TMM - The NZ Mortgage Mag Issue 1 2017

Issue

01

2017

TOP PREDICTIONS

NEW START MARKETING MAKEOVER

TOP SPEED JACOB ANNALS

HOW TO BOOST BUSINESS

CONTENTS

A YEAR OF 16 CHALLENGES AND OPPORTUNITIES

UPFRONT 04 EDITORIAL

Making changes

05 NEWS 08 PEOPLE ON THE MOVE The latest appointments and people news.

24 Jacob Annals

FEATURES 10 HOUSING COMMENTARY

The cool down. Subdued sales are expected around the country.

12 PROPERTY NEWS

A round-up of property news and events from New Zealand Property Investor.

14 BOOSTING BUSINESS

Miraim Bell asks top advisers their advice on how to boost business.

20 RECRUITMENT

Owners working with offspring as they future proof their business, Dana Kinita writes.

24 MY BUSINESS

Jacob Annals, finding success as Mike Pero Waikato franchise owner.

COLUMNS 22 SALES AND MARKETING

Paul Watkins explains how good marketing planning can set your business up for the whole year.

26 INTEREST RATES

Gareth Kiernan of Infometrics explains what changes in the economy we can expect this year.

28 PAA

The not-to-be missed events coming up for advisers.

30 INSURANCE

Steve Wright examines how short benefit payment terms work.

32 LEGAL

Jonathan Flaws explains what restrictions exist with having a second mortgage.

EDITOR’S LETTER

There’s unlikely to be many dull moments this year

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he year has started off with change and a reasonable forecast is that this trend will continue unabated over the next 11 months.

The first change was signalled when interest rates started rising over Christmas. Over January the rises kept coming thick and fast from all the banks. It is abundantly clear that we have been through the trough in the interest rate cycle and rates will rise.

Much of this have been driven by overseas events, especially the election of Donald Trump as the President of the United States.

It’s not something many people saw happening three months ago before the people in the United States voted.

What different this time around is that the Reserve Bank is fully expected to keep the Official Cash rate where it is.

Despite this banks are increasing their floating and short term rates. It has been someone surprising the public haven’t been more vocal about this as many see it as driven by the desire for profit.

From the perspective of a mortgage adviser the advice you will give clients now is likely to change and there will be hard questions to be asked around how long to fix for.

At the start of each year we canvas industry leaders to get their views on the year ahead.

Sticking with banks a theme which comes through is they will all be asking more questions about how mortgage advisers

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represent them in the market place.

This is particularly so for the big, Australianowned banks as the regulators on the other side of the Tasman are asking questions. Their interest in this can be sheeted back to some of the scandals which have been uncovered by sales practices in a number of these big, vertically integrated businesses. While the problems have been mainly in the investment market, it doesn’t mean the mortgage business will escape the regulators’ attention.

How this plays out in the New Zealand market and what banks do is yet to be seen.

It is clear though, through the comments made to TMM, that this will be an area of change.

Of course talk of change can’t ignore the review of the Financial Advisers Act. The question is whether this will happen before this year’s general election.

The new Minister of Commerce, Jacqui Dean, has the FAA review as number two on her list, but she will be competing with other ministers to get her legislation into and through Parliament.

If I was a betting man my guess would be that the odds of the FAA review getting through Parliament before the election have waned.

Then of course there is the discussion to create a single adviser organisation, Financial Advice New Zealand. Where this will go will become a little clearer after the current round of roadshows with advisers.

It makes sense to have a single body for lobbying and professional issues. Whether it makes sense to have a body playing a public marketing role is highly debatable.

As former members of the NZ Mortgage Brokers Association will recall this was a highly contentious issue.

Philip Macalister Publisher

PUBLISHER: Philip Macalister SENIOR WRITERS: Miriam Bell, Dana Kinita CONTRIBUTORS: Paul Watkins Steve Wright Jonathan Flaws Gareth Kiernan GRAPHIC DESIGN: Jonathan Harding ADVERTISING SALES: Freephone: 0800 345 675 Kelly Thorpe kelly@tarawera.co.nz sales@tarawera.co.nz SUBSCRIPTIONS: Dianne Gordon Phone 0800 345 675 HEAD OFFICE: 1448A Hinemoa St, Rotorua PO Box 2011, Rotorua Phone: 07-349 1920 Fax: 07-349 1926 tmm_editor@tarawera.co.nz

The NZ Mortgage Mag is published

by Tarawera Publishing Ltd (TPL) in conjunction with the Professional Advisers 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: tmm_editor@tarawera.co.nz

NEWS

LIFETIME GROUP GEARS UP FOR MORTGAGES

GMike Jones with Rothbury Insurance Broker managing director Roger Abel

T

he Christchurch-based Lifetime Group is set to become a bigger player in the mortgage broking market after its most recent deal.

It has formed a strategic partnership with the Rothbury Group which see it take over Rothbury’s life insurance and mortgage

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businesses. Rothbury gets Lifetime’s general insurance business and it is also is taking a cornerstone shareholding in LIfetime.

Rothbury, which is the fourth largest general broker in New Zealand and part of the ASXlisted Steadfast Group, has bought a 19.5% stake in the business for $8 million.

Lifetime’s mortgage business will get

another eight brokers, bringing the total to 19, and it will generate around $400 million in loans a year.

Lifetime chief executive Mike Jones says that he sees “real potential for growth in the mortgage business.”

Currently it doesn’t have mortgages in all the Lifetime offices, but that is likely to change.

Rothbury’s also has a tie up with the Bayleys real estate group.

Jones says the transaction is part of a 36-month growth plan. Over the past two years the business has been improving its systems and processes and next year it will look to start growing again.

Lifetime runs a hybrid business model where advisers can acquire shares in the business. Currently it has 63 shareholders and two-thirds of those are advisers.

Jones says the model with mortgage brokers is more of a partnership at the moment and it is working on reviewing the model it uses in this space.

Jones says Lifetime has been “really gearing up” for the new financial advisers regulation and has been working on its systems and compliance.

“Without a doubt we will be a FAF (Financial Adviser Firm),” he says. “It’s fait au compli.”

The group has also been working on a new CRM. Currently it uses Xpaln via Sovereign and AMP. It will stay with IRESS, who run Xplan, but it is developing a customised front end for the CRM. ✚

NZCU BAYWIDE GETS AWARDED

N

ZCU Baywide has been rated at the top “outstanding value” lenders of secured and unsecured personal loans.

General manager sales, marketing and channels Andrew Quayle said the two five star outstanding value ratings provide existing and new customers with the confidence that their loan products are best practice.

“Our approach to personal lending is simple; it’s about making it easier for borrowers and where possible offering a lower interest rate than a lot of competing banks and credit/store cards."

The awards are given out by Canstar. The Secured Loan category rated finance products for the purchase of a car and are available for the loan amount of $20,000 over a five-year term. Unsecured loans of $10,000 over a three-year loan term were rated for either debt consolidation (including loans exclusively for debt) or holidays. Canstar tested 30 loan products from 10 providers. ✚

CRACKDOWN ON POOR PERFORMERS

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anks are taking a hard line on brokers who scattergun applications to many lenders at the same time.

Westpac has recently moved to cut the accreditation on about 100 brokers, due to a lack of business or low conversion rates over the past six months.

Some brokers had conversion rates of 10% when they were identified as targets. Others had placed significant business, but only with other lenders.

Some brokers, who made an argument to retain their accreditation, had only been in the industry six months.

ANZ also conducts a regular cull of poor performers while ASB takes a less formal approach.

A Westpac spokeswoman said: “Westpac regularly reviews accreditation for advisors with 0% conversion over the last year.

This does not impact trail commissions.”

NZFSG deputy chairman and Loan Market adviser Bruce Patten said the moves were not unusual. “If you are not producing it is a big cost for the work they do on a deal that doesn’t go anywhere.”

Glen McLeod, of Edge Mortgages, said some clients expected to see their deal submitted to a range of lenders. But he said that was bad for their credit ratings, too.

“Clients sometimes believe our role is to get everyone competing. But it’s our job to do our homework and not put a deal up on a whim but look at who is doing the best deals and place it properly. If I submit a deal to four at the same time three are going to be pretty upset with me.” ✚

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PEOPLE

PEOPLE ON THE MOVE

Got a new appointment you would like to tell advisers about? Email details and a pic to tmm_editor@tarawera.co.nz

Her previous role was at BNZ where she worked as a business acquisition manager. This was a mobile role, covering the West Auckland area, doing home loans for self employed, asset finance, commercial property loans and business lending to name a few. Prior to this Emma was with New Zealand Home Loans.

James Zhang

Customer focus for Mortgage Express

Mortgage Express is pleased to announce the recent appointment of James Zhang, mortgage adviser. Zhang joins Mortgage Express following a successful career in customer service spanning over 11 years.

He says he is passionate about helping his clients achieve their dreams of home ownership. “I’m committed to helping my clients refinance to a better deal, ensuring all loans are structured to best suit my client’s particular needs,” He described himself as easy-going and friendly with a straightforward, no-nonsense approach to handling his clients’ finance needs, ensuring the whole process is seamless from start to finish.

“James is a real team player who understands the value of customer service and going the extra mile for his clients,” Mortgage Link chief executive Sarah Johnston says, Zhang will be looking after clients in the Auckland region and is fluent in English and Mandarin. He will be providing advice on home loans, commercial loans, refinancing and re- fixing.

Emma Boyd

Banking experience at Squirrel

Joining the Squirrel team recently is Emma Boyd who has been in the banking industry for more than 10 years.

The mortgage adviser brings a wealth of knowledge and experience.

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Accolades for SBS

SBS Bank national manager intermediaries, James Tufui has won the inaugural Wayne Evans Excellence in Leadership Award.

It is an internal bank award for high achieving staff. The award is named in memory of SBS chief executive Wayne Evans who died suddenly in January this year.

Tufui was recognised for his leadership and relationship building skills.

Bruce McLachlan

Operative Bank’s chief executive in 2012, not long after the bank gained its banking license.

Prior to taking up the position, he spent 10 years at Westpac NZ. In his time at Westpac NZ, he had roles leading the bank’s business banking unit and its retail banking customer facing business.

He was also the bank’s acting chief executive for nine months in 2008-09.

In his 30 year career in financial services, McLachlan has worked at the National Australia Bank, the BNZ, BNZ Finance and the Reserve Bank.

ANZ’s new manager director

ANZ has appointed Antonia Watson as the new managing director of retail and business banking to replace the position held by the late John Body.

She has been ANZ New Zealand’s chief financial officer for the past four years and replaces Body who has been the bank’s managing director retail, business banking and wealth. Body was on extended leave because of illness when Watson was appointed late last year, however he died on Christmas Eve. Watson was previously ANZ New Zealand’s financial controller. An accountant by training, she has worked for Morgan Stanley in Hungary and Sydney, as well as in various finance roles in London. At ANZ New Zealand she is the chair of the bank’s Staff Foundation Advisory Board and is the executive sponsor of its Pride Network.

CEO steps down at Co-Operative

The Co-Operative Bank’s chief executive, Bruce McLachlan, has resigned.

McLachlan will be taking up a leadership position with another, as yet unspecified, New Zealand business.

He will remain as chief executive of The Co-Operative Bank until a date yet to be agreed in early 2017 and the board will make an announcement on its succession plan at a later date.

The Co-Operative Bank’s chairman Steven Fyfe says McLachlan provided exceptional leadership in the four years he had been at the helm of the bank.

“Bruce has led the bank with distinction, flair and skill, and elevated both the market and financial position of the bank.

“Everyone at the bank wishes Bruce every success with his new appointment.”

McLachlan was appointed as The Co-

Russell Jones

New retail business lead for ASB

ASB has appointed Russell Jones to the role of executive general manager retail banking, on ASB’s executive leadership team.

Jones is currently ASB’s executive general manager technology and innovation. He

has been with ASB since 2008, and his responsibilities have included technology, innovation, operations,payments, digital banking and, more recently, the data management office.

The appointment brings responsibility for retail and digital banking together, and is effective February 1.

Jones will replace ASB executive general manager retail and business banking Ian Park, who is stepping down after 30 years with ASB, and leaves ASB early in the New Year.

Jones held senior positions at International Paper and Carter Holt Harvey before moving to ASB. He is a director of Paymark, Payments NZ and healthAlliance.

ASB chief executive Barbara Chapman says Jones was a strong internal candidate for the role with extensive knowledge of the bank and broad experience in technology and innovation.

“The addition of digital banking into Russell’s technology portfolio has been a stand-out success,” Chapman says.

“ASB is now an acknowledged global banking leader in our digital sales growth and optimisation.

“The decision to combine retail and digital will help keep ASB one step ahead of the evolution our business and industry will continue to go through in the years ahead.”

A search is now underway to appoint a new executive general manager technology, innovation and payments within ASB’s executive leadership team.

Ryan Amoore

New talent at Loan Market A raft of new advisers have joined the Loan Market company throughout the country.

Ryan Amoore is new the the mortgage industry and comes from a sales background in various other fields. He has joined Bruce Patten's team in East Auckland and is keen to learn the ropes off one their best.

Mark Tarres has been welcomed to Loan Market Christchurch.

He has joined Ray White principal Shane Paget in setting up a new business in Ray

Supporting

Mortgage Advisers

Since 1991

Nathan Miglani White Northlands. Tarres comes from a national role in the hospitality industry and his customer service ethic will serve him well.

Nathan Miglani – a rising star has joined the growing team of Simon Maule’s business in Christchurch, Nathan has been brokering for just over a year after coming out of the ANZ bank and in his first year settled over $40M of business. His skill set will help Maule grow this business to it’s optimum.

Other recent additions include, Jie Yan to Phil Horrobin's Loan Market business in Auckland CBD. She comes from 14 years in the New Zealand banking industry and is fluent in English and Mandarin.

Anson Gao has joined Gopal's West Auckland team and started off as office manager 18 months ago and has now moved forward to becoming a mortgage adviser. He's already hit the ground running having settled his first deals.

Paulette Trotter has joined Bruce Patten's LM business in East Auckland. Many will remember her from National Bank days and more recently ASB Bank.

Rob and Ben Stewart, the father and son team will be based out of the new Ray White Parnell office in Auckland. Both have vast experience in mortgages and insurance and no doubt will compliment working alongside the Ray White team.

Karina Reardon is a risk adviser and has teamed up with Stuart Matheson's and Scott Charlesworth's LM team on the North Shore in Auckland. She has returned to the industry having started a young family. Welcome aboard. ✚

Got a new appointment you would like to tell advisers about?

Email details and a pic to tmm_editor@tarawera.co.nz

Branded and Non-Branded Options Promotion on Website Advice Process and Flowchart Market Leading CRM’s Iress incl Mortgage Tool & Finware Leads PD Days and Conference New to Industry Adviser Training Compliance Support Business Planning and Support Succession Planning and Support PI Cover and Disputes Resolution Scheme Package Access to Insurance Link and Insurance Link General

Call Josh Bronkhorst: 027 397 7198 Helena Merson: 027 466 7010

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HOUSING COMMENTARY

By Miriam Bell

Slower times ahead I

t’s a conundrum. Market reports and data indicate more subdued sales activity and less demand in many markets, around the country. Yet house prices just keep raising.

And the ongoing supply shortage is still far exceeded by demand.

So is the quieter market due to the traditional summer slowdown? Is it a temporary impact from the latest LVRs? Or could it be the start of a turning point for the recently supercharged market?

The latest data is a mixed bag and renders easy assessments difficult. The future is unclear. But the data does highlight one thing consistently: Auckland’s market has fallen far from its former pace, leaving regional markets to provide the heat.

SUPER CITY SNOOZE There can be little doubt that Auckland’s recently boiling market has slipped into a significantly slower mode. December’s data all tells the same story. And it’s a tale of reduced price growth, declining sales and increasing listings.

After following an upwards trajectory for months, Auckland’s prices dropped in December.

REINZ, Trade Me Property and Barfoot & Thompson all recorded a fall in the region’s prices,

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The housing market has cooled, with some regional exceptions, and, while there is no consensus on the future, some experts predict far more sedate growth moving forward, discovers Miriam Bell.

while QV’s data showed a decline in values. Only Realestate.co.nz had the region’s prices increasing – and it was a marginal increase.

The QV data also showed a significantly slower rate of value growth in Auckland. The average value was up by 1.5% over the past three months (to $1,047,179), as compared to November’s data which showed a 3.7% rise over the past three months.

Further, it has Auckland’s values increasing by 12.2% year-on-year or, once adjusted for inflation, by 11.9%, as compared to 12.6% in November’s data. This was the slowest rate of increase in the city’s annual value since January 2015.

Barfoot & Thompson managing director Peter Thompson says signs that Auckland’s rate of price growth was declining have been there since mid-year and that decline showed in the prices achieved at year end.

His agency’s data showed the average price declined by 2% (to $913,709) and the median price by 1.8% (to $840,000) in December. Year-onyear, the average sales price increased by 8.6%, which was the lowest increase in four years.

LISTINGS UP, SALES DOWN Thompson says new listings were the highest in a December for many years. “At year end we

had 3270 properties on our books, which is the highest number at year end for four years, and more than a third higher than it was at the same time last year.”

Realestate.co.nz’s data also showed that listings continue to go up in Auckland, in stark contrast to other parts of the country. It had the total number of properties for sale up by 18.4% year-on-year.

Meanwhile, sales volumes in Auckland were also down – both on November and year-onyear, according to the December REINZ data.

Once seasonally adjusted, the region’s sales volumes in December were 2% lower than in November.

However, new REINZ chief executive Bindi Norwell says Auckland’s long-term median price trend has been consistently rising, despite December’s slight easing. “The combination of factors, such as strong underlying population growth and a lack of supply, suggests we may be unlikely to see much change to the upward trend in prices - unless these fundamentals change.”

REPEAT PATTERN? While the Auckland market’s cool down is very real, speculation over how long it will continue remains rife. Many commentators have pointed out that the market has slowed down for a

breather in the past.

QV national spokesperson Andrea Rush says a similar trend of plateauing/decreasing values was seen in the Auckland market over summer last year, following the introduction of 2015’s LVRs. “The market then picked up in March 2016, which is usually the busiest month of the year, and it’s possible we may see this happen again.

However, if interest rates continue to rise during 2017 this may further reduce demand from investors and lead to a longer period of lower value growth.”

Any slow-down will be balanced by the fact the market is still being driven by strong migration, relatively low interest rates and a lack of supply compared to demand, she adds.

Thompson also says that December’s modest price retreat is similar to that which occurred last December. “Then it took until March 2016 for the upward price trend to re-appear.”

THE NATIONAL STORY Analysis of Auckland’s current state has dominated the discourse, but December’s data returned some interesting results for the rest of New Zealand too.

While QV’s data recorded a rise in the average national value to $627,905 in December, it also showed that it was not just Auckland experiencing a decrease in values and rate of value growth.

Rush says December saw a continuation of the trend of a slowing rate of value growth, activity and demand in many of the main centres. The trend has been in evidence since the introduction of the latest investor-focused LVRs. “This coupled with the annual Christmas holiday period slow-down has led to a decrease in values in Hamilton and Christchurch since November. In Wellington values continue to rise faster than in Auckland - but at a slightly slower rate than prior to the LVRs being introduced.”

The REINZ data also had the national median sale price dropping (to $516,000) in December.

But that was from a record high in November.

Further, once seasonally adjusted, the national median sale price was up by 0.4% on November and by 11.8% year-on-year.

Additionally, Northland, Hawke’s Bay, Wellington, Otago, and Southland all hit record high median sale prices in December. Many regions also experienced double-digit year-onyear growth. But national sales volumes were down by 11% year-on-year – although, once seasonally adjusted, the fall was less than 1%.

Norwell says the underlying trends they are seeing are of rising prices across New Zealand, with all regions recording year-on-year increases in the median price. “By contrast we are seeing flat or falling sales volumes in many areas of the country.”

Trade Me Property’s December data showed that average asking prices in provincial New Zealand are heating up, with seven of the 15 regions hitting record price highs, while Realestate.co.nz’s data revealed that new listings dropped both nationally and in all major centres apart from Auckland.

STANDOUT MARKETS Several standout markets were highlighted by

December’s data. Notably, Wellington’s market appears to have bounced back from November’s earthquake and did particularly well across the data board.

The Capital was Norwell’s pick of the strong performing markets. Not only did it achieve a new record high median sale price of $530,175 in December, but it recorded the largest year-onyear increase in median price.

Norwell says the city has been experiencing strong house price growth. “Median prices in the region have risen nearly $100,000, or 22%, over the past year to hit the new record, even with sales volumes rising since November.”

For Rush, the star market was Dunedin. She says it bucked the overriding market trend with value levels continuing to increase and sales activity remaining strong throughout the Christmas period.

“This is likely to be due to the fact the Dunedin housing market offers a much lower entry level and price point than the other main centres.

Thus it’s easier for investors to find a 40% deposit to purchase there and investors have remained active there.”

Head of Trade Me Property Nigel Jeffries gave a shout-out to the Northland region. He says while it has seen average asking prices increase, until recently it was lagging behind the other halo regions of Auckland in terms of growth.

But Northland climbed to a new record average asking price of $521,750 in December, he says. “It’s seen a 20.6% increase during 2016. Over the past five years, the average asking price in Northland has risen by just under $150,000 (40%), with more than half of that increase coming in the last 12 months.”

MUTED GROWTH AHEAD There was agreement among some economists that the market, particularly in Auckland, is more subdued and that house price growth is likely to be more sedate in 2017 than in the recent past.

ASB economist Kim Mundy says that the REINZ data shows sales activity has been weak across many regions in New Zealand, particularly Auckland. “This is weighing on price growth. We expect house price growth to be muted over 2017, but robust demand and limited supply will continue to provide a floor to house prices.”

Westpac acting chief economist Michael Gordon says the REINZ data points to fairly steady market conditions in December. “For the third month in a row, sales fell slightly in seasonally adjusted terms, while prices continued to edge higher, albeit at a slower pace than in the first half of 2016.”

The LVR restrictions limit the number of potential buyers, reducing turnover, but have little bearing on buyers’ willingness to pay, he says. “Mortgage rates have been creeping higher since November, ending a fairly steady downward trend over the past couple of years.

“We think that this turnaround in borrowing costs could have a more meaningful impact on house prices than the LVR restrictions.

Recently, we revised down our house price growth forecast for next year to just 5%, compared to an estimated 14% rise over 2016.” ✚

REINZ SALES: DOWN

Once seasonally adjusted, sales volumes were down around the country in December. While the national decline was slight, it was pronounced in a number of markets, notably Auckland.

INTEREST RATES: UP

Interest rates remain low, but banks have started to increase them.

OCR: DOWN

The Reserve Bank cut the OCR to a new record low of 1.75% in November.

IMMIGRATION: UP

Annual net migration continued to defy expectations and set a new record in November. Monthly net migration was also up on the average recorded over most of the year. [Stats NZ December data due out round Jan 22.]

BUILDING CONSENTS: NEUTRAL

Once seasonally adjusted, building consents were up slightly, both nationwide and in Auckland, in November. However, the overall trend appears to be flattening.

[Stats NZ December data due out late Jan].

MORTGAGE APPROVALS: UP

Reserve Bank data shows that mortgage lending reversed a five month declining trend and increased noticeably in November. [RBNZ data for December due out Jan 30]

RENTS: UP

For the second month in a row, rents were up nationwide in December. Auckland rents dropped slightly, but Wellington rents rose strongly once again.

INVESTMENT

By Miriam Bell - Brought to you by New Zealand Property Investor

Too busy to keep up with everything that is going on in the property sector? TMM is here to help. Read our round-up of property news and events in each issue of the magazine.

Reflection and analysis are traditional at the end of an old year and the start of a new one.

The volatile nature of the housing market seems to have aggravated those tendencies among commentators of late. To that end, here’s our summary of the most significant recent property issues.

Macro-prudential tool kit As the year drew to a close, assessments of the impact of the Reserve Bank’s new investorfocused LVRs started to flow. Data from sources across the board showed that the restrictionis appear to have moderated the market, particularly in Auckland.

For example, QV’s data for the last three months of 2016 clearly indicate the LVRs have had an impact on value growth. In December, QV national spokesperson Andrea Rush said a reduction in demand for investor housing stock has resulted in more subdued value growth and has seen nationwide quarterly growth to ease back.

While the market has cooled, there are questions over whether that will last. Westpac acting chief economist Michael Gordon said they limit who can buy a house, leading to lower turnover. “But they have little bearing on bidders’ willingness to pay, which is determined by factors such as mortgage rates, rental yields and the tax treatment of property.”

Apartment blues Apartments are widely considered to be part of the solution to Auckland’s supply problem.

The city’s skyline sports ample evidence of the amount of apartment development taking place. But, over recent months, several major apartment developments have fallen through.

Problems with finance are considered to be the cause, as banks have tightened up on their lending to developers. There are also concerns that construction capacity constraints and rising costs could be impacting on production.

This has led to growing concern that the supply pipeline is dropping off. Veteran apartment specialist Martin Dunn said the Auckland market is set to face an undersupply – at a time when it desperately needs the reverse.

According to City Sales’ December report, 1,493 apartments are being built in 2017, followed by 1,894 in 2018 and just 711 are, at this stage, scheduled to be built in 2019.

Further, the report states that most of these

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Martin Dunn

In Gordon’s view, rising mortgage rates could have a more meaningful impact on house prices than the LVRs. Many other commentators expect market activity to remain more subdued throughout the coming year.

Meanwhile, the Reserve Bank has made it increasingly clear that it wants the ability to introduce debt-to-income ratios to further curb the market should it need to.But progress towards officially adding DTIs to the macroprudential tool kit hit a road block when Bill English unexpectedly became Prime Minister.

A planned meeting between the finance minister and the Reserve Bank was cancelled as a result – making it highly unlikely that DTIs would be introduced before the end of 2017.

apartments are already sold.

The banks are pacifying the “screamers” who think investors are creating escalation instead of providing much needed accommodation, Dunn said. “There might be more new apartments being built if the banks changed their tune.”

At the same time, the Property Council has issued a warning to those buying off-the-plan apartments. It said buyers should buy from developers who have a proven track record or work with an experienced project team. To this end, conducting rigorous due diligence is necessary.

In a bid to boost buyer confidence in the apartment market, Building and Construction Minister Nick Smith has announced the government plans to change and strengthen the Unit Titles Act. He said they want apartment living to be an attractive lifestyle and a sound investment and the law reform would assist that.

Blame game The influence of foreign buyers on the housing market has remained a hot topic. While Land Information New Zealand is now releasing quarterly data on the number of people with overseas tax residency buying New Zealand property, the data’s validity has been vigorously contested.

A Property Institute poll showed foreign investors are widely perceived to bear the brunt of the blame for house price inflation.

According to the LINZ data, people with overseas tax residency have accounted for around 3% of the country’s property sales over the past three quarters.But poll participants overwhelmingly nominated foreign investors’ as having the biggest impact on property prices.

Participants in the BNZ’s latest Financial Futures Research returned a different result though. Of them, 35% blamed property investors “in the market to make a profit” for the country’s housing crisis - while just 13% pointed to foreign buyers. Another 13% said record migration levels was the main cause of the problem and a mere11% thought supply was to blame.

BNZ chief executive Anthony Healy said understanding the issues around housing, especially in Auckland, is complex.“It is certainly easier to focus in on migrants and investors as the main issue as they are visible and clearly part of the demand side. But it is important we have a balanced debate here, and take the time to understand the supply side pressures as well.”

Investor worries On a practical level, meth contamination of rental properties was found to be the number one concern for landlords by several different surveys. Confusion over contamination levels, and both testing and remediation processes, continues despite ongoing work to develop an applicable standard.

In October, the Ministry of Health produced new recommendations on meth contamination levels. According to the recommendations, different levels should be used to assess properties where meth has been used and properties where the drug has been manufactured.

For investors, the Ministry’s new recommendations offered some hope.

Tenancy.co.nz director Scotney Williams said they would make a difference in terms of the habitability levels landlords have to consider in situations involving a meth contaminated property. Then, in December, the committee released the new draft standard, which incorporates the ministry’s recommendations, for public comment.

Tenant liability for damage was still a big issue for investors. The Court of Appeal’s controversial Osaki decision, which left landlords liable for accidental damage caused

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Andrew King by tenants, led to several controversial rulings against landlords. Eventually, then Housing Minister Nick Smith proposed some potential law changes to address the issue. Consultation on the proposed changes is ongoing.

NZ Property Investors Federation executive officer Andrew King is optimistic that investors will see improvements in both these areas in 2017.“I'm expecting to see the levels for meth increasing which will see far fewer properties requiring cleaning and less cleaning for those properties that are above those levels.I'm also expecting a resolution to tenants not being responsible for any damage they accidently cause to a rental property.” ✚

12 ISSUES

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REGULATION LEGAL

By Miriam Bell

Ways to boost your business It’s been a busy few years in the mortgage business, but the climate is starting to change. Miriam Bell gets some tips on how brokers can continue to grow their business in 2017.

H

eated conditions in New Zealand’s booming housing market have meant the last couple of years have been busy for those in the mortgage business.

But the market has cooled and the credit environment is getting tighter.

So what should brokers do to grow their business in a year which is likely to be tougher than recent times? We talked to a number of advisers to compile our list of five timely methods a broker might want to employ to build their business further.

1

Get smart

The Mortgage Supply Company’s David Windler said that as the environment changes, the volume of work is likely to start getting slower – and that means hard work will be necessary.

For this reason, 2017 is the year brokers need to get smart. “It is very common for brokers to get

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caught up with their head buried in their files.

Now is the time to get your head out of the files and take a good look at your business and how it is performing.”

He recommends that brokers tap into their database and engage with their existing clients more often. But they should also set out to have more conversations with potential new clients. To achieve this, it’s necessary to adopt a marketing strategy that pro-actively generates new business.

“You want to make sure you stand out from the crowd. So go about clarifying what your proposition is. Are you trying to be everything to everyone? Or can you position yourself as an expert in a niche part of the marketplace, like first home buyers or investors or even your particular suburb?”

Once a broker has determined their proposition, they then have to create an identity that clients might be attracted to. Marketing then needs to be tailored accordingly using the media that is best suited to the target audience, Windler said.

“Complement this process by looking at some of the tools out there that you might be able to utilise to more effectively deal with your customer management or loan management. The mortgage process can be clunky and slow, so anything you can do that will benefit clients in terms of time and outcomes will also benefit your business.”

There is never any substitute for hard work, but be smarter about it, he added. “Because if you don’t, you will get left behind.”

2

Embrace social interaction

Networking to build relationships and generate leads will be critical for brokers in the coming year, Loan Market’s Bruce Patten said.

And social media is set to play a big part in that.

“It is becoming more apparent that having an active social media presence on Facebook, Snapchat, and the like is key to doing well in today’s market. Not only is it a good way to keep in touch with existing clients at a low cost, it generates new business.

“For example, if you have a happy client who is active on social media and has good networks, they will refer you if others in their networks ask. Other clients will post good feedbacks and comments. And these actions can generate good leads.

However, those trying to make use of social media should know what they are doing and be aware of the rules of engagement. It can even be sensible to have someone who manages your online presence, he said. “This is to ensure

effective management and to maximise the leads generated.”

Conversely, as the environment starts to change, Loan Market is increasing its physical branded presence. “It’s the off-set to the banks going online more,” Patten said. “It’s not for everybody – ie: millennials who do everything online. But for older people who like to sit down and talk to people, it is attractive.”

He believes this tactic is something other brokers might want to think about. “It’s about building relationships. But it is also about trying to promote our industry as a more professional industry than it has been viewed in the past, as a profession which sits alongside other financial services like accounting.”

it will allow brokers across the board to interact with their clients effectively and cut down on the amount of admin work they have to do. These production efficiencies will leave them with more time to spend with clients.”

While Mortgage Hub brokers will get early access to the new platform as it is developed in the coming months, Trivedy said they hope that their existing content and mortgage comparison platform can still be of use to non-affiliated brokers. “We are also looking at how we can disrupt other areas of the financial services industry that are falling behind in the digital era.”

the non-bank lending sector works. And market themselves as someone who knows how to operate effectively in this space.”

He recommends that brokers make full use of today’s technology to help them with this.

They should revamp their website and update it regularly, make use of online forums, and put themselves out there on services like Trade Me.

5

Improve the basics

4

Think outside the square

3

Check out new platforms

It’s not just the brave new world of social media that brokers should consider diving into. Today’s technology means there are other new online platforms worth exploring. One of these is Mortgage Hub, which is a mortgage comparison and education website. It also lists brokers and allows users to submit enquiries to them directly.

Mortgage Hub co-founder Prashant Trivedy said that by being a part of the Mortgage Hub network, brokers can benefit from greater exposure to prospective clients. They can also obtain leads submitted via the website. “As the platform gains popularity and more traffic is generated, it will be a great opportunity for brokers to expand their business.”

In his view, the platform can help improve the job a broker does for their clients. This is because the website generates leads for its listed brokers, which allows them to focus less on trying to win business, and more on servicing their clients.

It also provides education content for brokers to use.

Trivedy said are they now building an integrated digital CRM platform which will enable brokers to communicate and share documents with clients and, ultimately, submit loan applications digitally.

“This will break the geographic restrictions that some brokers face so they can do a better job for more clients, faster and more accurately. But

Exploring new mediums and technology is a move away from traditional practices which reflects the changing environment. It demonstrates the need to think outside the square. And so too does tapping into the nonbank lending sector. iLender’s Jeff Royle said the lending climate is changing and unless advisers adapt they will fall behind. As banks continue to tighten up on their lending requirements, the non-bank lending sector is growing in importance.

“To boost their business in the changing environment, brokers should make themselves more aware of what is out there in the way of alternatives to the banks, in the non-bank lending space. But, as a broker, you can’t just throw yourself into that space.

“It is necessary to know what you are doing.

Brokers must submit an application to a nonbank lender. Otherwise, the non-bank lender will not have heard of them and will have no idea of who they are and, if they don’t know, they will just decline."

Once again, it comes down to relationships as non-bank lenders have networks of preferred brokers that they work with. The brokers that support them and work with them are rewarded for their loyalty with, for example, faster turnaround times, Royle said.

“So brokers moving into the non-bank lending space need to concentrate on building up those relationships. It is a mentality thing as well though. Brokers need to think outside the square a bit and educate themselves on how

New technology and non-traditional sectors aside, sometimes it can be the simple things that work best in terms of boosting business.

According to Willowgrove Consulting’s Jon-Paul Hale, the reality is that advisers often under-invest in their business. “This means they often don’t have the right technology, skills or people. So it is worthwhile thinking about whether you do have the right ingredients in place going forward.”

Advisers should think about what the bottlenecks in their business are and how they can reduce them to improve their service to their clients, he said. “Get someone capable from outside your business to assess this side of things with you. Don’t try and do it by yourself because it is easy to overlook aspects of the business that you don’t engage with.”

Once bottlenecks have been identified, advisers need to work out how to remove them and how to better streamline their processes overall. To this end, they need to get with the 21st century when it comes to their financial reporting and make use of the available tools, Hale said.

“For example, there are iphone functions that help with reconciling accounts and tablet tools that help with client management. There are all manner of tools to get a step-up in team engagement too. There are many technological tools that advisers can use to improve their business practice.”

While it is easy to do, it is important to try not to waste time, he added. “Maximise your time by streamlining the workings and management of your business, so that you can get the necessary answers to your clients quickly – which will help to enhance your business.” ✚

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A YEAR OF CHALLENGES AND OPPORTUNITIES

There’s little doubt that the mortgage advisory industry is going some of the biggest changes ever. There’s regulatory change, interest rates are moving, banks are rationing credit and the housing market storms ahead, despite efforts to slow it down. TMM talks to industry leaders to get their views on what advisers will face this year.

I

f you’ve tried to sit down and write some New Year’s resolutions for your business, you have probably wondered what the next 11 months will hold.

After a number of very busy years, can mortgage advisers expect the pace to continue?

Will interest rates rise and spook borrowers?

Where will the opportunities be if the 40% equity requirement from the Reserve Bank has some investors sitting on their hands?

Industry figures say, while mortgage advisers should prepare themselves for a quieter year than 2016 or 2015, there are a number of opportunities ahead this year – as well as some potential hurdles.

INTEREST RATES

While interest rates are notoriously hard to predict, economists agree that it is likely that they will now start to move up - indeed they have started rising this year already.

Rates may not rise quickly, but a slow and steady increase is supported by factors such as Donald Trump’s election as the President of the United States and pressure on New Zealand banks’ funding costs.

“I do think the official cash rate easing cycle is over,” ASB chief economist Nick Tuffley says. “I don’t think the Reserve Bank will be rushing to put rates up in the foreseeable future - certainly not this year, in our view. But the change is in fixed rates. That’s where we have already seen a degree of lift come through.”

All the banks kickstarted 2017 with increases in their rates. Indeed ASB made the unusual change of hiking its rates during the Christmas/New Year holiday period.

This means that some of the conversations advisers have with their clients will have to change.

Clients may start to shop around when the time comes to renew a fixed term, or ask for more than one option when they take out new lending.

Tuffley said it would also mean adviser need to help clients navigate a true trade-off when deciding whether to fix, for the first time in some years.

While fixed rates have been at historic lows, there have been few downsides to taking them.

But now they have crept up, borrowers must decide whether they value the certainty of a

“The premium you have to pay for a longer term is now markedly higher.”

– Nick Tuffley

longer-term fixed rate over the cheaper deals on offer for floating and short-term fixers. “The tradeoff has become clearer in some ways,” Tuffley said. “The premium you have to pay for a longer term is now markedly higher.”

Adviser Tim Fairbrother said mortgage brokers would need to help clients look for more than the best rate. That might mean how the loan was set up, as well as its duration. “The opportunity is to get them looking at other pieces of the puzzle – the client experience of the lender, and the structure of the loan.”

But Ajay Kumar, of Global Financial Services, said brokers would probably not be able to win clients over by negotiating big sweeteners on their deals. He said the cash back available for refinancers or those taking out new loans would drop this year – possibly to nothing in some cases.

TIDAL WAVE OF REGULATION APPROACHING Mortgage advisers have had to work in a rapidly changing environment over the past year and it is being predicted that will continue, with

more changes possible from the Reserve Bank and other regulators including the Financial Markets Authority..

Penny Burgess, head of specialist distribution at ANZ, said 2016 had been a big year for advisers coping with widespread change.

She said advisers had to keep up with the changing requirements of all the lenders they dealt with, which could mean significant work for many of them. “It’s a lot of change to cope with. But the interesting thing is it doesn’t change the fundamentals of what they are doing, which is giving excellent advice and having a really thorough understanding of the home-buying process.” Both ANZ and Westpac now require brokers to complete the NZQA-accredited Introduction to Mortgage Broking qualification.

She said the past couple of years had brought a focus on ensuring the advice process put clients first. While it used to be that brokers could say that nothing untoward could happen in their businesses, now they were expected to demonstrate why it could not.

She said that would mean advisers had to have good systems in place and show they were meeting their Responsible Lending Code requirements correctly, and obtaining clients’ statements of position properly. “They need to be recommending structures and giving advice to clients based on what really suits them, not what the adviser feels most comfortable with,” she said.

BNZ head of third-party distribution Adam Ward agreed banks were setting the bar much higher for brokers.

Banks were expected to comply with the Credit Contracts and Consumer Finance Act and its responsible lending code, Reserve Bank rules and other things, such as FATCA, he said.

Those requirements would then flow through to brokers.

“If you look at the last six months, there has been more change to policies and regulation than we had in the last decade,” he said.

With a new focus on conduct risk, the onus was on banks to ensure that brokers were asking the right questions, giving the right advice and recommending the right products, he said.

“Banks are getting tougher on brokers on the quality of information provided, the conversations they are having and how they are capturing that information and sharing it with us,” he said.

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Advisers would need to make sure they had good files to show why they had made their recommendations, he said. “We are starting to see an expectation that they have had these good conversations. It’s moved from buyer beware to seller beware. It comes back on us and we have the obligation.”

Burgess said much of the change this year would be “fine-tuning” of those new expectations, although the Financial Advisers Act was still an unknown and could introduce further disruptive changes.

Geoff Bawden, New Zealand manager of New Zealand Property Finance, warned that advisers would have to spend more time making sure their businesses were compliant than they had in previous years.

He said advisers who thought they could carry on with business as usual were fooling themselves. “We are in a marketplace where it is going to be harder to write business.

“Where you are writing business there are going to be higher expectations in terms of the product, how you’re qualified and how you are behaving.”

A number of new advisers had entered the market over the past 18 months thanks to the busy housing market, Ward said, and some might struggle to understand what would be required under a new regulatory environment.

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Karen Tatterson, a PAA board member, urged brokers to set aside some time this year to make sure they understood the changing regulatory landscape and how it would apply to their businesses.

FINANCIAL ADVISERS ACT

“We expect the FAA review to completely overhaul how the advice industry works at the moment.”

– Ajay Kumar

Mortgage advisers face significant upheaval thanks to the review of the Financial Advisers Act – but exactly what that will mean for them is yet to be seen.

It is likely there will be higher qualification and conduct requirements for those currently operating as registered financial advisers.

Some are already taking pre-emptive steps to ensure they meet new any new rules. Kumar said he was already focusing on other requirements, too, such as continuing professional development. “We expect the FAA review to completely overhaul how the advice industry works at the moment. There will be more emphasis on compliance and attainment of financial qualifications. We always remember while working that consumer interest comes first in order to grow business, which is commonsense in pursuit of customer engagement and satisfaction.”

Fairbrother, of Rival Wealth, hoped to see that requirement imposed across the industry.

on an auction purchase. A conditional offer gives us time to make sure they can get a preapproval in place and then an approval.”

Fairbrother said advisers would have to negotiate capacity with their lending suppliers but should still expect to be busy, particularly in areas outside Auckland and Queenstown, which were still catching up to the property powerhouses.

Patten said it was a lot harder to place funding and get deals done than it had been last year. He had dealt recently with two borrowers who were both overseas and self-employed and wanted to top up their mortgages. Because they were selfemployed, the banks would not do it.

Other people wanting to buy investment properties were struggling to hit the 40% deposit requirement. “People enquire about it but it’s not possible anymore,” he said. “There are a lot more ‘no’s than there would have been last year.”

BUT OPPORTUNITIES EXIST

“Advisers get plenty of product CPD at present, but I hope the FAA asks for more CPD hours around business management, ethics, market changes.”

WHAT ABOUT THE MARKET?

The Reserve Bank put a damper on the market at the end of last year when it increased equity requirements for investor – although there are some indications that 2017 has got off to a busier start.

Ward said the past few months of 2016 had been noticeably different to the rest of the year, and he expected that to continue.

Kumar agreed the effect of loan-to-value rules would continue to be felt. “We expect the market to be still strong but the growth will not be as we have seen in 2015 and 2016. In essence we expect the growth curve to flatten significantly.”

Bawden did not want to rule out the possibility of further tightening, and said there would be fewer transactions being done this year than in recent years. But he said there would still be opportunities for those writing quality business.

Tatterson said a softer market could be good for advisers in some ways if fewer properties were going to auction. “That is going to benefit us in terms of work flows,” she said. “There is a lot of work involved in getting a client to the state where they can go with an unconditional offer

"When you are forced to do things a bit differently, usually good things come as a result.”

–Penny Burgess

But while there are some challenges ahead, there is still optimism for advisers.

“It’s an interesting time for the broker market, it’s a huge opportunity to stand out,” Ward said.

He said the change going on in the industry was hard for some consumers to understand, so brokers who could do their jobs well, explain what the rules were and knew what the banks were offering would be able to stand out as a trusted adviser for their clients.

Ward said tougher rules would be good for the adviser community in the eyes of the public.

“Over the next year or two we will see a real lift in qualifications and standards and that has got to be good for the brand as broker.”

Kumar said he, too, was optimistic. “The anticipated changes will improve the quality of the advice and services which brokers will provide to their customers. Overall, it will be beneficial to the customers as well as brokers who will continue in the industry.”

“Now more than ever consumers need good advice, and the presence of advisers to provide that – it’s a huge opportunity,” Bawden said.

If you have a solid customer base already, now is the time to work it to build your network of referrals.

Burgess said word-of-mouth recommendations would become ever more important to advisers.

She said being a first-home buyer was now more complex than it ever had been. Buyers were often older and were both wiser and more wary about who they dealt with. But they needed someone to help them navigate the different ways of funding their purchases, and things such as the use of KiwiSaver.

Advisers who would do well would be those who built a reputation for advocating for their clients and communicated it in a way that was easy to understand She said the industry should not be afraid of more change. “When you are forced to do things a bit differently, usually good things come as a result.” ✚

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RECRUITMENT

Keeping it in the family

Advisers have secured their succession plan with their children following them into the industry, willing and eager to one day The NZ Mortgag (TMM) issue 5 2 take over the reins. Dana Kinita finds out more.

Judy Steiner, owner of Mortgage Link Hawkes Bay with her son Peter Barry who joined the business three years ago.

I

t took a bit of convincing from Judy Steiner for her son Peter Barry to join the family business but she knew he had the attributes to be a successful broker.

With nearly 20 years’ in the industry, the Mortgage Link Hawke’s Bay owner knew he would be well suited for her company.

“Pete worked in the building industry and hospitality. He went into the building industry with the idea he could go up the ladder and that never happened because the company he was with, the ceiling had already been filled because guys had been there a long time,” Steiner says.

“So I talked to him about the [mortgage]

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industry a long time ago but he was always shy about it. I started out in the radio industry and I knew if you could talk to people, you could do this job, you just have to learn how to. He had all the stuff, personality and the ability to put people at ease through hospitality which is perfect for talking to people about money and borrowing.”

Just over three years ago, Barry, 33, took the first step.

“He took annual leave and he came and he sat with us. He had a look at what I do, how I do it, what happens with the clients and he went away for a little while and he said, ‘Okay, I would like to do this’.” Steiner says.

“We sat down and we talked about our relationship and he was pretty clear that I’m Judy, 9 to 5, and I’m mum afterwards. He calls me Judy during the day and when we catch up on the weekend he calls me mum.”

Barry says it’s been a steep learning curve, having to learn about the industry on the job, complete his financial adviser papers and balance family life as a parent to a 6-month-old. But things are starting to gain momentum.

“I had to start from the bottom just over two years and now have my own client base, radio ads out there. I have people ask for me… it’s slowly starting to build. I still have a lot more I

ge Magazine 2016

need to learn off mum,” he says.

It was no secret, Barry would enter the business as a succession plan for his mother, but it was made clear it wasn’t guaranteed.

“He knows it’s not a given, he needs to buy it off me. He has to literally put himself in a position where he can buy a business, then he will have the opportunity. As long as it ticks all the boxes for me and for him and he’s able to do that,” Steiner says.

It’s something Barry says he knows he has to work towards.

“I have to earn it. I went in with the knowledge that I could potentially own this business but it wasn’t going to be just handed to me on a silver platter. I’m going to have to work my butt off for it to show her she’s trusting me enough to leave the empire that she’s built.”

It’s a business relationship that works well for both.

“I know him, I trust him,” Steiner says.

“I know instinctively he’s not going to try and beat me to a client. He’s not out there thinking, how can I take over this business because he knows that’s in his future and he’s relaxed about it.”

EAGER LEARNER

For Gopal Sreenivasan, his son was interested in the industry as a teenager.

The Loan Market Waitakere owner brought Akshay, 22, into the business last year having completed his Bachelor of Commerce degree majoring in accounting and information management system.

“When he was the age 14, 15 I used to say he would take over the business so he was always aware of that. After he completed his studies, he came to me and asked how to get involved and that’s how it started,” Gopal says.

“It makes things easier for me, I can hand over all my applications, he comes with me to my meetings so he knows the client too, we work close together and he takes over the file.”

Akshay has been accompanying his father to client meetings and has new found respect for him.

“He has a lot of knowledge,it’s been a real eye opener, he is extremely smart,” he says.

“My dad has told me a lot about finances but he didn’t really go into detail because that’s confidential. But once I started going out with him, I really looked at the process he goes through and the amount of work he does.”

But it doesn’t come without it’s challenges.

“We’re very different people, we do argue which I think you can expect in a family business. But I think it’s also a good thing because while he has the knowledge and experience, I have quick thinking, improvisation, ambition and theoretical knowledge from university. I’m extremely keen to freshen up the way we approach this job, the way we talk to clients, the way we present data to the banks and the processes in this company.

Because I did information systems [at university] I have interest in developing new and easier ways for clients to understand what goes on in the process.”

Gopal says it will be another 18 or so years before his son will take over.

“The challenge is how smoothly I can pass on my business to him. If can go see all my active clients with him, we can close the circle so if anyone calls I can say to him, ‘Yep you can go do it,” he says.

“That’s what I’m looking at in the future, it will probably take three years to go through all the people. One of the greatest thing my son has learnt from my advice has been how to help our clients. They will say to him, ‘Your dad helped me from 2007, with 100% finance and today we are still working with them and they have a net worth of nearly $2 million.”

It’s a legacy, Akshay is proud to follow in.

“I think with a family business like this, my dad always pushed that we should think about not only ourselves but your kids, your kids’ kids and so on. Setting it up for the future generation.

It’s about building not only our business but the benefits for our client and their children.” ✚

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SALES & MARKETING LEGAL

By Paul Watkins

WHAT'S

2017 GOING TO LOOK LIKE? Planning ahead can help you hit the New Year running, Paul Watkins writes.

C

hristmas over, summer more than halfway through… what’s 2017 going to look like? Another year of the same? You all know the adage, ‘if you do what you have always done, you’ll get what you have always got!’ So why be happy with what 2016 offered?

Here is a marketing based checklist to help plan 2017: Brand image: Are you happy with what you trade as? Any brand name can work so as you follow normal brand rules. The two most important of these are consistency and repetition. This is a topic in its own right, but for now ask yourself, is it a memorable brand? Do I always use it in the same format and is it visually attractive? The last of these means you logo, chosen colours, business cards, consistency of use in all media and

so on. Lay everything you have your logo printed on out and see if they look like a family of designs. If they don’t all match, then engage a graphic designer to fix it create a new look.

Next is your online presence. Have a serious look at your web site and then call up the web sites of 10 of your competitors.

Is your at least as good or better than theirs? Do some of them have features you would like yourself such as a blog, loan calculators, videos or easier navigation? Do they look more modern than yours? Talk to a competent web designer about adding the additional features or perhaps a total redesign. And critical to this is how it looks when found on a phone. Fun fact… over 70% of all Google searches are made on a phone or tablet now! So have your web designer optimise it for mobile. It is not

❝ There is a criteria

for helping to decide if marketing ideas should be pursued next year.

It is the type of client you may get as a result.❞ expensive nowadays.

A web site is only good if it is found. Find a good Search Engine Optimisation (SEO) specialist and have him or her make sure you are always on the front page of searches. The world searches online for almost all services these days, so make sure they find you.

Another form of online presence worth considering is LinkedIn. I recently wrote about that in this magazine, as LinkedIn has become a very powerful marketing tool to the more-educated client. Facebook can also work as a promotional tool if it is understood. The average age of users in Facebook is climbing so it does hit your target group of home-buyers.

A very new opportunity is www. neighbourly.co.nz. This is heavily patronised by females, which could be your market.

Look into it as a possible promotional tool.

I am not giving you a definitive list here, simply asking you to plan for next year by looking at all online options.

The biggie of marketing in today’s environment is “influencer marketing”. This means finding others to say you are good, not you telling people you are good yourself.

The obvious example is referrals – clients finding new clients for you. What is your current referral strategy? Is it working? Does it need a refinement or tweak? Maybe you don’t really have one, so make it a priority to develop one.

The extension to this is other professionals referring clients. These could be accountants, lawyers, financial planners, real estate agents and similar. Give yourself a goal for 2017 of connecting with 3 new ones who give you referrals. They are not easy to find but well worth taking the time to find.

What’s your 2017 plan for client contact?

How often do you contact them by email, post or phone? Do you have a regular newsletter or way to encourage them to call you? Do you have gifts for referring clients?

Do you run client events? Do you have a plan to reactivate old clients from years ago?

These are all very important. Sorry if this offends, but you are forgettable. They got the mortgage they wanted, so why should they bother talking to you ever again? And who are you again? Be in their face regularly.

What is your client progress contact plan?

They ask you for help to arrange a loan, so

what is your written process for keeping them up to date on progress? Daily emails or texts? Phone calls? Have a clearly defined process. It is impossible to over-contact them during such a time as they will be very anxious and probably highly stressed over the whole deal.

Do you use ancillary marketing material, such as a bold sign on your office, a signwritten car, signs for placement outside recently mortgaged properties and branded clothing? I’m not saying these will make the phone ring every day, but these should be on your list of things to review for 2017.

There is a criteria for helping to decide if any of the marketing ideas above should be pursued next year. It is the type of client you may get as a result. List your top 100 clients in terms of their value to you. These are the ones you would like to get more of. For example you may enjoy dealing with young couples in their twenties and thirties, so these should feature high in your top 100 list.

Once you have this list, go through each item in your reviewed marketing list from above and ask yourself, will this activity give me more of my top 100 type clients or not?

If it looks like it will generate more of your chosen target, then it’s worth considering.

Of course to make all of the above more meaningful, you need to set targets for 2017.

These could be revenue, numbers of new referring professionals, new client numbers and net profit targets. These are a must and should be shared with relevant people such as your own accountant or work colleagues.

That way they are more likely to be achieved.

I can confirm that few do this.

This is followed by writing a budget forecast for the year. I have recently talked to two brokers who tell me that they work to a monthly target, but just look to ‘control costs’ rather than work to a written budget forecast. Writing it down very much increases the chances of achieving it. I’m sure you tell your clients to have one, so have one yourself.

You will notice that I have not mentioned press or radio or other traditional media for your 2017 marketing review. This is because their effectiveness is declining rapidly and everything is going online. You may well still get returns from such media, but keep a close eye on it. Question its effectiveness and constantly test it for generating new business. The challenges you face are the high cost of radio to make it work and finding a powerful enough headline to catch the eyes of reads in the press.

Obviously this is not an extensive list of items to review but will help put you on the right track for 2017. If you can identify things to change or improve, then change them! ✚ If you need a web designer or SEO specialist, I can recommend a few who charge realistic prices.

Paul Watkins writes blog content and newsletters for financial advisers.

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MY BUSINESS

By Dana Kinita

CHANGING

GEARS From motorcyles to mortgages, Mike Pero franchise owner Jacob Annals has found success in the Waikato.

HOW DID WORKING IN THE INDUSTRY COME ABOUT? My previous position involved liaising with manufacturers and retailer stores to match products with needs. With a growing interest in property and the idea of being selfemployed, I decided to apply for a mortgage broker role advertised by Mike Pero Mortgages.

HOW LONG HAVE YOU BEEN A BROKER? WHAT WERE YOU BEFORE? I started out as a broker with Mike Pero in 2007 and purchased the Waikato franchise in 2008. Before this I worked in the motorcycle industry, most recently for several years on the wholesale importing side, but also spent some time in retail motorcycle shop as a parts manager. The person I dealt with at the bank at the time is now a business manager who I deal with quite a lot now as a broker.

HAS IT ALWAYS BEEN A PASSION? My passion for property began in my early 20’s. I intended to buy my first home and decided after actually purchasing it to make it an investment property, keep some tenants in there. It was a nice addition to the day-to-day job at the time. From there, it kind of grew, wanting to add more property.

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WHY MORTGAGE BROKING? -WHAT IS IT ABOUT BROKING YOU LOVE/ARE PASSIONATE ABOUT? Helping make homeownership possible is always rewarding, as is knowing that I’ve recommended loan products that match client’s needs.

HOW DID YOU LEARN THE BUSINESS AND EDUCATE YOURSELF? In-house training from the Mike Pero team when I started was the biggest thing for me.

There’s also been several conferences, training events and certificate of financial advice and we have an in-house training program.

DO YOU HAVE A MENTOR?

were tough going, but surviving it and growing has been rewarding.

BEST AND WORST BUSINESS MOVES YOU’VE MADE? Best move would be having my wife Ashleigh join the team very early on. Buying this type of business at the beginning of a recession is arguably the worst move I’d made, arguable because without doing this, everything would be very different now.

BEST AND WORST ADVICE YOU’VE RECEIVED? The best advice I’ve received must be to ignore outside distractions.

No, however I have attended several coaching type events.

BIGGEST CHALLENGE NOW -APART FROM THE MARKET?

-WAS IT SELF-TEACHING, DID YOU STUDY?

Juggling business and personal is an ongoing challenge, thankfully my wife understands both side of this equation is extremely supportive.

Self-teaching and working closely with our Mike Pero Waikato team of advisers and support staff.

BEST AND WORST TIMES IN THE BUSINESS? The first couple of years during the recession

WOULD YOU DO IT ALL AGAIN? Yes, I would, but there would be several things I would do differently.

BEST BUSINESS BOOK? The Alchemist

IS THERE A TYPICAL WORKING DAY? A typical day is structured where practical, though the start and finish times vary depending on workload at the time. For me, I prefer to finish at midnight than spend the weekend at my desk.

TOP TIP? Before you have many deals on the go at once, implement systems and processes that give you all necessary information at your fingertips.

WHO IS THE INDIVIDUAL THAT HAS MOST INSPIRED YOU IN BUSINESS? Tough question, there isn’t one individual, but more a handful who challenge and inspire me for different reasons. Having said that, the real inspiration is doing this for my clients, my team and my family.

WHAT IS YOUR BIGGEST LONG-TERM BUSINESS GOAL? To eventually sell a productive, profitable business to one or more of the team, enabling them to continue helping people.

HOW ARE YOU PREPARING FOR REGULATION OF FINANCIAL ADVISERS THIS YEAR AND HOW WILL THIS AFFECT YOUR BUSINESS? I completed the level 5 cert when first introduced and as part on the Mike Pero team, we complete ongoing training and utilise software that incorporates the relevant documentation. I welcome changes to regulation. ✚

FAMILY: Wife, Ashleigh, son Blake and another son on the way

MOTTO: The philosophy I would live by now whether it will be there will not be a situation where there could be an apparent for those to not was the biggest thing for me. There’s also been several conferences, training events and certificate of financial advice and we have an in-house training program.

- 2007 I became a Mortgage Adviser.

- 2008 I purchased the Mike Pero Waikato / Coromandel Franchise.

- 2009 I was nominated as a Finalist for NZMBA Broker of the Year.

- 2012 I was awarded Mike Pero Best All Round Mortgage Adviser.

- 2013 I was awarded Mike Pero Best All Round Mortgage Adviser.

INTEREST RATES Gareth Kiernan of Infometrics

NZ economy enters 2017 in style The economy has had a good start to the year, Gareth Kiernan of Infometrics examines what we should be on the lookout for throughout 2017.

T

he New Zealand economy entered 2017 in fine fettle. Despite dairy prices at GlobalDairyTrade auctions having fallen 3.8% since their early December level, the price index is up a massive 66% from its low point in the first quarter of 2016, with whole milk powder prices having risen 77% over the same period. Both price measures hit 2.5-year highs earlier in December.

Having now passed the current season’s peak, dairy production levels in New Zealand for the six months to November were down 3.0% on the same period last year. This drop in output has contributed to the recovery in prices, but it’s not only New Zealand farmers who have been cutting back production.

European milk output in the six months to November were 2.4% below 2015 levels, while Australian production plunged almost 10%.

These figures give us confidence that the rally in dairy prices will be largely sustained –

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particularly given that current whole milk powder prices of US$3,283/tonne are close to the US$3,200/tonne that was being talked about a year ago as a long-term “equilibrium” price.

Dairy’s renaissance joins ongoing growth in the construction and tourism sectors, while recent GDP figures show that economic growth has also broadened and most service sectors are enjoying a healthy rate of expansion. ANZ’s business confidence and own-activity measures remain well above their long-term averages, while consumers’ feelings about their current financial situation are their most positive since 2007.

Thinking about rising interest rates Against that backdrop, attention must now turn towards the future upward trajectory of interest rates. Thinking about rising interest rates might seem a little odd given

that it’s been only a couple of months since the Reserve Bank last cut the official cash rate, to 1.75%. What’s more, a few months ago, several forecasters were anticipating that the OCR could drop to 1.5%. But the healthy performance by the New Zealand economy has been joined by prospects of stimulatory fiscal policy in the US, which is driving up inflation expectations and longer-term interest rates internationally. The strengthening outlook for the American economy also contributed to the US central bank’s hike in the Fed funds rate just before Christmas.

The Federal Reserve’s rate hike was accompanied by projections of three further rate increases during 2017. This outlook felt a bit like the one presented at the end of 2015, when the Fed was projecting four rate hikes for 2016 – only two increases eventuated.

Inflation expectations in the US, as measured by the gap between real and nominal ten-year government bond rates, ratcheted up from 1.7%

to almost 2.0%pa between the presidential election in early November and the week before Christmas. Our graph shows that US inflation expectations and nominal ten-year government bond rates in December reached their highest levels since September 2014, and inflation expectations in New Zealand were at a 16-month high.

The rise in nominal bond rates in New Zealand has been less dramatic – they ended 2016 at roughly the same level as they had started 2016. But ten-year rates here still lifted 130 basis points over the last four months of the year.

These trends have flowed through into rises in fixed mortgage rates. Between late October and Christmas, increases ranged from 13 basis points for two-year rates to 30 points for four and five-year rates. These movements are not enough to really affect the housing market yet, but with mortgage holders stretched, particularly in Auckland, the spectre of rising interest rates could be troubling when their current fixed rates come up for renewal.

Food for thought in 2017 Looking towards 2017, we see three other major areas to keep an eye on. ▶ Donald Trump was inaugurated as the US president on January 20. Over the coming months it should become clearer how much of his bluster he will follow through on. Economic and geopolitical stability could be threatened by his trade and foreign policies respectively. ▶ The performance of the National Party in polls over coming months will be interesting following John Key’s resignation as prime minister, indicating the risks around policy concessions to New Zealand First as a support partner or (less likely) a swing towards a possible Labour-Green government. The latest Roy Morgan poll showed a 1 percentage point lift in National’s support to 46%, while the Labour/Greens potential alliance was down 3.5 points to 39.5%. But that shift could be little more than noise given the poll’s up and down history. ▶ The housing market is currently being squeezed by the latest LVR restrictions, but this pressure is unlikely to permanently slow the

market. We continue to expect debt-to-income restrictions to be added to the Reserve Bank’s armoury within the next 12 months. ▶ Net migration is set to peak in coming months but will remain close to record highs during 2017, underpinning strong demand for housing and keeping turnover in the market at relatively high levels. With our estimates of Auckland’s housing undersupply currently sitting at 37,000 dwellings, house prices will still be under upward pressure due to the lack of supply, but tough deposit requirements and associated affordability issues are likely to limit the extent of further price rises in the city. Housing around the rest of the country generally looks to be less overvalued, and the property markets in most other regions are likely to outperform Auckland during 2017.

Nevertheless, the Reserve Bank will remain concerned about the financial stability risks posed by high house prices, and further tightening in macroprudential regulations and the availability of credit could be in the pipeline. ✚ Gareth Kiernan is the chief forecaster at Infometric, managing the preparation of the company’s regular forecast publications.

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INSURANCE

By Steve Wright

The benefits of short payments Short benefit payment terms under Income or Mortgage Protection can be useful but do you know how they work?

S

hort benefit payment periods (how long your income protection or mortgage protection cover will pay monthly benefits on disablement) can be very useful, especially for clients with very limited budgets. The cheaper premium that comes with a short benefit payment term on income protection and mortgage repayment insurance, such as 2 or 5 years, can be tempting and often necessary for

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clients with limited budgets who need short waiting periods but it is important that clients understand the downside.

The downside is naturally that for those clients disabled (totally or partially disabled) forever or a very long period, their benefit payments may end before their disability ends. If you recommend insurance with a 2 year payment term and the client is disabled forever, 24 monthly benefit payments is the most the client will get, leaving clients

exposed to the financial risk associated with long term disability.

‘BUT DON’T BENEFIT TERMS RESET FOR EACH DISABILITY’!

Good policies will reset short term benefit payment terms following a return to work after disability but clients have got to recover sufficiently to be back at work full time before that can happen (i.e. they

are no longer totally or partially disabled). If they are disabled again because of the same underlying cause then typically their return to work must be for a minimum period (usually 12 months) before their benefit payment terms reset. If a client is once again unable to work because of a recurrence of the original condition which left them disabled and they have not been back at work for the required period, only the balance of the original payment term is available for benefit payments a second time around (and nothing is payable if the previous benefits ended because the payment term ended!).

DO SEPARATE BENEFIT PAYMENT TERMS APPLY FOR EACH CAUSE OF DISABLEMENT? No! Typical disability policies, like income protection and mortgage prepayment insurance, pay benefits on disability irrespective of the cause of disability.

Benefit payment terms apply to periods of disability not individual causes of disability. Clients with a 2 year payment term do not get two years of benefits for each individual cause of disability. Unlike trauma cover, which pays on cause not effect, income and mortgage protection insurance pay on effect (the cause is generally irrelevant). This means, for example, a client (with only a two year benefit payment term) initially disabled due to a distressing and painful medical condition, requiring unpleasant treatments and who, after 18 months, then also becomes sufficiently depressed to be unable to work, will still only be entitled to benefit payments to the end of the current payment term; a maximum of 24 monthly payments! A new payment term does not begin when the second event, the depression, first prevents the ability to return to work.

‘BUT MOST DISABILITIES ARE OF SHORT DURATION’!

It is true that many, even most, disabilities are of relatively short duration, less than 2 years, but there are some that last a lot longer and some last forever. If your client wants protection against longer term disability, you may want to recommend benefit payment terms which pay benefits ‘to age 65’ or ‘to age 70’. If the higher premium that goes with a

❝ Getting the

client’s disability risks adequately covered requires careful consideration of the client’s needs and wants and a good understanding of what the products you recommend will actually do come claim time. ❞ longer benefit payment term is a problem, a longer waiting period or split waiting periods, can reduce premiums. Increasing the waiting period usually imposes a small and manageable risk the client can carry themselves. Each additional month added to the waiting period only adds the value of another months’ benefit to the risk the client takes themselves. The additional risk of a longer waiting period is literally a few thousand dollars and good policies will waive the waiting period for recurrent disability occurring within 12 months anyway. Taking a fixed payment term of 2 or even 5 years, leaves clients with very large risk, no income or benefits for the remainder of their working lives, possibly decades! This loss could easily amount to millions of dollars, risks they may not be able to take themselves.

‘SHORT PAYMENT TERMS PLUS LUMP-SUM TOTAL AND PERMANENT DISABILITY COVER WORK FINE FOR LONG TERM DISABILITY’!

Because most disabilities end within 2 years, many advisers favour a 2 year income protection benefit payment term and top-off the longer term disability risk with additional TPD lump-sum cover. The theory being that, someone disabled for two years is more likely

to be permanently disabled and premiums can be reduced. Unfortunately there are a couple of issues to consider with this strategy: ▶ There is no certainty that the client’s disability will actually pan out this way and every likelihood the disabled client will not be totally and permanently disabled at the end of the payment term; and ▶ In order to achieve a meaningful premium reduction, it is my suspicion that proponents of this strategy recommend a couple of hundred thousand dollars of TPD Cover, not the big TPD sums insured large enough to cover the value of the lost income cover or mortgage repayment cover monthly benefits to age 65 or 70. For a 35 year old on a modest salary, say $6,000 per month (with a monthly benefit of $4,500 and a two year benefit payment term) the value of this monthly benefit lost if they are totally and permanently disabled is 336 payments (28 years’ worth of benefits). This is at least $1,512,000 without any inflation indexing and at only 1% inflation it is $1,735,000. At these levels of TPD cover, the total premium payable by the client (TPD and mortgage repayment cover) will be close to the cost of income protection or mortgage repayment cover with a ‘to age 65’ payment term.

Getting the client’s disability risks adequately covered requires careful consideration of the client’s needs and wants and a good understanding of what the products you recommend will actually do come claim time.

Multiple benefits and options are likely to be necessary in combination and the various options will all have their pros and cons. As usual, stress testing your initial thoughts about a recommendation by asking ‘how might this solution fail and if that happened what would be the consequences?’ can be very valuable. ✚ Steve Wright has qualifications in Law, Economics, Tax and Financial Planning and is General Manager Product at Partners Life. This article is for information purposes only. Its content is intended to be of a general nature, does not take into account your financial situation or goals, and is not a personalised financial adviser service under the Financial Advisers Act 2008. It is recommended you seek advice from a financial adviser which takes into account your individual circumstances before you acquire a financial product.

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Second mortgage back by popular demand It seems that the environment is now ripe for the return of the second mortgage but it comes with restrictions, Jonathan Flaws writes.

LEGAL

By Jonathan Flaws

F

or some time now, homeowners have needed only one mortgage to buy a house.

But the restrictions that restrict registered banks to lending beyond approved LVR limits means that for many, a mortgage within the limit means they can’t finance a home on just one mortgage.

As a result, borrowers are looking beyond registered banks and the second mortgage is coming back into popularity. In some respects, this represents an element of back to the future.

Prior to 1984, it was common for most people buying a home to raise two mortgages. This was driven to a large extent by the controls placed on banks and lending institutions by the government. Banks were required to hold deposits with the central bank and were limited in the areas in which they could invest.

As a result trading banks (as they were then called) played a limited role in the home mortgage market. The ultimate government restriction was the decision by the Muldoon government to limit the interest rate on 1st mortgages to 11% p.a. Like squeezing one part of a balloon, the only thing this achieved was to force another part of the balloon to blow out. It was not uncommon to see a small first mortgage followed by a large second mortgage at a much higher interest rate.

Even before this tinkering, solicitors’ nominee company lending played a major role in providing housing loans. These mortgages were generally at fixed rate with interest only payments for periods of 3-5 years and were funded by clients of a law firm seeking a safe fixed rate investment. The first mortgages were required to be within prudent trust lending limits. The Trustees Act required trustees to limit their lending to no more than 66% of a property’s value as assessed by a registered valuer. To lend more meant lending beyond prudent limits and could expose a trustee, or, in the case of solicitors’ nominee companies, the law firm to potential exposure should the investment fail.

Even then, a limit of 66% on a first mortgage was not sufficient to enable a first home buyer to purchase a home so the balance was topped up by a second mortgage.

The standard way to acquire a home was to focus on paying off the higher rate second mortgage and then refinance when the first mortgage fell due. It was also a time of when property inflation was running high which meant that a homeowner’s equity was naturally increasing even without large mortgage reductions.

RESTRICTIONS ON 2ND MORTGAGE? It seems that the environment is now ripe for

the return of the second mortgage. But there are some restrictions. For example, the Reserve Bank “Framework for Restrictions on High LVR Residential Mortgage Lending” contains anti-avoidance provisions that mean that if a registered bank provides a first mortgage within the limits, a second mortgage may not be possible. The anti-avoidance provisions are very specific and designed to ensure that the equity above the bank’s mortgage is real equity and not repackaged debt.

The main restriction is that a bank may not permit a borrower to grant a charge in favour of another person over residential property where, if the other mortgage were counted, the LVR restriction would be breached.

Most mortgages contain a negative pledge covenant under which the borrower promises not to grant further security without consent.

This doesn’t mean the second mortgage is not valid or enforceable, simply that it is a breach of the first mortgage enabling the first mortgagee to take action.

THE PRIORITY SUM A first mortgage from a bank will normally be an all obligations mortgage with a priority sum included that is in excess of the actual lending.

This doesn’t mean that the first mortgage secured the amount of the priority sum for it can only ever secure the actual amount owing (including interest and costs). What it does mean is that if the high LVR restrictions are removed or if the property value increases and there is headroom within the restricted LVR, the first mortgagee could increase the first mortgage debt without reference to the second mortgage provided the new lending is within the priority sum.

NON-BANK LENDERS Lenders that are not registered banks, such as Liberty and Resimac, are not subject to the same high LVR restrictions. They may well impose their own prudential limits to ensure that their portfolio risk profile does not blow out, but that becomes a matter for them to decide and not a matter of regulation.

Certainly it means that they may become more attractive for lending on residential investment properties where the limits are more severe.

DEEDS OF PRIORITY Most institutional non-bank lenders will have mortgages that are also secure all obligations and accordingly contain a priority sum in excess of the original loan amount.

A second mortgagee is unlikely to lend if there is a risk of the first mortgagee increasing the amount secured beyond the original loan amount. In this case the second mortgagee will require a deed of priority to be entered into between the owner, the first mortgagee

and the second mortgagee. A deed of priority overrides the priority sum because the parties to it are contractually bound to act in accordance with its provisions.

Like most mortgage terms, there is no regulated form for deeds of priority. The New Zealand Bankers Association has for some time now published a standard set of deeds of priority covering mortgages and other securities. The original content of these had several legal issues which have generally been resolved. The first mortgagee nominates the first priority amount and the second mortgagee nominates its priority amount.

These amounts generally contain a limit on the amount of interest that can be claimed in priority.

FIXED SUM MORTGAGES Not all first mortgages need be all obligations.

Rolling back to prior to 1984, many mortgages were fixed sum mortgages. The solicitor’s nominee mortgage was a certain sum with no provision for a further advance.

In these circumstances there is no need for a priority sum nor for a deed of priority.

SECOND MORTGAGEE’S RIGHTS Obviously, a second mortgagee will always be subject to the rights of a first mortgagee.

This doesn’t mean, however, that the second mortgagee has no rights.

In the US, a second mortgage is often referred to as a home equity mortgage. This is because under old style mortgages the land was transferred to the mortgagee subject to the equity of redemption – the right of the owner to pay off the debt and have the land transferred back.

The owner could mortgage the equity of redemption – in effect give a second mortgage.

The mortgagee under the home equity mortgage therefore has the same rights as the owner to pay off the first mortgage and take over the rights and powers of the first mortgagee.

Although the structure is different under our Torrens system, the concept is much the same.

The second mortgage has rights to “redeem up” or pay off the first mortgagee and take over the first mortgage. This, ultimately, is the base protection that a second mortgagee has.

Any person serious about advancing on second mortgage should understand that if the borrower defaults under the first mortgage and the second mortgagee wants to control proceedings to protect its position, then it should be prepared to pay off the first mortgage. It may be just a second but it has every right to come first – it’s just a question of finding the extra money. ✚ Jonathan Flaws is a partner at legal firm Sanderson Weir.

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Intelligence

A LOOK INSIDE BNZ'S LOAN BOOK BNZ's latest accounts, for the 12 months ended September 31, show how it business from mortgage advisers is is steadily increasing. Also of interest is the average loan size is 12% than in March 15 and the percentage of interest only loans has grown.

NEW ZEALAND HOUSING LENDING

MAR-15

SEP-15

MAR-16

SEP-16

Low Documentation

0.15%

0.13%

0.10%

0.08%

Proprietary

100%

99.6%

97.1%

94.4%

Third Party Introducer

0.0%

0.4%

2.9%

5.6%

Variable rate lending drawn balance

25.5%

23.1%

21.1%

20.4%

Fixed rate lending drawn balance

70.8%

73.5%

75.7%

76.7%

Line of credit drawn balance

3.7%

3.4%

3.2%

2.9%

Interest only drawn balance 1

23.2%

23.8%

24.0%

25.1%

Insured % of Total Portfolio 2

8.5%

7.3%

6.1%

5.3%

Current LVR on a drawn balance calculated basis

63.5%

63.1%

62.8%

62.6%

LVR at origination

68.9%

68.4%

67.9%

67.8%

Average loan size NZ$ ('000)

296

304

316

332

90+ days past due ratio

0.17%

0.14%

0.17%

0.09%

Impaired loans ratio

0.16%

0.13%

0.11%

0.09%

Specific provision coverage ratio

36.9%

35.5%

47.0%

35.9%

Loss rate 3

0.04%

0.03%

0.02%

0.02%

WHERE BNZ IS LEADING The following chart shows a breakdown of BNZ's leading by region.

CANTERBURY

14%

WELLINGTON AUCKLAND 45% OTHER 17%

11%

WAIKATO

7%

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6%

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