feast and so long as the movement is upwards, any mistakes can be corrected. The biggest potential deduction is likely to be Goods and Services Tax which is a straight 15% deducted off the actual sale price – if it applies. Unlike the value, knowing whether GST will apply, or not apply, should not be a moveable feast. GST should not apply to a sale of a residential property where the property is not used for a taxable activity. But mortgagees are discovering that many properties that look like they fall into this category are not what they seem. The basic principle that applies to a mortgagee is set out in section 5 of the Goods and Services Tax Act 1986 (the GST Act). This is that when a property is sold by a mortgagee, the sale is deemed to be a “taxable supply” and the mortgagee is deemed to be registered for GST and liable to pay GST on the sale price. The GST Act acknowledges that this may not always be correct and provides for the alternative to apply - but if, and only if one of two scenarios are applicable.

“many borrowers are not particularly responsive when they are facing the sale of their property” The first is that the mortgagee holds from the owner a written acknowledgement that the property would not be liable for GST if it was sold by the owner and setting out the reasons why this would be the case. This acknowledgment needs to be obtained from the owner at the time of the sale. The lawyer acting on a mortgagee sale will therefore send out

June 2011

As you would expect, many borrowers are not particularly responsive when they are facing the sale of their property and therefore in many cases no response is received. When this occurs the GST Act allows the lender to make a determination, based on reasonable information held, as to the GST status of the property. In most cases, when the loan was applied for, the borrower will have signed a GST declaration stating that the property was not used for a taxable activity and that the borrower is not registered for GST. Or it might state that the borrower is registered but the property was not used as part of a taxable activity.

“The issue has become more relevant as a result of recent changes to the GST Act.“ If the property is an owner occupied residence then the original declaration together with the lender’s knowledge of the type of property and its use provides the reasonable evidence on which a lender can base a determination that a sale by the owner would not be subject to GST. Therefore the presumption that the lender will have to pay GST is rebutted. If there is no such evidence or if the lender has reason to doubt the original declaration then it is unlikely that the lender can claim to hold reasonable evidence. In this case GST will be payable by the lender. For example, the owner may not respond but someone on behalf of the owner, such as the lawyer or the accountant for the owner may advise that as GST was claimed on the purchase it would be payable on the sale. In this case the reasonable evidence is now questionable and the lender will find it hard to make a determination. As a result of the mortgagee becoming liable to pay GST, the value to the lender of the property has reduced. Unlike the other factors affecting value to a lender (such as market conditions which can change) the GST status of the owner and the potential for the mortgagee to have to pay GST should not change. Having said that, it is possible for the GST status to change if the owner becomes registered after the loan is advanced and does start to use the property for a taxable activity. The relevance of understanding the GST position to a mortgage broker or mortgage manager is that in some instances, the lender, who is relying on information collected and provided by the broker as correct, may be entitled to be indemnified for such a loss from the broker. As a precaution, any broker or mortgage manager should investigate the GST declaration and discuss it with the borrower to confirm that it is correct. Any doubts or uncertainty should

June 2011

be discussed to avoid any nasty surprises for both the broker and the lender in the future. The issue has become more relevant as a result of recent changes to the GST Act. These changes enable a sale by a GST registered party to another GST registered party to be zero rated. This means that if a mortgagee who would otherwise be liable to pay GST is selling to a GST registered person then the amount of GST is reduced to zero and the lender, in the case of a mortgagee sale, is not hit by any reduction in value. The reason for the change was because if the owner, as seller, was required to pay GST and the buyer was entitled to claim an input credit for it the IRD net position in relation to the sale is zero. However, if the vendor was liable to pay but goes bankrupt or into liquidation and there are no funds to pay GST, IRD will be out of pocket if the purchaser claims an input credit. Where the owner sells, the mortgagee is entitled to receive the full amount of its loan before providing a discharge. The lender does not suffer and the IRD is left trying to recover the GST payment from a now defunct borrower. The IRD became concerned that a mortgagee would persuade the borrower to sell in circumstances that warranted a sale by the mortgagee. On the face of it, the zero rating of a sale from a GST registered person (or deemed GST registered person such as a mortgagee) to another GST registered person appears to benefit the mortgagee.

Unfortunately, if the property is sold by auction, the vendor (i.e. mortgagee in the case of a mortgagee sale) may have no way of telling the GST status of a prospective bidder. If the property is put up for sale on the basis that it will be zero rated and the price is bid on the basis of GST being added, the potential number of bidders may be reduced. This is because when bidding at an auction, people expect the price bid to be the sale price. A non-GST registered bidder will not want that price to be increased by any GST that they are not able to zero rate or claim back as an input credit. The resulting confusion over the status of the bids may prevent some parties from bidding. Most mortgagee sales will therefore continue to be GST inclusive so if the lender has to pay GST, this can’t be recovered from the purchaser. GST can be a real trap. But it need not be if the broker and mortgage manager investigate the borrower’s GST status at the beginning of the loan. 

Jonathan Flaws is a principal of Auckland law firm Sanderson Weir and managing director of First Mortgage Services

the nz mortgage mag

LEGAL

to the owner a request to respond and provide information on the GST status of the property. If the response is that GST would be payable then the lender is stuck by that response. If the response is that it is not and an explanation is given as to why this is the case, then the lender relies upon that confirmation and GST is not payable.

NZMBA

Chairman’s message (Darren’s prattle)

Darren Pratley talks about NZMBA initiatives to help brokers in the new environment As our industry continues to transition into a regulated environment we are continuing to see a gradual shift in the market place, with many advisers starting to see better loan volumes for the first time since the GFC. NZMBA has had a very busy time with the many changes happening around the industry and the work needed for conference, membership subscriptions and regulation. A further round of work is needed on consultation with the new FMA that has the responsibility of policing the financial services industry.

Disclosure Document On July 1 the Financial Advisers (Disclosure) Regulations 2010 comes into force and we will all need to be providing every client with the new prescribed disclosure document. This document differs depending on the type of financial adviser you are. Registered, AFAs and QFEs all now have a different prescribed way of disclosing. Information on this document has been set by the government, and cannot be changed. For more information on the disclosure you need to be providing please visit http://www.legislation.govt.nz/regulation/. NZMBA has a draft version for you to use as a template.

Registration in place NZMBA has been required to confirm all our members are now on the register of financial advisers. We have checked all of our members against the FSP register and confirm that all current 32

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members are registered as per the government requirements. The few names that don’t appear are of those members that have registration through a QFE. It is vital that the details on the register are correct and kept up to date.

CPD training from July 1 As part of the new regulated environment we all (registered or authorised) have to take part in 20 hours of CPD training per year. Ten hours needs to be ‘structured’ training that is NZQA approved. NZMBA is working hard to provide its members with easy and affordable options around the structured CPD area. Conference will provide you with a great opportunity to make a dent in this requirement.

Complaint Handling Previous to the new regulation and the compulsory membership of an approved dispute discipline body the NZMBA was the main complaint handling body for its members. Now that the new regulation environment is in place complaints will be directed to the External Disputes Board the adviser is a member of. It is important that you all have an Internal Complaints Process in place in your business and can show this process to the FMA if requested. Your main goal should be to have all complaints made to you in the first instance and try to resolve the issue prior to getting your disputes resolution body involved. For more information please consult the document that your individual disputes body has issued to help put these processes in place.

June 2011

Conference 2011

Jenny has now been working in the NZMBA office for the last month and providing great support for NZMBA members with her industry knowledge. Jenny’s role is designed to provide members with further support and resources to help their businesses, but also assist in the running of the NZMBA.

Registrations are now open for this year’s NZMBA conference to be held on August 4-5. This year the conference promises to be one of the best yet with two great international speakers. Greg Frost from the USA, who is one of the best mortgage trainers in the USA and Mike Walsh from Australia talking about the world of IT and how it effects you and your business. Ricki Herbert from NZ Football has been confirmed and there will also be topical structured training sessions to assist you attain two hours of your structured training requirements. The annual conference is an event not to be missed. The speakers are of optimal value to your own professional development as well as the development of your business. With topical sessions, numerous networking events and the coming together of an industry that is showing great strengths I urge you to take advantage of the early bird special and confirm attendance ASAP. It is with great pleasure that I announce that OnePath is our Platinum sponsor this year and the board of the NZMBA thanks them for their support of the industry and the association.

Constitution Changes The NZMBA Board has moved a change to the NZMBA constitution which covers the following points • That the objectives of the association have been simplified; • That the types of membership has been altered and simplified and extended to include valuers, insurance companies and representatives and other individuals providing related financial services; • The clauses relating to the committee and the board, and the powers and duties of the board, have been altered to allow the board to determine requirements of membership eligibility, membership standards, and disciplinary and termination procedures. Also the conditions relating to election of offices has been clarified; • The make up of the board has also been clarified and simplified; • The provision for the appointment of a chief executive officer has been removed; • The requirement for a disputes committee and disciplinary committee to be set up has also been removed and is now simply one of the powers of the board to undertake; • Finally, a provision relating to alteration of the association’s constitution has been simplified to require the constitution should not be altered unless approved by a majority of two thirds of the members of the association. These changes will mean the constitution is more in line with the role of the association in the new regulated market place and provides the ability to allow more flexibility to change. If you have any questions or would like to discuss then please call.

June 2011

NZMBA CONFERENCE 2011 AUGUST 4 & 5 the Spencer on Byron hotel, North Shore, Auckland BOTY & Lender of the Year NZMBA’s Broker of the Year is underway and now entering the final stages prior to the interview process that is new to this year’s assessment. The new process involves a more comprehensive interview process rather than so much written material that was requested in other years. This year’s award will certainly celebrate a person who has taken on the challenging environment in which we have all come through, and has changed and enhanced their business to grow and evolve. Lender of the Year is a member-voted award. Nominations for this award will be requested in the next few weeks and then votes on the final three will be requested late July. Please make sure that you get involved in the voting process for this. If you have any questions please do not hesitate in contacting Jenny. 

Darren Pratley is the Chairman of the NZ Mortgage Brokers’ Association

the nz mortgage mag

NZMBA

Jenny Campbell – General Manager

COACH

Seeing is Achieving

“Mentally I was not in the game. I had started with a bang but had not prepared myself for the hardest part of any programme.”

Steely resolve and grim determination are impressive things, but they can be eroded by setbacks or fatigue. Mark Sutherland prescribes a cure (after duly testing it of course). Several months ago I set about undertaking an exercise program so I could be fit and fired up by the time of my 50th birthday in July. All eager and ready for action I hired a coach – Alison Storey, New Zealand Personal Trainer of the year in 2010 and a friend of mine. I explained that I wanted to hit 50 in great nick ready to take on the next 30 years. OUCH did it hurt or what. The training began in earnest and the usual pain kicked in and hung around for a few weeks before subsiding to light soreness and then eventually to just normal workout fatigue. Alison is only prescribing the training and taking me through the first program every four weeks and then it is up to my own determination and discipline to carry out her instructions. As a former athlete at a good level I knew what was required but the nearly 50 year old mind had been exercise dormant for many years so adherence had to be relearned and re-programmed. It was hard and sometimes I just did not want to know about it or anything to do with it – BUT – I persevered and waited for the breakthrough where it would all be just a normal part of my life. The breakthrough did not come and did not come. I was perplexed until I put on my coaches hat and went through an exercise I do for clients called TTPP. TTPP stands for Technical, Tactical, Physical and Psychological. I used to do this with athletes and now do it for my business clients. Technically I had very good technique with the weights and the coordination exercises because I understood the physics having coached and lectured in it at University level. Tactically I understood the process of the training program both in sessions and 34

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four week blocks – this all made sense. Physically I knew things were working because my muscles told me so. That only left Psychological. Mentally I was not in the game. I had started with a bang but had not prepared myself for the hardest part of any programme and that is the start through to the momentum kicking in. This is also true of business when beginning a new project or starting a new business. I was thinking positive about the results I would get which all seemed great but mentally still not excited with the graft I had to do. I had to change my mind set. There is a large body of evidence that says ‘positive thinking’ has very little effect on progress. In fact it can cause you to believe you have already achieved and stops you from doing the work you need to do to achieve– it wasn’t working for me. However, Proactive Positive thinking works a treat and is very effective. I started doing something I had not done for years and years yet had coached a lot of athletes over that time to do it. I encourage you to give it a go as well. It is active visualisation Visualisation is used very effectively by athletes to program their mind to sync with their body. You have to actually visualise in your minds-eye physically doing the activity you are about to engage in. I sat in my chair and closed my eyes and watched myself going to the gym with a smile on my face, I saw myself doing each exercise with the correct technique and saw my face cringe at the muscle tension. I saw myself taking my rest between exercises. I visualised everything and did this every day. After a few weeks doing this, the fitness program became a positive habit – my mind is in

tune with my body and I feel great. I still do the visualisation but not as often – it is just like doing a top up to keep you in the groove. You can use this technique in your work. Before you meet with a new client visualise yourself knocking on their door or greeting them in your office, see yourself running the meeting in a professional manner asking questions and listening intently to the answers. See them nodding in agreement and smiling because of the great service you are providing. See yourself preparing the documents and explaining them, see yourself overcoming objections with facts and information that make the client feel at ease. See the signature being applied and the congratulatory handshake. If you haven’t anyone to see, then visualise yourself picking up the phone and ringing a prospect, listen to your conversation with them so it is becoming ingrained in your mind and so the words will flow when you actually pick up that phone and make the call. Visualisation is a powerful tool but it does take practice – the great thing about practice is that it is continually enhancing your effectiveness in your work. This form of proactive thinking has been utilised by the greatest athletes in the world and to great effect – It will work for you as well to up your performance and deliver business growth.  Mark Sutherland coaches mortgage brokers to run their businesses more efficiently and improve personal performance.

June 2011

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