11 minute read
THE YEAR AHEAD
No let up in housing market
After a hectic 2015, advisers are looking forward to a quieter 2016. But 2016 could be just as busy, as first home buyers enter the market. By Susan Edmunds
Caught your breath yet?
For many mortgage advisers, 2015 was their biggest, busiest year.
The Auckland property market was powering ahead and other regions around the country started to pick up as house prices in the biggest city, and new lending rules, drove people to look for properties further afield.
First-home buyers started to return to the market in 2015 and low interest rates made borrowing appealing.
The good news for advisers is that no one is expecting the brakes to go on sharply in 2016.
While some expect a slowdown, most expect it to be gradual and only to the still-busy level of 2014.
Many adviser businesses say this will be a year to make sure that processes and systems are sound and that the service delivered to clients is top-notch, not just box-ticking to negotiate deals in time.
Full Steam Ahead
Dave Windler, of the Mortgage Supply Co, is one looking forward to a slightly gentler pace this year, after a hectic 2015 left his team exhausted.
He said it would be unrealistic to expect to maintain the level of traffic the company had experienced last year through this year, too.
But even a drop from 2015’s rate of business was likely to be a good year, he said.
“If you look at 2016 compared to 2015 and feel it has dropped off, you’re not reflecting on it properly,” Windler said.
“2015 was far and away the best year we’ve had. But we’d be quite happy to have a year like we had in 2014, that’s still good. It’s just whether your glass is half-full or half-empty.”
Another Auckland adviser, Karen Tatterson from Loan Market, said she was seeing more first-home buyers entering the market, which she expected to continue through the year. Investors were still active, she said.
Most were primarily focusing on areas outside Auckland, while keeping a watchful eye on any developments that made an Auckland purchase appealing.
“They are keeping an eye out for opportunities in Auckland. There is a lot of new building in South Auckland, Takanini area. There’s potential for them to look at that area as well.”
John Bolton, of Squirrel, one of Auckland’s biggest mortgage broking firms, said he expected a strong first half of the year for the city.
“I’m expecting a busy summer and for that to extend through May and June, similar to last year. It is unclear what the rest of the year will look like,” he said.
What happened subsequently would depend a lot on the international outlook. He said if things became more tumultuous internationally, the latter half of 2016 could look “more interesting”.
Volumes sliding
The Auckland market had looked to be slowing down before Christmas, with the December Real Estate Institute median price only up slightly on the month before and sales volumes sliding.
But Bolton and another Loan Market adviser, Bruce Patten, said there were signs since that the lull had been short-lived.
Patten said he usually tried to take January off work but the phone had been steadily ringing and business picked up as the month went on.
His firm wrote $95 million in the six months to the end of 2015, up from $65 million in the six to the end of 2014.
“I was talking to an agent in Royal Oak who said he had 38 people through an open home in the first weekend, which was a surprise,” Patten said. “For him, the year has kicked off with a hiss and a roar. We are certainly seeing the same in east Auckland.”
Bolton said the improvement in the Auckland market post Christmas was based on a settling down after the November tweak to the loan-to-value rules, first-home buyers gaining confidence and Chinese investors returning to the market.
Since November, Auckland investors have had to have at least a 30% deposit to buy a property in Auckland.
– BRUCE PATTEN
Outside Auckland, there are no specific restrictions on investors and banks have been allowed to lend slightly more of their new loans to people with a deposit of 20% - they can lend up to 15% of loans to these borrowers, from 10% before.
That caused a spike of lower-deposit lending in November.
Reserve Bank data shows $530 million was lent in November, up from $476 million in October and $441 million in November 2014.
“We are really busy at the moment. It’s great but we’ve got to be a bit careful. I’m trying to temper that with the knowledge that the market could slow at any minute and very quickly. At some point in the next couple of years I’m fairly sure there will be some sort of market correction,” Bolton said.
He said that meant he was being careful about where money was invested in his business. The focus was on being more productive to deal with increased client demand, rather than hiring a lot of new advisers.
He has a team of 45 and said that was about the limit he wanted to expand to at the moment.
“Anything we do, we’ve got to live with if the market corrects. The last thing I ever want to do is let anyone go because the housing market slows down.”
Chance to regroup
Dave Windler said while he was expecting the heat to come off a bit, that would be welcome relief from the intensity of last year.
“It will allow us to work on our focus on quality. We’re looking to take stock and look at our processes and the quality of what we do and improve our service proposition. Hopefully we will have a bit more time to do that,” he said.
He said when it was as busy as it had been last year, it was hard to maintain quality because of the pressure of deadlines and the need to move things through quickly.
“It will be quality not quantity and that will help us feel better about what we do. It’s easy to get transactional in this industry. As a result, we will maintain our volume because when you do a better job, people feel better about the service and are more likely to refer you.”
Interest rates static
Interest rates are still hovering around historic lows and the official cash rate (OCR) seems firmly planted at 2.5%.
John Bolton said he did not expect much movement in interest rates this year. Given international upheaval and low inflation, it was unlikely that they would increase, he said.
“I would have said this is the absolute bottom
" Existing clients are also buying rental properties using the equity in their homes and starting to think about retirement." – KAREN MOONEY
but with what’s been happening over the past four-to-six weeks, with sharemarkets moving into bear territory and oil below US$30 a barrel, lower growth forecast around the world, it could send the OCR even lower. It’s a balance of probability.”
He rated an OCR cut about a 30% chance this year.
Windler said he expected interest rates to finish the year at a similar point to that at which they started. “It is difficult to predict where rates will go so it’s more important now than ever to give advice that is relevant to the client’s circumstances rather than what you are guessing at with the economic circumstances,” Windler said.
“You 100% know the client’s situation but you can only guess at the future economic situation.”
Patten said bank competition was keeping a lid on rates. BNZ and SBS fired the first shots in 2016’s mortgage rate war.
Regions rise
Glen McLeod, of Edge Mortgages, said he expected the loan-to-value restrictions could start putting more pressure on regional New Zealand this year.
In Blenheim, Karen Mooney said things had started to pick up a lot. “There’s certainly a lot of movement in the market and we’re expecting a lot more of that in the coming year,” Mooney said. “The only thing to be mindful of is the turbulence globally.”
A lot of first-home buyers were buying, she said, and people were taking the opportunity to trade up to bigger properties or building new. Lifestyle blocks were also becoming more popular.
“Existing clients are also buying rental properties using the equity in their homes and starting to think about retirement.”
Auckland buyers - “particularly young couples” - were also moving into Blenheim, she said.
She said she had encountered people who were buying a family home in Blenheim and then flying to Auckland weekly for work.
BNZ chief economist Tony Alexander has said he expected the regional parts of New Zealand to easily outperform Auckland this year.
He said some regions could be in for price growth of up to 20% through 2016.
Patten said he was doing a lot of loans for people buying in Tauranga, Hamilton and Whangarei. “They are benefitting from the changes in Auckland. The regions have all been picking up over the last six months”
Real Estate Institute data shows Whangarei City’s median house price was up 17% in December 2015 compared with the same month in 2014.
In Hamilton, the increase was 18.3% and in Tauranga it was 15.8%.
But those high house prices are not always good news for the people living there.
Some brokers said it could mean that firsthome buyers who had found it relatively easy to buy in their hometowns around the country suddenly found they were facing battles that
were more similar to those of Auckland buyers.
McLeod said he was already hearing frustration in places such as Hamilton, Tauranga and Whangarei that house prices were being pushed up out of line with the usual income ratios. “Auckland is in a better position to earn more in theory than some provinces, they are not going to have that same ability. I don’t know if that has been though through fully but we will see more of that this year.”
Rule changes
It is likely that the revised Financial Adviser Act, due for reform this year, will tighten
" We need to get our market share up to 40% or 50%. Moves from a financial legislation point of view are going to help us." – GLEN McLEOD
the requirements on non-authorised financial advisers.
At present, only authorised financial advisers, who are mostly those who deal with investments, have to meet standards for qualifications and ongoing training, offer full disclosure and report on the suitability of their advice for clients.
Becoming authorised is an option for mortgage brokers but most have not taken it up because it is not compulsory and comes with higher associated costs.
But McLeod said it could be a good thing for mortgage brokers if it increased the standards in the industry and gave them a point of difference.
“I get frustrated when I hear things like an ad saying ‘we have more home loan experts than anyone else’ but none of them can give advice.”
If all advisers were required to operate at authorised financial adviser level, it would put the industry in a much stronger position, he said.
“We need to get our market share up to 40%
or 50%,” McLeod said. “Moves from a financial legislation point of view are going to help us.”
Banks would need to rely on brokers more if they wanted to increase their margins, he said, because it was one of the few ways they could cut their operating costs.
McLeod said his firm had hit its January sales target within two weeks. “It’s a little bit more patchy but I’m talking to contacts all the time.”
He was not worried at how many customers he would deal with over the year. “When I’m not busy I pick up the phone and as soon as I pick up the phone, I’m busy again.”
As for Patten, trying in vain for a holiday, he still had his phone diverted to the office through the end of January and was doing his best to switch off. Whether it worked was another question.
“But it’s started off quite quickly, there’s a lot going on. I don’t know if it’s because a lot of people returned to work because of the bad weather but the year is certainly starting off with a hiss and a roar.” ✚
