TMM - The NZ Mortgage Mag Issue 1 2015 by TMM - The NZ Mortgage Mag

Issue

2015

WHAT'S IN STORE FOR ADVISERS?

INTEREST RATES ON HOLD FOR NOW

RESPONSIBLE LENDING WHAT YOU NEED TO KNOW

BANK FIGURES

MORTGAGE LOANS DOMINATE

CONTENTS UPFRONT 04 EDITORIAL

Carpe diem – 2015 looks set to be a positive year for those who knuckle down, work hard, and make the most of opportunities that come their way.

05 NEWS

Bluestone might be back in the NZ mortgage lending space by late 2015 or early 2016, a couple of awards, important dates for your dairy for the first half of 2015, and more...

WHAT'S IN STORE FOR ADVISERS?

Latest appointments.

TMM looks at what advisers can expect in 2015.

features 12 HOUSING COMMENTARY

The property market has started 2015 with a bounce in its step. Susan Edmunds tells us more.

18 SPECIAL REPORT

TMM takes a closer look at Westpac’s new lending app.

24 MY BUSINESS

Phil Campbell chats to Hope Kerr-Bell and takes a closer look at the Tauranga property market.

34 BANK FIGURES

11 PEOPLE ON THE MOVE

TMM takes a look at the extent to which mortgage loans dominate banks’ loan books.

Hope Kerr-Bell

columns 20 PAA NEWS

News about the PAA conference in June, and how advisers can capitalise on waving the “advice flag”.

22 SALES AND MARKETING

Paul Watkins looks at how the internet had changed the face of marketing – and how to make the most of this.

26 INTEREST RATES

ASB’s Chris Tennet-Brown brings you the latest interest rate forecasts and news.

28 BETTER BUSINESS

Read our top tips on how to make your financial year-end less taxing

30 LEGAL

TMM’s resident legal expert Jonathan Flaws looks at what the new responsible lending code means for advisers.

EDITOR’S LETTER

Carpe diem

Make the most of opportunities that come your way.

he residential property market had a tough start to 2014 as the market came to terms with LVRs, but ended on a high note that has buoyed expectations for a positive, growth-filled 2015. Certainly, TMM’s survey of adviser expectations comes down 86% in favour of 2015 improving on 2014. While the positive outlook might vary from boiling hot to a tepid lukewarm depending on who you speak to, and what region they are from, forecasts of a stable OCR and continued strong demand in most regions (especially Auckland) suggest that there’s a lot of potential for 2015. But good fortune seldom lands in one’s lap, dished out by the benevolence of chaotic providence. It is usually prefaced with some, often considerable, preparatory hard work.

" Carpe Diem, or seize the day, is a reminder to make the most of every opportunity that comes your way. To work hard, and play hard. To live life to the fullest and achieve your dreams. " Now is the perfect time to refine your business goals and challenges for the year ahead, and to develop a step-by-step outline of how to achieve the desired outcome. As the popular Lewis Carroll quote reminds us: “If you don’t know where you’re going any road will get you there” – and if you don’t set business goals you’re relying on luck rather than planning to work smarter. Carpe Diem, or seize the day, is a reminder to make the most of every opportunity that comes your way. To work hard, and play hard. To live life to the fullest and achieve your dreams. Identifying your goals and mapping out a detailed plan to achieve them is an important part of the process. To help you do this Paul Watkins takes a look at effective ways to market your business in the internet age (P22), and Jonathan Flaws explains what the responsible lending code means for advisers (P30). We’ve also included tips on how to make your financial year-end less taxing (P28) and how advisers can capitalise on waving that all-important advice flag (P20). There’s also the PAA conference in June (P21) and lots of training and networking opportunities (see P5 for the News section). We hope you’re excited about the opportunities in 2015 and planning to turn them into successes. We certainly are!

Sharon Davis

Editor

PUBLISHER: Philip Macalister EDITOR: Sharon Davis SENIOR WRITER: Susan Edmunds SUB EDITOR: Phil Campbell CONTRIBUTORS: Paul Watkins Chris Tennent-Brown Steve Wright Jonathan Flaws GRAPHIC DESIGN: Jonathan Harding ADVERTISING SALES: Sarah Smith Freephone: 0800 345 675 sarah@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 shaz@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

Adviser rem models under review

emuneration packages for mortgage advisers are likely to change, for the better, this year following Westpac’s move to a trail model and rumours that BNZ will re-enter the broker market. Figures from NZFSG show that mortgage advisers are embracing ANZ, which has extended its incentives on upfront commissions until March and Westpac for its trail model. ASB general manager business banking Ian Boyce told TMM the bank is “reviewing” its remuneration model and was looking to make changes that would enhance the quality and consistency of business it gets through third-party distribution. He said lenders can’t just remunerate advisers on volume and they have to reward for good behaviour. However, any changes have to be sustainable.

ANZ, which isn’t under too much pressure after a strong fourth quarter last year, is “keeping an eye on the competitive environment” head of mortgage adviser distribution, Baden Martin says Pressure is likely to come on the current lenders if BNZ re-enters the adviser market. The bank wouldn’t respond to questions about its plans, however chief executive Anthony Healy confirmed earlier that BNZ was looking building a broker proposition. Market speculation is that it will be launched in April and that it will have some form of trail commission model. Martin says it would be “a substantial change” to the market if BNZ entered it. BNZ is considered to have a strong consumer brand presence and a good suite of lending products. Meanwhile, SBS is also understood to be reviewing its model and remunerating selected advisers with trail commission. ✚

Two banks make training compulsory

estpac is the first of the big banks to make it mandatory for new advisers to complete an appropriate training course as part of its accreditation process and ANZ isn’t far behind. ANZ head of mortgage adviser distribution Baden Martin said it’s always been his intention to make a course compulsory for new advisers who want to get accredited with the bank. However he didn’t want to do so until there was more than one option in the market. The PAA was first to market with its five-day introductory course and now training provider Strategi is to launch a code of conduct course for mortgage advisers. Martin said although the course is offered online and in a classroom environment, new advisers will need to do the classroom version. He said it is important to take this step as customers are getting variable levels of service from advisers. He expects to make this mandatory from March 1. The other big bank in this sector, ASB, hasn’t made a decision to make the course compulsory for new advisers. “We are all for improving standards,” ASB general manager of business banking, Ian Boyce, said. The bank has been involved in discussions. “We haven’t said no to anything.” Boyce said the bank is “very cautious” about accrediting new advisers. ✚

NEWS

Group

increases fees

he country's biggest dealer group, NZFSG, has decided to increase its fees to members to compensate for the ever-increasing cost of delivering its services to advisers. Under its Flat Fee model monthly levies increase from $400 to $500 per adviser, in two steps. The first is a $50 increase in April this year and the second $50 increase will kick in from April 1, next year. Advisers using the group's Hybrid model currently pay $250 a month, per adviser, plus 5% of upfront income with the adviser receiving 100% of trail income and being liable for 100% of any clawbacks. The monthly fee remains unchanged under the new pricing structure but it now includes 5% of all upfront and trail income. Clawbacks will be split 95% adviser 5% group for all settlements from April 1. Loan Market advisers will move to a

franchise agreement, with no change to the current rate card. NZFSG is giving a price guarantee that pricing on all models will remain in place for at least three years from April 1. After that it intends to look at an annual CPI adjustment so that their pricing keeps up with inflation. NZFSG says the current flat fee pricing has been in place since late 2004. “At that time members received manual excel commission statements, a single point of contact across New Zealand and an off-the-shelf CRM without customised home loan tools or any commitment to future enhancements,” NZFSG says. Now it offers MyCRM and has introduced new initiatives such as Fire & General, fully integrated insurance solutions, Mortgage Shield, conferences and training days at no cost, group professional indemnity and health schemes. "Our industry continues to move at a rapid pace, the future will require us to do more than ever, and it’s important that we keep pace to ensure our members continue to deliver the very best service to their clients," NZFSG says in an email to members. NZFSG said it was committed to continue to support members though on-going investment in technology - such as electronic lodgement, training and compliance, a responsive support team, and more. ✚

Awards session returns

ortgage advisers and lenders will be up for awards at this year’s financial planning conference. The Professional Advisers’ Association and the Institute of Financial Advisers have agreed to host a joint conference in June this year. (More details on page 21) PAA chief executive Rod Severn has confirmed that there will be adviser awards for mortgages, insurance and investments as well as awards for companies and business development managers. Mortgage advisers won’t enter the awards themselves. Rather, the association has asked all lenders to submit the names of three top advisers. The nominations will be whittled down by a panel and then final judging will be done. The panel is likely to be made up of

Rod Severn

consultant Barry Read, John Milton and Trevor Slater from the complaints scheme FSCL, plus a number of PAA board members. Mortgage advisers who are members of the PAA will get to vote on the lender and BDM awards. Severn said the plenary speakers had been confirmed for the conference and the associations were still working on putting together sessions and speakers for the breakout sessions. The plan is to run sessions which are generic in nature rather than sessions which address the three types of adviser business: mortgages, investments and insurance. Severn says sessions will cover such topics as health and well-being, business planning, succession, marketing and CRMs. ✚

NEWS

Yet another

new group

eoff Bawden has left co-operative dealer group Prosper to set up a new group. He says the split is amicable and isn’t a sign that Prosper, which he founded in 2006 with Ali Toumadj, has failed. He plans to call the new entity, Q Advice Group. The Q standing for quality. While the mortgage advisers who operate under the Prosper brand are likely to stay with the group, Bawden expects some of the advisers who operate in the non-branded part of Prosper to join him. Bawden says the alliance Prosper formed last year with real estate firm Re-Max is part of the

Geoff Bawden

reason for the split. His new group will take over that alliance, which operates as NZ Property Finance, and will fulfil the “ideals of Remax”. “The ideals are that individuals within the business can grow their own businesses within the greater entity.” Bawden says Q Advice Group will be “tighter” than Prosper and will look to have alliances with firms to provide its members with appropriate services. One of the first alliances will be with Strategi. Prosper is a co-operative with branded firms which all own equal stakes in the company. ✚

NZ Home Loans on a

winning streak

amilton-based NZ Home Loans has not only won the Professional Services Business of the Year Award for the second consecutive year, but its chairman Neil Richardson also took the Leader of the Year award. The awards were handed out at the Westpac Waikato Business Excellence Awards. This is also the second consecutive year the company won this award, with CEO Mark Collins winning the previous year. The leader award is given to a business person who demonstrates exemplary leadership. Last year, with record loans of $1.3 billion and the addition of 10 new franchises taking its nationwide network to 77 branches, proved a great year. “Winning these awards is a great testament to the NZ Home Loan team both at head office and the 77 franchises around New Zealand, and also our clients as about 80% of our new clients come from recommendations from existing clients,” Collins said. “Their endorsement helps to drive our growth, allowing us to focus on delivering the great service we are known for. Key for us is recruiting new consultants to help support the growth.” ✚

NEWS

New code of conduct

course coming

trategi has developed a new code of conduct course for advisers who distribute home loans, based on Westpac’s new code of conduct which was introduced with its trail commission model. Managing director David Greenslade said Strategi had circulated the course around other lenders and key industry groups to get their feedback before it went live. He said the course was an easy-tounderstand consideration of what was acceptable behaviour and what was unacceptable, with regard to the code of conduct principles. It was aligned with the Code of Professional Conduct that authorised financial advisers must adhere to. “We’ve also made sure it adheres to the principles outlined by the professional associations.” It will cover the advisers’ requirement

to put clients first, act with integrity and meet knowledge, competency and skill requirements as well as any other reasonable competency criteria required by lenders or the professional associations. He said it made it clear that the lenders were making industry groups responsible for mortgage advisers, not expecting the lender to do that. Greenslade said the course could be done as part of the new mortgage adviser course, which would mean a couple of hours dedicated to the conduct component. If it was done online, it would take about an hour. The Financial Markets Authority says compulsory codes for all advisers were a good idea but it wasn’t something it will push. It is pleased that professional bodies are taking it upon themselves to impose codes on members. ✚

Bruce Patten

Shield give insurance

protection

ZFSG is planning to generate around 10% of its life insurance annual premium income this year through its Mortgage Shield service used mainly by mortgage advisers. Mortgage Shield started in the middle of last year and is a model developed with OnePath that allows advisers to offer life insurance on a nonadvice basis. Advisers who use it take their clients through a basic questionnaire then OnePath does the underwriting and might refer the business to other advisers. NZFSG director Bruce Patten says the model is exactly the same as that which banks use with their mobile mortgage managers. Mortgage Shield has three levels: gold, silver and bronze. Gold includes life insurance, mortgage repayment and trauma cover; silver is life and trauma cover and bronze just life cover. Patten says group members can use the non-advice Mortgage Shield option to provide life insurance cover to clients or they can do the insurance part themselves. They can’t pick and choose and cherry-pick which clients they put into either model. He says the beauty of the Mortgage Shield process is that it introduces mortgage advisers to life insurance. After they get comfortable with it and learn more about life insurance they may “take the next step” and do it themselves, therefore offering more advice to their customers. Patten says 30 to 40 advisers use Mortgage Shield but he expects that number to grow as more advisers gain accreditation with OnePath. Mortgage Shield is embedded within NZFSG’s MyCRM and is an exclusive arrangement with OnePath. Advisers using the full advice model get access to all life company products through MyCRM. ✚

Bluestone looks to

resume lending in NZ

on-bank mortgage lender Bluestone Group, which traditionally focused on non-conforming lenders, has plans to resume lending in New Zealand by late 2015 or early 2016, depending on funding and progress and improving its Australian lending business. Bluestone’s Australian lending business resumed operations in May, 2013 after securing funding from Macquarie Bank, and has recently agreed terms for a second facility with a bank in Australia – which includes the possibility of expanding into the New Zealand market. “Looking at our road map for New Zealand, mortgages are at the top of that list,” Asia Pacific group chief executive, Campbell Smyth, says. But the company needs warehouse funding and to team up with a bank in New Zealand to offer that. He anticipates Bluestone will return to the New Zealand market late in 2015 or early 2016, but this will be “depend on that funding and getting the Australian business up to speed.” The group, now head-quartered in Cambridge, UK, has also broadened its focus from loan origination to encompass debt collection and loan servicing. It has 25 employees in its head office in Cambridge, and a further 120 staff based in Sheffield working in the collections side of the business, in addition to 60 people in the Australian office and 18 based in Milan, Italy. In 2014 Lloyds Development Capital, the private equity arm of Lloyds Bank, bought 53% of the business. ✚

Speed bumps earn

award

he Reserve Bank’s efforts to reign in the housing market and maintain financial stability have seen it named the Central Bank of the Year. The award was made by UK-based Central Banking Publications. It said the RBNZ was the "stand-out central bank" of 2014 "after successfully using its macro-prudential powers to cool New Zealand's housing market, while becoming the first advanced economy central bank to raise interest rates in the current cycle." This is the second year the publishers have made the award, with The People’s Bank of China winning the inaugural award last year. ✚

NEWS

Investors set to

be bigger force

roperty investors are expected to be far more active participants in the real estate market this year and would make good clients for mortgage advisers. ASB general manager business banking, Ian Boyce, predicts that the investment market will make up a bigger proportion of the bank’s lending this year, especially as first home buyers are being priced out of the market. Likewise Westpac has been gearing up to tackle this market. Last year it launched some online property investment calculators and it also reviewed its lending policies in this area. A recent survey of landlords conducted by the NZ Property Investor Magazine, confirmed investors are pretty upbeat, although cautious about some of the potential speed bumps that lie ahead in the next 12 months. On their list of things that may slow down their investing are rising interest rates and more government regulation such as the introduction of a Warrant of Fitness scheme for rentals. “One thing clear about property investors is

that despite some of the rhetoric which is put into the media, the investor generally takes a long term, buy and hold strategy,” NZ Property Investor Magazine editor Vicki Holder says. “You’ll more likely find landlords buying houses than selling them.” Investors love talking about yield and using it as a guide for how well a property may stack up as an investment. “It’s clear most investors are looking for a yield in the 5% to 8% range, which makes sense considering bank term deposit rates around 4% to 5% at the moment.” This year’s survey showed that there has been an increase in the number of people who are looking for substantially higher yields, especially when it is 10% or above. One of the big issues for Auckland property investors is that it has become harder to find properties with acceptable yields in the city, so they are looking elsewhere. “There are a number of investors in Auckland that expect capital growth with the huge migration driven population explosion in our

Diary of events

➌PAA Meet and Greet

An opportunity to meet with PAA chief executive Rod Severn and voice your opinions.

Feb 18 - Tauranga.

More info email nicole.paris@paa.co.nz or call 09 600 5174

May 4 – 8, Auckland. June 15 – 19, Auckland. June 22 – 26, Christchurch. For more info email: nicole.paris@paa.co.nz or call 09 600 5174

Lending for New Advisers ➊Mortgage

nation's economic hub,” FUZO Property head of strategy David Whitburn says. He says Auckland is projected to account for well over 50% of New Zealand's total population growth and it is widely seen by investors as a very safe bet to bank on capital growth. “Therefore, the yields for many are less relevant.” To compensate for lack of perceived growth, many investors are seeking higher yields including the over 10% yields on offer in the Bay of Plenty, Waikato, Hawkes Bay, Southland, Northland areas. Investors agree that there are different strategies for different areas. With house prices in Auckland moving into the “unaffordable” category, people are looking to areas like Hamilton. “Auckland properties are over-priced and from a yield point of view are reliant on capital gain. One is better off looking at Hamilton, Napier, Rotorua and Whangarei,” one investor says. Another investor says: “I live in Auckland, but all my buy and holds are in the Hamilton/ Waikato as 8% gross yield is much easier to achieve in that region.” Another says: “Yields are out of step with achievable sale prices. For example, I bought a unit in Milford in 1996 for $275,000. QV now says it is worth $1.025 million. It is one of two. My neighbour marketed at auction in December and rejected $1.1 million. Rent on my site is $520 a week gross. After-tax that is around 1.4% return on the property’s current market value.” ✚

➋Link-UP 2015

This course replaces the PAA’s previous two-day Basics of Mortgage Lending course, is national certificate aligned and assessed, and includes three days' mortgage stream training and one day each of business and specialist lending, and business development management. Advisers can attain the Mortgage Advice Strand of the national certificate during the five-day course.

NZFSG is holding the first of its regional conferences in February. This year’s conference, LINK-UP 2015 - Your Group, Leverage the Opportunities, will again take place in the three main centres.

Feb 9 – 13, Auckland. Feb 16 – 20, Christchurch. March 23 – 27, Auckland.

For more information contact Adviser Services. Email info@nzfsg.co.nz or freecall (0508) 87 87 88

February 10 – Christchurch February 11 - Christchurch February 12 – Auckland.

Regional Meeting ➍Auckland April 16 - Auckland.

More info email nicole.paris@paa.co.nz or call 09 600 5174

Advisers’ Conference ➎National

The PAA and the Institute of Financial Advisers are combining to hold a joint adviser conference this year. The programme has yet to be finalised, but there will be eight keynote sessions and 20 practical workshops with CPD credits.

June 11 , 12 - Auckland

More info email nicole.paris@paa.co.nz or call 09 600 5174

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

Avanti grows its lending team

Two for Loan Market team

Sue Chamberlain has joined Avanti Finance’s Auckland lending team. She has 30 years experience in the banking and finance industry with a focus on mortgage secured lending with both main bank and non-bank lenders including being a branch manager for ASB, department head of settlements and administrationi for AMS/GE Money mortgages and senior operation executive of Calibre Financial Services. “Sue has been a great adviser advocate in her previous roles and is once again eagerly looking forward to working with the adviser community,” the company says.

New marketing manager at Lifetime

Sophie Harbidge has joined Lifetime in a new role of marketing manager as the group kicks into the next phase of strategic growth. “Having identified organic business growth across our four functional divisions of risk, general insurance, home loans, and wealth management, this role will be integral to achieving this,” Lifetime Group managing director Warren Stephens says. Digital marketing is one of her specialties. Her most recent role was with JP Morgan in the UK.

Jay Ren has joined the growing migrant Loan Market team in Auckland. Based in Pakuranga, he brings experience and many contacts from a long and successful career at ASB and BNZ. Julie Scott joins the Loan Market business in the deep south. Having come out of the recently-closed Westpac branch in Milton, Scott will service the south Otago region and with the support of the Dunedin team along with accessing the strong Ray White relationship in the region.

NZFSG adds three to team Sue-Anne Leitch

New franchise for NZ Home Loans

The New Year opens with another new New Zealand Home Loans franchise, bringing to 77 the number of franchises nationwide. Sue-Anne Leitch is the new owner of the aptly named Capital City office based in Wellington. Leitch joined the NZ Home Loans in 2011 and won numerous incentives and accolades as a consultant.

New Zealand Financial Services Group has appointed Adele Brown to its adviser services team and is based at the national office. The group has also created new training and development manager role which is being filled by Karen Lewis. She will provide the group’s Auckland members with much needed business support and will initially focus on MyCRM training on a part-time basis. Tessa Cate is now the executive assistant to chief executive Brendon Smith. This, too, is a newly-created position. Cate will be responsible for supporting Smith to enable him to focus on other areas of the business. ✚

HOUSING COMMENTARY By Susan Edmunds

Housing bounce provides impetus for 2015 A late year boost in national housing sales has not necessarily translated to better prices, writes Susan Edmunds.

ew Zealand’s housing market ended 2014 with a big lift in sales, which surprised commentators, and the market is starting 2015 with a pogo stick-sized spring in its step. Real Estate Institute (REINZ) statistics showed that despite being the shortest selling month of the year, in December last year there were 7064 dwelling sales nationwide, up almost 25%

012

on December 2013, and up 4.6% compared with November, on a seasonally-adjusted basis. REINZ chief executive Helen O’Sullivan said the number of sales was much higher than normal for December and had come as a shock to her. “Volume was surprisingly strong, when you take into account all the big auction houses stopped auctions. With the way the dates fell there were really only three trading weeks

in December, but it was the second-biggest December ever recorded,” O'Sullivan said. NZIER economist Shaumbeel Eaqub was also surprised by the lift, saying: “There was a massive surge.” O’Sullivan and Eaqub said the late flourish could partly have been due to pent-up demand from earlier in the year finally filtering through in December. The market seemed to

“Interest rates are going to be lower for longer, which obviously helps. People I talk to are positive, things are going well out there.” Andrew Bruce go on hold around the election, there were fewer listings in October and fewer sales than expected in November. December could have been the month that things caught up but the extent of the bounce was still a surprise. The national median price reported by REINZ was $450,000, up 5.4% on the same month in 2013, but O’Sullivan said the price movement was not as impressive as the lift in volume. She said common property market rehtoric had been that price inflation was driven by volume – when volume surged, prices would too.

Low price inflation But December had shown that not to be the case. Despite a big lift in sales, prices were only up by just over 1% compared with November. O’Sullivan said that would be a positive trend if it took hold and turnover remained strong through 2015 without putting substantial pressure on prices. “The current rate of house price inflation isn’t really delightful for anyone,” she said. Auckland recorded the largest percentage increase in median price compared with December 2013, with a 13% lift, followed by Wellington with a 3.8% increase and Waikato/ Bay of Plenty with a 2.7% increase. Compared to November, Auckland recorded the largest percentage increase in median price, up 1.2%, followed by Taranaki with a 0.6% increase. Quotable Value also reported slowing price inflation over 2014. It said the nationwide average residential property value increased 4.9% over the year, to $488,674 in December. At the beginning of 2014, QV had reported prices rising at an annual rate of 10%. QV said the nationwide average property value lifted 1.5% over the final three months of 2014 and nationwide values overall were 17.9% higher than the previous market peak reached in late 2007. Auckland’s values increased 9.8% from an average $693,549 in December 2013 to $761,858 in December 2014. They are now more than a third higher than they were in 2007. The December bounce was good news for Auckland’s biggest real estate agency, too. Barfoot and Thompson said turnover was up significantly, prices were at all-time highs and the number of available listings dropped significantly. Managing director Peter Thompson said December was the busiest month in the past

10 years. Even though it is the shortest selling month of the year, 1050 properties were sold – the agency’s fourth highest monthly total for 2014. There were 28.5% more sales last month than in the same month in 2013. The average sales price in December 2014 was $758,891, $1982 higher than November’s average price. The median price increased to $720,000, which was $28,500 or 4.1% higher than November’s, and the first time the median price has moved above $700,000. “At the same time the number of properties on our books at the end of December was 2500, our lowest number for any month end in the past 10 years,” said Thompson. “For us, this represents less than two months’ stock, and indicates that in the first quarter of this year, buyer choice will remain severely limited.”

REINZ SALES: UP

REINZ reported its second -busiest December on record.

INTEREST RATES: UP

Interest rates have dropped since the start of the year, fuelling price rises.

Positive outlook for 2015 O’Sullivan said the outlook for 2015 was positive, although an increase in supply could lead to moderation in house price increases. The drivers that are holding up prices in Auckland do not look set to change any time soon – such as strong migration and low interest rates. “Barring external shocks, the fundamentals look strong.” APIA president Andrew Bruce agreed things were looking good for the coming 12 months. “Interest rates are going to be lower for longer, which obviously helps. People I talk to are positive, things are going well out there.” NIZER economist Shaumbeel Eaqub said it was hard to tell whether the start of 2015 would be as strong as the end of 2014. “I’m in two minds about this year, in part because even though all the stories of late last year were positive for the economy, a lot of the stories since December are starting to sound a bit weaker. In the global economy there’s been a pullback on copper and oil prices which speaks to weakened global demand,” said Eaqub. “Domestically, there are issues of sharply falling dairy prices and a possible drought and increasing signs that Canterbury’s housing issue is reaching its peak and rental inflation is starting to slow, as is house price inflation. The supply pressures will start to fade and probably turn negative this year as supply starts to exceed demand.” But he said there was a lot of uncertainty around Auckland. That market was not only being driven by such forces as migration and interest rates, he said, but by investor confidence and speculation. O’Sullivan said the key for investors was finding a property that made financial sense. “It’s got to stack up on the numbers, that’s a hard thing for investors at the moment because of the price pressure.” REINZ agents had reported seeing investors from Auckland in Northland, Hamilton and Gisborne, looking for properties that would offer better yields than those in Auckland. “Rents have not moved at anything like the rate prices have so yields are frustratingly low for investors.” Bruce agreed. “I don’t see the point of going out and buying something and calling it an investment if it’s losing thousands of dollars every year.” ✚

OCR: UP

An OCR lift is not expected until next year.

IMMIGRATION: UP

Migration remains strong.

BUILDING CONSENTS: NEUTRAL Building consent rates are improving.

MORTGAGE APPROVALS: NEUTRAL

Mortgage approvals are still down on where they were a year before but only 1.7%, compared with almost 15% in 2014.

RENTS: NEUTRAL

Rents have not kept pace with house prices but many landlords are considering increases this year.

013

WHAT'S IN STORE FOR ADVISERS? At least 86% of mortgage advisers expect 2015 to exceed 2014, writes TMM editor Sharon Davis.

ower than expected interest rates, an economy with reasonable growth prospects, and a keen interest in the local property market indicate largely favourable conditions to continue into 2015. The doom and gloom that pervaded the industry following the introduction of LVRs is largely a thing of the past. There’s a positive post-election blush in the market with peak immigration arrivals helping to drive demand – albeit unevenly across the regions. Westpac’s re-introduction of trail commission and focus on working with advisers as partners has generated much industry excitement, and is likely to prove to be a game changer for mortgage advisers. They’re also the first major bank in New Zealand to introduce digital

014

lodgement and substantially reduced loan approval times, which is a potential big plus for advisers. (See P18 for more details about Westpac’s new app). Regardless of regional discrepancies, optimism seems to be the key word for 2015. TMM’s survey of New Zealand-based mortgage advisers showed that the majority view 2015 favourably as a year with potential with a consensus showing a generally a more positive vibe in the market place. Eighty per cent of mortgage advisers from around the country who responded to our survey said they were optimistic about the New Year and expected a rewarding year ahead. About 14% were neutral for 2015 – not wildly optimistic but not pessimistic, either – with just under 6% were pessimistic and expected 2015 to be a tough year. An overwhelming majority (86%) of

mortgage advisers expect 2015 to better than 2014. Some of the reasons advisers felt 2015 would not be as good as last year include: → “Bonus commission payment this year has meant that turnover is up, but with introduction of trail, turnover will drop back. However long term the benefits of trail will well and truly off set this.” – Bruce Patten. → “LVR restrictions – our client base are first home buyers with low deposits – combined with general market conditions in Wellington.” – Anonymous Adviser. While some of the reasons advisers believe 2015 will exceed 2014 include: → “The lead into Christmas has been phenomenal and that normally just spills through to Christmas and sets up a good year.” – Stuart Matheson.

→ “The Auckland market is stronger than in 2014, and there’s more innovation coming from our lenders. Westpac, for example, has created straight-through processing that gives us approval in minutes.” – John Bolton. → “There’s keen interest in the local property market with lenders easing policy.” – Stuart Pope. → “Simply because of the effect of the LVR restrictions and I feel that buyers have only just picked up again after the election. I'm confident that we could see strong house sales throughout most of 2015, unless the Reserve Bank fiddles with things again!” – Jac Lockington. → “More growth in the residential sector, due to increased immigration.” – Tony Champion. → “Auckland housing market will continue in the same vein. Lenders and advisers working together to form better partnerships.” – David Windler. → “I’m looking to take steps in my business that will grow our market share.” – Paul Fuller. → “The property market is hot. Interest rates are low. Net inward migration is high. Auckland infrastructure growth is awesome. First home buyers and investor inquiries are high.” – Sandeep Khurana.

Region specific Responses from advisers varied around the country with Wellington-based advisers tending to be a bit more cautious and pragmatic. Jason Hurdle summed it up with: “It has been tough year for the Wellington region so need to expect something similar for 2015, if things pick up in this region then that's a bonus.” Nevertheless, advisers on the whole expect 2015 to be better than 2014, hoping that with the elections out the way there might be some growth in the Wellington market. Most Christchurch respondents had an optimistic outlook, largely summarised by Steve Walsh in his response: “The Christchurch rebuild is gaining momentum, the local property market is active, and interest rates are not likely to increase as much as previously anticipated. Eventually LVR restrictions will have to be eased too.” A surprising number of advisers were negative about the Auckland region, particularly among those who traditionally focused on lowequity first home buyers.

❝ Bonus comm-

ission payment this year has meant that turnover is up, but with introduction of trail, turnover will drop back. However long term the benefits of trail will well and truly off set this. ❞ -Bruce Patten-

❝ The property

But the majority in the greater Auckland area felt that the positive outlook for the New Zealand economy, as many people wanted to realise their recent increase in equity, meant that a lot of people would be tempted to upgrade their owner-occupied properties or would be looking to renovate to increase equity or even thinking of leveraging to purchase an investment property. Strong immigration was also expected to fuel demand in Auckland. Auckland-based adviser Kris Pedersen had a slightly more cautious approach and put it this way: “I believe the first half of the year is likely to be busy as lower than expected interest rates and high migration continue to create strong interest, in the Auckland property market in particular. At some stage though the RBNZ is likely to bring out another tool and this could cause confusion similar to the six months following the LVR rule introduction, where the market adjusts.”

Challenges in 2015 Advisers were asked to rate the major challenges they expected to deal with this year. LVRs came in as the top concern, with 61% of advisers expecting LVRs would remain a major challenge. This was followed by a churn created by cash back and other bank incentives, a concern for nearly 45% of advisers, followed by industry regulations and the responsible lending code as a concern for just over a third of advisers. The anticipated new property investor rules, and OCR and interest rates, were a cause of concern for respectively nearly 17% and 14% of advisers. Other concerns raised by advisers included: → A very competitive market with cash incentives from banks promoting transactional brokering that is driven more by price and short-term incentives and less by longer-term value and the client’s best interests. → Lack of profile for the mortgage adviser industry with more clients going the DIY route online or dealing direct with their bank. → Not having all the major banks on

016

market is hot. Interest rates are low. Net inward migration is high. Auckland infrastructure growth is awesome. First home buyer and investor enquiries are high. ❞ -Sandeep Khuranaadvisers’ lending panels. → Lenders reaching their limits for over 80% lending, where applicable.

New Year strategies Just over 41% of participating mortgage advisers were happy with the way their business was running – they believed their strategies were working and planned to do more of the same in the year ahead. Just under a quarter of advisers planned to diversify into new markets or products, while just over 8% planned to specialise in niche markets to increase turnover. Those looking to diversify into new products for 2015 had plans to include some or all of the following: General and risk insurance, KiwiSaver, Welcome Home Loans, asset and vehicle finance, and educating existing home owners about wealth creation. A number of advisers said they intended to invest in additional staff with plans to build value via trail commission, while others planned to increase referral insurance referral income and to work more actively with their customer database and referrers. One adviser planned to find work outside the industry to supplement their income. Interestingly, of the advisers who took part in the survey, more than 90% dealt with nonbank lenders, 78% offered Welcome Home Loans and just under a third (31.25%) offered reverse mortgages as part of their range of services – with reverse mortgages being an option that more advisers could explore.

AN ECONOMIST'S PERSPECTIVE Auckland's rising house prices along with any shock in the slowing international economy poses risks to the New Zealand economy. The threat to a relatively small domestic is very real.

he economic outlook for New Zealand in 2015 was “very positive", a principal economist at the New Zealand Institute of Economic Research says. "We exited 2014 with the economy growing at around three-and-a-but per cent, partly due to factors like the Canterbury rebuild, but also due an underlying recovery that has been building up,” Shamubeel Eaqub says.”A lot of that will continue into 2015." He says the peak in the repair work is expected around mid-2015 and a lot has changed for the dairy industry, which had its best season in 2014. "This year is the exact opposite,” Eaqub says. “Most dairy farmers will run at a loss. But there is an underlying domestic recovery – a return to normal after the recession. We're seeing an increase in jobs and an increase in wages." Although the recovery in not as spectacular as some recession rebounds in the past, Eaqub says: "The economic recovery is finally starting to feel real", adding that it will be unevenly spread. "About 80 per cent of new jobs are in Auckland and focused on high-tech jobs – so not everyone will participate evenly in the recovery."

Inflationary pressures Eaqub does not expect a change in interest rates this year. "The surprising thing," he says,"is that

❝ The RBNZ will

do nothing with the OCR this year. What is going to worry the Reserve Bank is the housing prices in Auckland. ❞ -Shamubeel Eaqub-

a shock to the economy – any kind of shock – the risks to New Zealand's economy are very real, as evidenced by events in the US, UK and parts of Ireland." The second risk comes from the international economy. Eaqub says New Zealand has a relatively small domestic market and the local economy is directly affected by the international economy which is currently slowing. The drop in the petrol prices and the drop in dairy prices is directly linked to that. "Global growth is not as strong as a few years ago, and any down turn in the international economy is a risk to our tourism, and a risk to our exports," Eaqub says.

2015 predictions despite the economy getting better we haven't seen any inflationary pressures outside of the housing market. Inflation is low and there are few catalysts for interest rate activity any time soon." But the housing market is likely to continue to be a cause of concern for the RBNZ. Eaqub says the Auckland housing market is one of two main risks to the NZ economy at the moment. "There was a massive surge in house sales in December with a strong rebound in the Auckland housing market." Auckland's high house prices pose a risk to the economy, Eaqub says. "Prices are very high relative to income and to rent. If there is

When asked to predict interest rate movements, Eaqub says: "The RBNZ will do nothing with the OCR this year. What is going to worry the Reserve Bank is the housing prices in Auckland," but Eaqub expects that they will explore other avenues and other financial tools such as LVRs, a tighter focus on the property investor segment of the market, or restricting how much credit flows through the economy. Being complex issues, he expects that the RBNZ will consider the matters carefully and take their time to respond. As for house prices, he says there is a lot of demand for housing which will push prices up, but adds that "the regional divide is very intense." ✚

017

WESTPAC // SPECIAL REPORT

Westpac’s

responsive new lending app could change the way advisers work Real time application processing gives conditional loan application responses in as little as 90 seconds.

estpac is the first

major bank to introduce a lending app for mortgage advisers in New Zealand. Developed in response to adviser requests for faster responses to loan applications, the new app offers digital processing of a mortgage loan application, and much faster response times with approvals within 90 seconds, allowing advisers to give their customers an answer on the spot. The bank estimates that 65% of new loan applications submitted using the app would get conditional approval within 90 seconds. Given its ease of use and game changing response times the app has the potential to change the way advisers work with thirdparty lenders.

Easy to use Using the app is simple. Advisers log into the app, create a new customer record, complete the application form from a mobile device while with the client or on the computer back at the office, and submit, or save for processing later. Advisers can collaborate with their

018

personal assistants to access customer records and complete applications. The app allows you capture and submit supporting documents, add notes about the customer directly to their loan application, and send an online form to customer to fill in personal details. It also includes a loan affordability calculator to estimate how much a customer can borrow and the repayments they can afford to make. Bruce Patten from Loan Market has been using the app for about three months, since Westpac slowly introduced it to the market (in addition to some user-testing when it was in development stage). The faster turn-around times for loan approvals is the major advantage of the app with responses within minutes, or longer, "depending on whether it is auto approved or referred to credit.” He says the only drawback is that it isn’t integrated with Loan Market’s CRM. “But we’re working on that,” Patten says. “It’s a great start to what will become full electronic lodgement, which will reduce work for the banks making to quicker and more beneficial for everyone.”

❝ The app is fantastic –

it’s a bit of a game changer! While the introduction of trail commission has got most of the attention, Westpac is trying, and overall doing, a good job at improving their service levels. ❞ -Kris PedersenCollaborative effort The development of Westpac’s mortgage adviser lending app was very much a collaborative effort in consultation with advisers. A group of advisers piloted the app in February last year, putting it to the test and providing feedback to ensure that it was developed with optimum usability for advisers in mind. The app was launched in beta in November 2014 to the group of advisers who took part in the pilot study and extended to a total of about 70 advisers, which allowed Westpac to test the product and iron out any issues before making the app available to all Westpac approved advisers. Kylie Kneale Westpac’s director of thirdparty banking says, “We are committed to being faster and more responsive. We want seasonal fluctuations in loan processing times to become a thing of the past. Our Westpac mortgage operations team will be able to focus on quality assessments and conditions rather than re-keying the 55 different email PDF’s that they do now. “We believe in customer-led design so it was important for us to have advisers shape the app in a way that made it easy for them to work with Westpac and enhance a customer’s experience.”

Rave reviews The app has had positive reviews from advisers who have used it. Auckland-based Kris Pedersen from Pedersen Mortgages says: “The app is fantastic – it’s a bit of a game changer! While the introduction of trail commission has got most of the attention, Westpac is trying, and overall doing, a good job at improving their service levels.” Corrie Hughes, personal assistant to Loan Market adviser Nick Kotze, has been using the app since November last year, and was also part of the initial trial. She says: “The main benefit of the app is that is able to give an

- Kris Pedersen initial approval notification based purely on the numbers as soon as we’ve entered the information. This is great for squeaky-clean client who you know will have no trouble being approved. It’s a good feeling being able to give clients that early positive feedback upon submission. “When it comes to applications that only need to be submitted to Westpac it is simpler and quicker that the normal CRM process. Also the turnaround time from Westpac for deals submitted via the new app is quicker than the standard process. With the app being able to give you a quick conditional approval on the spot at the initial meeting – this helps to get buy in from the client.” Hughes says the only drawback is that applications that need to be submitted to more than one bank have to be entered twice – once into the app for Westpac and then through CRM as is normal of any other lender.

Future development The next step in the app’s development will iron out the only current niggle for advisers – and will incorporate integration with popular CRMs. "CRM integration is our next priority in creating a seamless experience - and development is well underway. Our mortgage adviser lending app sets the platform for many exciting developments to come," says Kneale. ✚

❝ We believe in

customer-led design so it was important for us to have advisers shape the app in a way that made it easy for them to work with Westpac and enhance a customer’s experience. ❞ -Kylie Kneale019

PAA LEGAL By Karen Tatterson, PAA board member

Wave the advice flag Advisers need to start getting the word out that advise is a smart options, says Karen Tatterson.

❝ Good mortgage advice adds immense value. Let’s make sure everyone knows it. ❞

o the banks are back at the price wars; home buyers are relentlessly pursued to purchase with promised gadgets and giveaways; OCR announcements will approach, cause a flurry and then pass… If you’ve been in the mortgage industry long enough, you’ll be used to the impact of bank campaigns and economic announcements. The commercial environment we operate in will be what it is; the only thing that remains a constant is you and what you do in your business. It goes without saying that I’m passionate about what we do. I just can’t see the downside of getting good advice that comes with years of on-the-job experience, knowledge and perhaps, most importantly, an advocate who jumps through whatever hoops necessary to get the best solution for someone’s individual needs.

020

But then, I know what we do. I see the benefit on a daily basis. One of the biggest challenges for our industry is getting the word out that advice is a smart option to a greater number of people in the property market. At around 20 per cent of all home loan activity, a huge number of Kiwis could benefit from the advice experience and are not. So how do we change that? How do we eke every opportunity out of the business day to generate an opportunity for someone to tell the advice story? There’s never a quick fix for this kind of challenge. But aside from activities undertaken by associations, like the PAA, we can all make a significant difference to putting the advice story in lights. Collectively, we are a huge promotional force. Looking at the bigger picture, good advice makes a huge difference to lives. I’m not

just talking about the confidence that the mortgage is fit and healthy; it’s about the ripple effect of good decisions across all facets of life. Too lofty? I don’t think so. Advisers who have put the hard yards in, professionals who have committed the time and resource to be excellent at what they do, can tell a story that is much richer than simply negotiating rate. Take a moment to consider the broader implications of the advice you give. Bricks and mortar are just the start and this year is the perfect time to start telling that story. Who have you helped and how? How are you telling your story? How does the experience of working with you drive people to give you a gold star and retell their personal benefits of advice? Are you giving your clients the opportunity to be your advocate and an advocate for advice? Good mortgage advice adds immense value. Let’s make sure everyone knows it. ✚

SALES & MARKETING LEGAL By Paul Watkins

May the force of the Internet be with you The internet is pervasive, invasive and persuasive. It has changed consumer habits and the social mores, as Paul Watkins explains.

ou will have heard that if you put a frog in cold water and then heat it slowly, the frog will not notice the temperature change until it is too late. Then it boils to death! This is similar to what has happened to marketing. The internet has changed marketing forever and most havenâ&#x20AC;&#x2122;t noticed it. I will take you through some of the biggest impacts the Internet has had and therefore how it will have effected you as a mortgage broker. The first is that the consumer can now selfeducate. There is almost no question you can ask for which someone on the internet doesnâ&#x20AC;&#x2122;t have an answer, or at the very least a strong and influencing opinion. Most bricks and mortar retail workers will tell you that huge numbers of customers come in with their research already done on brands, prices and models. My GP told me that good numbers of her patients come into her surgery with a printout from the Internet, having self-diagnosed! This can be extremely frustrating but will only become more common, so you need to develop strategies to make it work to your advantage. Ideas include running a blog,

022

posting your newsletter articles and otherwise filling your website with items to educate the prospect who is searching the Internet. This way you are more likely to be found and seen as an authority.

Always accessible The internet has one feature that no other media has ever achieved: It is always on and always accessible. Newspapers are read once and discarded, radio is just a memory 30 seconds after the commercial plays and TV, with its plethora of channels, is losing the audience battle to computer screens. The internet on the other hand is available 24/7 through screens and devices of many sizes. Mobile devices such as phones and tablets now account for 60% of all Internet searches. This leads to what is called consumer initiated interaction. In the past you advertised and when the consumer saw the advert they made contact. But now the internet means that the consumer initiates searches for providers, generally ignoring traditional advertising and makes contact in their own time to their chosen researched provider. This is the fundamental difference between the internet and all other forms of promotional media. And it means that a great content-rich, educational based website is now a must. On a similar basis, consumers want much more personalised results. A one-size-fits-all product is no longer an option. Consumers expect tailored results to their problem. Dell computers are a classic example. There is no such thing as a standard Dell computer. You pick your own RAM, hard drive, processor speed, screen size and accessories. This is what consumers want and demand now. Your message has to be that you will personalise the solution. Never advertise “best rates” or similar as this implies that you only have a single option availability. This impact is to your advantage as it exposes your competitive advantage, namely your ability to search out lenders and lending conditions specific to the client. And when they have the loan, you can offer advice on managing debt specific to their personal circumstances. This is what brokers do and should be the basis of your marketing message. It’s what client wants to see.

Consumer choice The next impact is brand accountability. Consumers now have a megaphone called social media. Love or hate Facebook, LinkedIn, Twitter and the plethora of review sites, but they are massively influential in consumer choice of products and services. Consider TripAdviser.com,

❝ You will have

heard many times how happy customers tell three friends while unhappy customers tell 11. The internet just added a few zeros to these numbers. Having your service referable is now critical .❞ which is regularly credited with killing businesses through bad reviews. Or Pricespy.co.nz which allows you to compare the prices of electronic items. This site, along with similar ones, has had a huge impact on driving down prices and therefore margins for retailers. The bottom line is to make sure your clients are happy. You will have heard many times how happy customers tell three friends while unhappy customers tell 11. The internet just added a few zeros to these numbers. Having your service referable is now critical. On a positive note, the internet now means that your paid promotional efforts can be extremely targeted. For example, Facebook allows your ads to only appear on the pages of those between 30 and 40 who live in Taihape and like fishing! It can be that specific. The list of impacts continues with the very high need for cross-channel activity. If a consumer sees your advertisement in the press or hears you on the radio, their first act is nearly always to find your website. It should carry a consistent message to your advertising, as should your Facebook page [if you have one] and your LinkedIn profile. This leads to the next and probably most terrifying impact – your privacy, or lack of it. People love gossip and dirt about others. It’s why the media carry such negative stories.

Negative headlines sell newspapers. So what is hiding on the internet about you? Google yourself. Find every item you can about yourself. You may be stunned at what you find. And if some of it is negative from a previous life then while it is impossible to have it removed, you can enhance the good stuff. Make your website more searchable through good content and have your LinkedIn profile up to date and reading well. A lot of prospects will search for you as the individual and not just your brokerage!

Promotional message Nimbleness is a trait of the best companies worldwide. This internet impact means that what worked last year almost certainly won’t work this year in exactly the same format. Consumer preferences change, economic conditions change, lenders change, channels change, market conditions change and for brokers, the commission structure can change. You must react to these changes by changing your promotional message or your target markets. Such changes are occurring at an increased pace, so keep up with these and keep asking yourself, what should I change in light of these? The last and most obvious impact is information overload. There are estimated to be over 70 billion live websites in the world and an incredible 43% of the world’s population is now connected. That’s over three billion people. But search engines are now intuitive, know where in the world you are, have memories and “know you”. This means that searches using just a handful of words can usually give you exactly the results you are after. This leads me to my main message: To have the impacts of the internet work to your advantage as a broker, you must “know” your client. It will never be the general public, it will be a specific group in the community, or multiple clearly identified groups. Each group has a different requirement, whether first home buyers, investors, empty-nesters and so on. What do they look like? What are their probable hobbies? Where do they work? Build a picture of them in your mind. The more specific you are in your identification of the target market, the more successful you will be using the Internet to your advantage. The water boiled a long time ago, so take the time to understand its impact. ✚

023

MY BUSINESS By Phil Campbell

Tauranga â&#x20AC;&#x2DC;sleeperâ&#x20AC;&#x2122; in

property upsurge

The bullish Auckland property market is already having spin-offs for such regions as burgeoning western Bay of Plenty, as Tauranga mortgage broker Hope Kerr-Bell explains in this interview. ell B r r e K Hope

024

Any hints of spin-offs from the Auckland bulge?

Hope Kerr-Bell: We have been seeing signs of the overflow from Auckland into the Tauranga market, for varied reasons, not only in relation to the demand versus supply issue they are experiencing, although this is the main reason. People are now weighing their options and looking for alternative solutions.

The Bay region, or your area, appears ripe for expansion; any signs yet?

HK-B: Definitely. The construction industry is flourishing. We have seen a real surge in developments across Tauranga. Things are looking positive, and the signs are clear. Also having an impact on this area of growth is that construction loans are exempt from LVR restrictions, making it a more desirable and achievable option for first home buyers. This will only increase with the proposed changes to KiwiSaver deposit subsidies this year – fantastic news.

Types of clients with whom you deal?

HK-B: At Majesty Mortgage Brokers we work with anyone who requires assistance when it comes to home loans and business lending. It really is rewarding to present a positive outcome to our clients. It is a matter of finding a suitable solution that works, with your client’s best interests at the forefront.

In your view, what makes settling in Bay of Plenty attractive – competitive prices not yet commensurate with Auckland, for example?

HK-B: Sure, that is absolutely one of the deciding influencers, making buying property in the Bay of Plenty more achievable for first home buyers and more affordable for investors alike. The Bay is not a bad place to settle, either. There is also the element of growth taking place in and around Tauranga. This expansion creates more opportunity and employment openings – a positive outlook for the region.

Are current conditions too harsh on first home buyers?

HK-B: Short answer: Yes, I believe so. In my opinion the introduced LVR restrictions have unfortunately closed the door on some potential first home buyers, forcing them out of the

"The way I see it is I am not achieving my goals if my clients aren’t achieving theirs.” market on occasions where they otherwise may have been accepted. So, the current conditions are fairly tough for prospective first time homeowners, specifically where prices are inflating at such wild rates, extending out of reach. However, it isn’t all doom and gloom, and options are available through such methods as the Welcome Home Loan initiative. This is where we are tested as mortgage brokers. It is our responsibility to help find a suitable solution, and support our clients through to a positive outcome. Because the way I see it, I am not achieving my goals if my clients aren’t achieving theirs. My energy and motivation comes from a purpose to treat each client’s requirements with the attention and consideration I would my own.

How did you enter your vocation?

HK-B: With a keen interest in property and financial literacy, along with a genuine drive to help others, mortgage advising realises my ambitions. On completing tertiary study in Hamilton, I returned home to Papamoa, and worked in the arts sector. While working, I acquired a Certificate in Money Management, and my budding interest in property and finance only increased after working with Majesty Mortgage Adviser, Scott Hodge, on the purchase of my own home. After a short stint in insurance, my true passion was to work in the mortgage broking field. So far, I haven’t looked back.

What kind of advice do you dispense to clients, especially needy folk?

HK-B: All clients are different, and require different levels of support and assistance. But each client deserves a high level of care, attention, and impartial advice. The value of this support and the result of a client’s experience depends on the individual broker. It is our duty to always offer our best hand.

Do you feel the mood is gloom - or boom-laden?

HK-B: At present I feel the industry is looking positive and on the rise. Various elements may assume otherwise, but overall I would say boomladen. Building consents issued in the Tauranga region alone are at an all-time high, helping to support demand, and is a positive stimulus for local businesses and trades.

Your biographical details indicate even on Sundays you look at homes – habit or hobby?

HK-B: A bit of both really. Before buying was even on the cards, or in the mind for that matter, my partner and I would check out the odd open home. Once our focus changed to buying mode, open homes became a permanent part of our weekly routine. We developed a rather ritual-like habit of doing the weekend’s open home trail. Now it is a matter of keeping a finger on the pulse with what is happening in the market. What's more, Trade Me Property has become a slight obsession!

If you find the time, how do you spend your leisure moments?

HK-B: There is a lot to be said about the worth of quality time with family and friends. In our household, we are really big on surrounding ourselves with friends and family; our spare time is naturally tied up with visiting them around the country. The home we have acquired is a bit of a project, too, and requires a fair amount of attention, as do the gardens! Travel is also at the top of my to-do list. I am, too, a keen supporter of my partner’s rugby and motocross interests. Life can be busy, but I wouldn’t have it any other way. ✚

025

INTEREST RATES Chris Tennent-Brown

RBNZ

on hold for the foreseeable future Global conditions are putting downward pressure on local mortgage rates. With the RBNZ reluctant to increase the OCR this may mean good news for home owners.

o cut to the chase, we no longer expect the Reserve Bank (RBNZ) to increase the Official Cash Rate (OCR) in the foreseeable future and this has implications for our expectations for mortgage rates over the coming months and years. Headline inflation is going to remain subdued over 2015 courtesy of the plunge in oil prices and a backdrop of mild inflation. Given the extent of low inflation, we expect the RBNZ will be increasingly wary about putting up the OCR until reported inflation demonstrates some distance from the 1% floor of the inflation target. When that happens, we expect key leading indicators of capacity pressures will be giving the RBNZ signals that future inflation will be contained. We still see the risks to this view as skewed to a higher OCR. For one, the economy could grow more strongly this year than our alreadyrobust forecast. A more immediate threat is the recent rebound in the Auckland property

026

market. But any sustained pick-up seems more likely to become a financial stability issue, which the RBNZ’s prudential tools (such as high LVR lending restrictions) could help with (rather than, or in addition to) higher interest rates. Local interest rates (particularly longer-term rates) can also change because of offshore developments regardless of what the RBNZ does with the OCR. Global interest rates are incredibly low, and they’re having a significant influence on local term rates. For example, the German 10-year Government Bund yield is less than 0.5%, trading around its all-time lowest level. Despite the impressive run of US data over 2014, the US 10-year Government bond yield continues to trade under 2%, which is very low by historical standards, and when considering the economy is now expanding at a respectable growth rate. New Zealand’s equivalent 10-year Government bond now yields under 3.5%, a higher return, although very low by our own historical standards, and over 1% lower than the

year 12 months ago. As well as influencing New Zealand’s Government bond yields, these low global rates are putting downward pressure on local term mortgage rates. We have tended to have a below-consensus view of where the OCR, and in turn mortgages, will peak in this tightening cycle. This latest view change puts us even more at odds with the consensus. In contrast, we are not far off the current interest rate pricing in wholesale financial markets which, because of the weight of global events, is effectively pricing no change in the OCR for the next two years.

LVR limits remain Within the RBNZ’s November Financial Stability Report, the RBNZ noted the housing market remained very stretched, pointing to the continued high level of house prices relative to such fundamental metrics as incomes and rents, particularly in the two hotspots of Auckland and Christchurch. In addition, the RBNZ points to the increase in indebtedness

among house buyers, with Auckland again highlighted as a concern. The RBNZ has highlighted three main criteria for removing the restrictions: ● Whether house price inflation and housing credit growth have returned to more sustainable levels. ● The risk of a resurgence in housing market pressures after the removal of the restrictions. ● Whether the policy is creating significant market distortions. The criteria aren’t met at present, and the risk of a continued resurgence in prices is still very real – particularly in Auckland. A key risk we and the RBNZ see is housing demand from strong net migration, which has yet to peak. In recent months the net inflow has been very strong, and the annual net migration inflow is at a record level. Weighing up the mix of conditions, we think that the LVR restrictions will remain in place for at least the next six months and quite possibly longer.

What’s in it for borrowers? The maintenance of the high LVR lending restrictions means the challenge of a higher deposit requirement will remain for some borrowers. And for banks, it probably means the practice of offering “specials” or lower rates on lending with equity over 20% will likely remain in place. Floating mortgage rates move fairly much in lock-step with each RBNZ move, and lifted 100bps, or 1% over 2014. If we are correct in our view that the RBNZ is on hold for the foreseeable future, it should mean a period of stability for floating mortgage rates. We expect the six-month rate to also remain fairly steady near the current level, given it is also very heavily influenced by where the OCR is sitting. In contrast, the longer-term rates are subject to a number of influences that could cause them fall or rise this year. Since March 2014, despite the RBNZ’s OCR hikes, fixed-term mortgage rates have been held down and at times dipped, as global interest rates declined. Bank competition has also been fierce and margins have been tightened to lower some of the fixed rates on offer. The combination has meant it has been possible for borrowers to access fixed-term rates that are lower than when the RBNZ began raising rates a little less than a year ago. Longer-term mortgage rates will most likely change over the year ahead, even if the RBNZ holds the OCR steady at 3.5%. Developments in the economies and financial markets of the US and Europe will be a key influence on where New Zealand term mortgage rates settle. The US Federal Reserve is expected to lift interest rates over the next year. But the current bout of dis-inflationary forces stemming in part from tumbling oil prices is clouding the outlook for US interest rates. The weak European economy and related low inflation has triggered more monetary policy stimulus from the European Central Bank. These global influences look set to keep term rates low in the immediate future, while global growth concerns are high. However, we

"We have tended to have a belowconsensus view of where the OCR, and in turn mortgages, will peak in this tightening cycle.” expect the global backdrop to improve over the course of the year. And that improvement should in turn eventually lead to higher offshore interest rates, and higher NZ term mortgage rates. It is impossible to predict the exact mix and timing of bank competition, and pressure on local wholesale rates stemming from offshore interest rate market developments. But at present the RBNZ’s signal to pause, and the low global rates are helping keep the six-month and one year rates and some targeted specials on offer under 6%, significantly below the floating rates. Borrowers should monitor these developments, and discuss the options with their mortgage providers when deciding what to do with their mortgage.

Best strategy The best choice a borrower can make involves assessing the likely path for interest rates, the various risks to that outlook, and personal preferences for certainty and flexibility. That’s a lot to consider, but despite all the variables, we can still identify a number of things. Firstly, the six-month rate is the cheapest rate, nearly 1% below the floating rate. So borrowers can create some certainty, and obtain a lower rate than floating by fixing for short terms. Almost all of the carded rates at the main banks are lower than floating rates at the time of writing, effectively meaning borrowers can create interest rate certainty and at the same time save on interest rate costs. Secondly, all fixed rates are well below their long-run (10-year) average. So by this simple measure, the fixed terms are reasonable value, as shown in the charts. We can also use our forecasts to calculate the expected cost of strategies such as rolling six-month or one-year terms for the next five years, and compare the interest rate expense to the interest rate of the fixed terms available today for longer terms. Based on our forecasts, rolling these shorter terms is still a cheaper strategy than locking in the longer terms such as the four-year to five-year rates. This hinges on our view that the RBNZ’s tightening cycle is complete. If the RBNZ delivers more rate hikes over the coming years, some of the longer terms may prove to be better value.

Home Loan Rates

10 Variable Rate

5-year rate

8 1-year rate

2-year rate

6 5

6 Source: ASB

Jan-07

% 11

Jan-09

5 Jan-11

Jan-13

Jan-15

Home Loan Rates

% 11

High (past 10 years)

10-year average

7 Jan 2015

6 5

Low (past 10 years)

6-month

With that risk in mind, such term rates as the three-year rate are not much higher than the oneyear rate. That means a long period of interest rate certainty can be achieved at a relatively low cost. It’s also important to note these calculations are based on carded rates – the periodic availability of special rate offers skew the calculations, and are important for borrowers to consider. When choosing a mortgage, of course it’s not just about finding the cheapest rate. One of the characteristics of floating mortgages that borrowers have enjoyed has been the flexibility of repayments that floating offers. Splitting the mortgage into different terms, or a mix of fixed and floating mortgages, can be a good strategy for keeping a bit of flexibility while locking in some interest rate certainty.

Final thoughts There are always risks to the assumptions behind our forecasts, and New Zealand interest rates could be higher or lower than our current view. But with the economy still growing well, and influential global rates expected to eventually rise, we continue to think it is prudent to plan for more mortgage rate increases from today’s level over the years ahead. Ultimately the best mortgage strategy is one that also takes into account an individual borrower’s cash flows, tolerance for uncertainty, and being able to deal with changes in future mortgage payments as interest rates change. It is always important for borrowers to weigh up their own priorities and make the mortgage choice that looks the best aligned with them. ✚

027

Sales & Marketing By Sharon Davis

Tips to

make your

financial yearend less taxing Preparing to file year-end tax returns can be an annual recurring nightmare for advisers. These simple tips will help reduce your financial year-end stress and streamline your filing process in 2015 and beyond.

or many advisers, the financial year-end is synonymous with a last minute rush to sort through unruly piles of paid and unpaid invoices and wads of half-faded and unrecorded receipts. And that’s before contemplating getting apportioned usage costs and depreciation right and beating crowds of other businesses to your accountant or tax adviser’s door. It is possible to get through your tax filing without too much stress or burning of the midnight oil and to help you achieve this TMM has compiled some handy tips which will see you meet the impending 2014/15 tax year deadline, and future tax-filing deadlines, with a minimum of fuss.

SHORT-TERM TIPS

Start now: Yes – start now! The deadline is July 7, if you don’t use a tax agent who has an extension. It might seem far away, but if you don’t start preparing your documentation now

028

the deadline will soon be looming large; at that point it’s easy to feel overwhelmed by the sheer volume of work involved or by a general dislike of crunching numbers and balancing books. It’s natural to want to put off unpleasant tasks until later, but procrastination is not going to get the job done and will only increase your stress levels later. The sooner you start, the sooner it will be done, leaving you less stressed and with more time to focus on your clients needs and best interest, and on growing your business.

Break your tax filing chore down: Getting started is usually the hardest part. A large and daunting task is much easier to start if your break it down into manageable chunks – so find ways to break your tax filing tasks into smaller, less daunting sub-tasks. You could decide to invest an hour a day, or to tackle one month’s worth of paper work backlog at a time – until the work is done. Breaking tasks down not only makes it easier to start, there’s also that feeling of satisfaction you get when you cross items off that list of

❝ Breaking tasks

down not only makes it easier to start, there’s also that feeling of satisfaction you get when you cross items off that list of things to do ❞

Packages that store your accounts information in the cloud give you even greater flexibility and allow you to send an invoice or enter a purchase remotely when you are out of the office. Computerised spread sheets, online banking and e-filing are other technologies you can use to make your tax filing simpler, easier and faster.

6 things to do – and once you’re making headway on a project, it’s much easier to keep going.

Use a reward system: Use rewards to stay motivated and get through those arduous-seeming tax-related chores. Pick a reward that works for you – whether it’s catching up with social media posts or surfing the web [this obviously involves a social media or internet ban until you’ve completed the task], a pint at the pub, a chocolate treat, an overdue visit to the gym or a good yarn with a mate. Once you’ve reached your work target for the day, you’re free to enjoy that well-deserved reward. It might seem silly or contrived, but it will help to keep you focused and on track.

LONGER-TERM TIPS

Don’t redline that filing deadline: Don’t leave things to the last minute and have your accounts team [even if your accounts team is a team of one – you] racing full throttle up to the deadline. Rushing your accounts can introduce errors and is not the best environment for making sound business decisions. Don’t plan to file by the deadline – give yourself some wiggle room and the head space to make the right decisions.

Use technology to your advantage: Computerised accounting packages can save you a lot of time, hassle and money. They are easy to use and make it far simpler to keep your financial records up to date.

Keep your records safe: You will need to keep a record of receipts and payments, bank statements, invoices [including GST invoices], as well as wage records for all employees. Inland Revenue requires you to keep these records for seven years [or possibly longer, if they start an audit of your business] so make sure you keep all the required information for at least seven years before you throw anything away.

Treat your tax filing as a project: Treat your tax filing like a project within your business. Create a list of all the tasks you’ll need to complete, work out a deadline [allowing for some inevitable contingencies] and make somebody responsible for each task. Monitor your progress and refine your list as you go along – and you’ll be well on your way to stress-free tax filing, with the added bonus of having up-to-date financial information at your fingertips. ✚

029

INSURANCE By Steve Wright

Client nondisclosure: Are you liable? Advisers have a duty of care to their clients. Disclosure is important and non disclosure can lead to unfortunate consequences, writes Steve Wright.

hat is an adviser’s responsibility as regards client non-disclosure? Ignoring for the moment client risk analysis, advice solutions and product and product provider selection (all of which requires careful consideration after full and thorough examination of all facts), let’s examine adviser obligations around client disclosure to the insurance company. Advisers owe a duty of care to their clients. Under the Financial Advisers Act (FAA), advisers must act with due care, diligence and skill and avoid misleading conduct. Some believe that the Code of Professional Conduct (the Code), while not specifically applicable to RFAs, is a useful indicator of the minimum standards expected of all advisers in fulfilling their obligations under the FAA.

Disclosure It seems pretty clear that it is the client who has a duty to disclose any material information to the insurer and that this duty is probably the client’s alone, which is totally appropriate considering they have the knowledge, but is there any obligation on advisers? I believe there certainly is, not necessarily as regards

030

❝ An adviser’s

duty of care includes warning clients of the dangers of non-disclosure for all insurance applications but especially where policies are being replaced. ❞ the actual information disclosed, but around the advice to clients about the need to disclose fully and honestly and the consequences of not doing so. Insurance companies can decline claims and even void policies from inception for material non-disclosure, so it is a serious issue. Every claim that is declined due to nondisclosure reflects badly on our whole industry, advisers and insurance companies alike, because regardless of whose fault it is, the client is naturally very unhappy. When a claim is declined for non-disclosure, the entire adviser’s hard work is undone and the policy does not do what it was put in place to do, potentially causing massive financial consequences: Families can be left destitute and any corresponding commission clawbacks can put unexpected strain on advisers’ cash-flows. Declining claims and avoiding policies might seem like harsh consequences, especially where the non-disclosure is inadvertent, but without this ability the delicate balancing act that is insurance would be upset, fewer and fewer would bother disclosing any information at all and all policyholders would end up paying much more in premiums.

Duty of care The duty of disclosure is not one many clients will be familiar with. Your clients need your help, and I believe your duty of care requires that you, as a minimum, assist your clients with properly understanding: Their disclosure obligations in the first place (health, pastimes, financial and occupation details). What “material” means (it’s what a prudent underwriter believes is material, not the client or their doctor). The difference between clinical and underwriting medicine (underwriting medicine is not only concerned with the

client’s current health. Their past health history and that of their family is relevant to the likelihood of making a claim sometime in the future – this is why insurance companies want to know about things that the client and sometimes even their doctors, believe are minor and not “material”). How to complete the application form, understanding the questions being asked and carefully formulating their answers. The consequences of a failure to properly disclose ALL material information. An adviser’s duty of care includes warning clients of the dangers of non-disclosure for all insurance applications but especially where policies are being replaced. When recommending replacement of existing business, the FMA believes that a careful comparison of benefits gained and lost must be made and the client warned of any specific adverse consequences of changing policy or provider. One such adverse consequence is obviously non-disclosure of a health condition arising or deteriorating in the period since the replaced policy was taken out. Few matters can be as costly and probably as dangerous to an adviser, as the replacement of a policy which may have been held for many years, with a policy that is voided from inception due to non-disclosure i.e. swapping real cover for nothing at all! Not only can claims be declined but clients will often no longer be able to get comparable cover anywhere else, leaving them fully exposed to risks that were once covered. So, as an adviser with a duty of care to your clients, what can you do to minimise the risk of client non-disclosure? Make your clients aware, multiple times if necessary, of their disclosure obligations and the consequences of getting it wrong. Unfortunately even if you do this, inadvertent non-disclosure can still occur. This can

happen because of a lack of attention to detail and failure to give the application form and its completion, the time and attention it needs. Advisers can make a big difference to help reduce non-disclosure by properly understanding what insurance companies are asking for and by coaching the client through the application process, even question-byquestion where necessary, gently prompting them where appropriate. For example, it is highly unlikely that older clients will have never been to the doctor or had any medical tests. Help clients understand that all nondisclosure, intentional or inadvertent, WILL be picked up at claim time. At claim time the client’s non-disclosure will become apparent because the nature of the claim and/or the date of the first symptoms noted by the GP on the claim form, compared with the answers given in the client’s application form, will often indicate a requirement for further investigation. The client’s complete medical records will then be examined and any other necessary investigations made, to ensure the claim is genuine and can be accepted. Prudent insurance companies make proper investigations at claim time and only pay genuine claims to protect themselves and all their other policy holders from unnecessary claims and ultimately, premium strain. If something your client discloses (or doesn’t disclose) seems wrong or doesn’t gel, keep asking questions until you are satisfied that they have properly disclosed all details. Explain that disclosure of insignificant health issues will not hurt the client’s application so there really is no risk in doing so. However, small and seemingly insignificant things are sometimes material to the underwriting outcome and thus require disclosure. The safe option is to disclose even the small things that may seem insignificant. Clients have a duty to tell the insurance company about changes to their health that occur before their policy is issued, including those that occur after they have filled out the application form but before the policy is issued. This is why it is so important to keep in touch with the client during the underwriting process. Make sure that any recent or current health issues are disclosed (including if symptoms have not yet resolved) and are accepted by the new insurer before the client cancels any existing cover. Finally, document all of this as proof you did it. If you can’t prove that you warned clients of the adverse consequences of nondisclosure, you may be found wanting in your duty of care toward the client and possibly liable for damages. Oh, and don’t forget, if they tell you, you are legally responsible to tell the insurance company! ✚

031

LEGAL By Jonathan Flaws

Advisers brought within the responsible lending tent

Advisers have been made more inclusive in the area of responsible lending. If required, lenders may use them to comply with lending principles. 032

he draft Responsible Lending Code as published in November last year is the first indication in the introduction of a regulated responsible lending regime to New Zealand that acknowledges the existence of intermediaries, such as brokers acting on behalf of the borrower. The emphasis and the key responsibility remain with the lender but it is acknowledged at last that lenders do not always have the direct relationship with the borrower. To this extent, an adviser assisting a borrower to obtain a mortgage is now brought inside the tent of responsible lending. Unlike Australia, where a mortgage adviser is dragged inside the tent by the regulator and forced to comply with their own set of guidelines and principles and required to make a formal assessment of the deal and give it [if requested] to the borrower, a New Zealand adviser is invited in by the lender. It is entirely possible for the lender to determine how the adviser is to comply with the responsible lending principles.

Multiple lenders On one view, this is a sensible and preferable position because it places the relationship and supervision of compliance with the party who ultimately carries the can – the lender. On another view, if an adviser deals with multiple lenders who have differing requirements for the relationship and compliance, this could make things confusing and complex. To avoid this complexity, an adviser will most likely establish his or her own sets of guidelines and requirements and ensure that the processes and procedures employed in dealing with each borrower and guarantor meet the requirements of all of the lenders that have accredited the adviser.

Lending principles It remains to be seen how lenders will respond to the challenge of dealing with advisers and their adherence to the responsible lending principles. I suspect they will establish their own regime of re-accrediting advisers and requiring them to explain their procedures and confirm that they have been followed in each transaction. While the draft is still subject to review, having adopted this approach, it is unlikely that these provisions will be changed to any significant extent in the final version. The ability to rely upon intermediaries is set out in clause 5.13 which reads as follows: 5.13 Lenders may ask for or receive information from intermediaries, such as brokers acting on behalf of the borrower. Where this is the case: (a) a lender should require those intermediaries implement and maintain appropriate processes for the collection and verification of information consistent with the Guidelines set out in this Code; and (b) a lender should: (i) either be satisfied that the intermediary’s practices do in fact comply with such processes; or (ii) verify the information provided by the intermediary.

❝ The word intermediary implies a

person acting between two parties. As such the intermediary has duties and obligations to both parties. ❞ The impact of this provision will be that lenders are likely to implement a more rigid process of audit of intermediaries to ensure that the agreed processes are being complied with. This, in turn, may place a larger education and audit role on the larger aggregators and adviser franchises. Clause 5.13 assumes that an intermediary will only be acting on behalf of the borrower, which is an assumption not necessarily correct in all cases. For example, the word intermediary implies a person acting between two parties. As such the intermediary has duties and obligations to both parties. Clause 5.13 itself imposes this sort of relationship. An adviser then, for some purposes, will be an agent of the lender as well as a representative of the borrower. The judgment of the Supreme Court in the case of GE Custodians v Bartle turned on this very point.

Imputed knowledge The broker concerned was clearly an agent of the lender for some purposes but not so close an agent that everything the broker knew became imputed knowledge of the lender. As it happened, this finding enabled the lender to avoid liability for the bad investment made by the borrower. Whether this position will continue under the new responsible lending regime is debatable. Section 2 of the draft Responsible Lending Code sets out overriding obligations that apply before and throughout the agreement. In particular, clause 2.2 requires that a lender should ensure that before agents acting on behalf of the lender come onto contact with borrowers, those agents understand how to comply with legal obligations that are relevant to their role as well as the lender’s policies for complying with those legal obligations. Section 2.4 provides that a lender should require agents to comply with the relevant legal obligations and policies, and check that they have appropriate processes in place to ensure that the agent and its staff understand and will comply with those relevant obligations and policies.

Facilitate access In the commentary to this section, the code indicates that under the Act, lenders are responsible for the conduct of their agents acting within the scope of their authority. The commentary also states that an agent of a lender includes brokers that facilitate access to credit at the point of sale. One of the key Lender Responsibility Principles in the CCCFA is to make inquiries into and assess the borrower’s requirements and objectives. The list of inquiries is extensive and even though clause 5.13 refers to the

intermediary as acting on behalf of the borrower and allows the lender to receive information from the intermediary, the nature of the inquiries and their purpose indicates that the intermediary is also acting as agent of the lender when collecting this information. One of the suggested inquiries is whether the credit is required on a one-off basis for a specific need. This does not in itself suggest that the lender needs to know specifically what that need is but, in order to determine if that need would result in the borrower being put under financial stress and therefore unable to repay, a prudent lender would want to know some information about the investment. Hence the comment above that the knowledge of the investment by the broker in the Bartle case might now be imputed to the lender. If the lender was following the Lender Responsibility Principles correctly, it is likely to be put on enquiry if the brief details of the investment suggest it might not be prudent.

More specific Which then moves neatly into the next section of the Code, clauses 4.2 and 4.3 which indicate a degree of scalability regarding the nature and extent of inquiries may need to be made. For example, if the loan is part of a buy back scheme or a reverse mortgage, the inquiries will be more specific and to a greater extent. If the credit is provided under a simple and well-understood credit agreement, such as an overdraft, the number of inquiries may be reduced. Similarly, if the borrower is an experienced user of credit, the number of inquiries may be reduced. This is a new term that has been introduced into the code. It refers to an individual who: → has had experience under a similar credit agreement recently (for instance in the previous two years) without encountering any problems or repayment difficulties; and → who appears to be fluent in English; and → who is not seeking to be a borrower or guarantor under a high-cost short-term credit agreement. It means that the process of refinancing mortgages to get a better deal is alive and well and need not be any more complex or convoluted under the new regime. I’m not sure whether the old adage that it is always better to be inside the tent than outside the tent works for the benefit of the club inside or the individual outside – I suppose it depends on the actions of the individual. In the case of mortgage advisers or intermediaries, when it comes to the issue of responsible lending it is essential for the continuance of their essential role that they be inside. ✚

033

BANK FIGURES By Sharon Davis

Mortgages dominate banks' loan books New Zealand banks are likely to perform well in 2015 but their high exposure to mortgage loans poses some risks.

n its 2015 economic outlook for New Zealand, international credit ratings agency Fitch Ratings noted that the loan books of New Zealand’s banks were dominated by home loans. The agency expects the performance of the banking sector to remain sound in 2015, but cautioned that household debt had risen to 156% of disposable income, up from 152% in 2011 – which the agency considers high. Fitch said it did not expect this rating to improve in 2015, noting “a risk that household debt could

continue to increase if property prices continue to rise on credit supply. “A significant correction in house prices and a sharp increase in the Official Cash Rate could pose a risk for the banks' household exposures," Fitch’s report said, adding the stabilisation of household debt levels during 2014 reflected such measures as the RBNZ’s higher LVR limits on home loans, and tightened underwriting processes by the banks which has limited the build up of further risks in the banking system.

Key issues Fitch says key issues for New Zealand banks include an economic slowdown in China, increased risk appetite at the banks, and such rising macro-economic risks as prolonged low dairy prices. The agency expects "mid-single digit" loan growth in 2015, and says the dairy sector is likely to withstand one year of weaker milk prices as many farmers used the previous year's record payout to invest in their business or reduce debt.

Mortgage loans as a percentage of overall bank loans according to the RBNZ’s Summary of locally incorporated banks for H1 and H2 of 2014 ANZ

ASB

BNZ

KiwiBank Westpac

CoOp Bank

Heartland

SBS

TSB

Mortgage Loans end Jun 2014

49,520 (52%)

41,817 (69%)

30,305 (47%)

13,710 (93%)

39,175 (61%)

1342 (93%)

240 (12%)

1727 (76%)

2597 (83%)

Total Loans – end June 2014

94,885

60,862

64,696

14,689

64,231

1449

2003

2287

3133

Mortgage Loans – end Sept. 2014

50,712 (52%)

42,114 (68%)

30,608 (47%)

13,961 (94%)

39,702 (61%)

1,361 (91%)

234 (11%)

1,726 (76%)

2,602 (83%)

Total Loans – end Sept. 2014

96,965

61,894

65,333

14,786

65,024

1,489

2,064

2,285

3,139

In NZ$ (millions)

034

Exclusive Client Offer! ONLY $39.95

The New Zealand Property Investor Magazine makes the perfect gift for anyone with an interest in residential property investment. As an exclusive deal for the readers of TMM we are offering a special 6-month gift subscription for the low price of $39.95. So donâ&#x20AC;&#x2122;t worry about choosing the right client gift this year as we have you sorted.

Subscribe Now & Save!

Simply complete this form and return it with your payment to: NZ Property Investor Magazine Ltd, Freepost 166337, PO BOX 2011, Rotorua 3010 Name

Visa

Mastercard

Amex

Number Cardholder Name

I have enclose a cheque made payable to NZ Property Investor Magazine Ltd for: $

OR ring

Name Address

Postal Address

I would like to pay by credit card. Please bill my:

Expiry

Giftee Details

0800 345 675 to take advantage of this special offer today.

www.propertyinvestor.co.nz

Personal Message