TMM - The NZ Mortgage Mag Issue 2 2015 by TMM - The NZ Mortgage Mag

Issue

2015

SALES SUCCESS TIPS FROM A WINNER

INTEREST RATES

HOW TO DO FAIR COMPARISONS

KiwiSaver CHANGES

NEW CHANGES EXPLAINED

CONTENTS UPFRONT 04 EDITORIAL

How the mortgage advisory industry is changing – for the better.

05 NEWS

Westpac’s pricing promise; SBS reconsiders how it pays advisers; A group of Mike Pero Mortgages advisers look to leave the group, and more…

10 PEOPLE ON THE MOVE The latest appointments and people news.

TMM meets four new mortgage advisers and finds out what they are doing differently to their older peers.

FEATURES 12 HOUSING COMMENTARY

Low interest rates are all the talk at the moment. Susan Edmunds examines what it means for the housing market.

18 BANK MARKET SHARE

TMM’s analysis of bank lending shows low-deposit lending is plunging.

24 MY BUSINESS

Phil Campbell chats to mortgage adviser veteran Robyn Ashkettle.

28 KiwiSaver

Susan Edmunds explains the latest changes to KiwiSaver and what it means for first-home buyers.

34 SALES SUCCESS

Jason De Montalk tells you what he did to become a top new adviser.

Robyn Ashkettle

COLUMNS 20 PAA NEWS

News about the PAA conference in June, what you need to know about refinancing options.

22 SALES AND MARKETING

Paul Watkins wonders how hard it is to connect with clients over the Internet.

26 INTEREST RATES

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

30 INSURANCE

Is insurance necessary? Steve Wright has a good answer to this question.

32 LEGAL

TMM’s resident legal expert Jonathan Flaws brews up a good story about how to compare interest rates.

EDITOR’S LETTER

Young Guns no cowboys " With the recent release of the Terms of Reference the whistle has been blown and it’s now game time."

ver the past dozen or so years I have watched the mortgage advice industry evolve. Right now I think it is one of the most exciting times in this whole period. Sure, we had the exuberant and heady days pre the Global Financial Crisis when money was splashed around, as was the entertainment. There were beer hall parties, toga parties, pirate parties and more. These days things are much different. One of the trends we watch is the changing face of the mortgage advisory world. In this issue of TMM we meet some of the so-called Young Guns who are shaping future of the industry. While our cover image may make you think of cowboys and the Wild West, our Young Guns are totally the opposite. They are professional, dedicated and out to help their clients. You can be assured that, although you may not have heard of these advisers before, they will become more familiar names as the advice industry evolves. And just to put mortgage advice into perspective, it seems one in three home loans written at the moment are done through third

party distribution. All the banks we have spoken to talk about the growing importance of advisers. It’s a bit of a cliché, but change is all around. Another good, and positive example is the IFA and PAA have collaborated on professional development days and also a national conference this year. By a process of osmosis like this the two associations will, over time, find out there are kindred spirits and their members will approve of a marriage. Of course the other big change we can’t ignore is the review of the Financial Advisers Act. It’s far too early to start predicting any outcomes. With the recent release of the Terms of Reference the whistle has been blown and it’s now game time. This, though, is going to be a long game with a report not due to the Minister of Commerce until the middle of next year. Then it will be up to the Government to decide what changes it wants to make and get them though the Parliamentary process. It will be a long process. In the meantime let’s keep the mortgage advice profession growing with increased levels of business and more young people joining your ranks.

Philip Macalister Publisher

PUBLISHER: Philip Macalister SENIOR WRITER: Susan Edmunds SUB EDITOR: Phil Campbell CONTRIBUTORS: Paul Watkins Chris Tennent-Brown Steve Wright Jonathan Flaws Jenny Keown Karen Mooney 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

SBS reviewing adviser remuneration model

BS says its push into the Auckland market using mortgage advisers is working and it is now considering a new remuneration model for brokers. Chief executive Wayne Evans says the Auckland market is providing significant growth for the bank and loans written in this market are three times bigger than what the bank would write in its home town, Invercargill. The push into Auckland has also meant the bank has had to adjust its credit policies and there has been a “mindset shift in our credit teams when assessing loans.” “We have worked hard to develop a risk appetite statement that does reflect the Auckland market without giving away our prudent management that we are renowned for.” Evans says the “quality of lending coming out of broker channel is higher than it has

been historically.” Evans says SBS is in the middle of a “change programme” which, besides the use of brokers, includes increasing the number of mobile mortgage managers it has and investing in its online capabilities. Recent changes to its website have made it a “legitimate sales channel” rather than just a place people could get information, SBS is looking at changing the way it remunerates mortgage advisers and is considering introducing a trail commission model like Westpac. Evans says there is demand for trail commission, and it is “certainly something we are entertaining.” He said there are other options the bank was considering, however he wouldn’t go into detail at this stage. “We are investigating the full spectrum of

Wayne Evans what a broker needs,” he says. Evans, who established SBS’s personal finance subsidiary Finance Now, is keen to see mortgage advisers offer a wider product suite to their customers. ✚

NEWS

Pero big-hitters look to walk

hirteen Mike Pero Mortgage franchisees have served notice on the company that they will not be renewing their contracts. The 13 mortgage advisers, reportedly, account for more than half of the business written by the group. The dispute revolves around contract negotiations and allegations that the franchisor, Liberty Financial, has adopted a “take-it-or-leave-it” approach. It is understood the dispute will head to

court as the franchisees want to overturn a two-year restraint of trade clause in their contracts. They are also disappointed that the brand has lost some of its marketing nous because of another dispute between Liberty and Mike Pero’s marketing company. Under the agreement company founder, Mike Pero, provided voice overs and other material to help generate leads for advisers. Liberty originally bought a half stake in Mike Pero with joint venture partner NZ Finance in 2006. At that time the company was valued at more than $25 million. Liberty acquired the remaining 50% share from NZ Finance two years ago. It paid NZF $2.5 million for its 50% stake. The battle for control of the company was long and acrimonious involving a number of legal stoushes. MPM national manager Simon Frost would not comment on the dispute. “I’m not going to enter into any comment around that,” he said. ✚

Mortgage Link gets new owner

osh Bronkhorst has resigned from Newpark Group to join MortgageLink where he is now the boss and biggest shareholder. Companies Office records show he owns 45% of the MortgageLink business and he has now taken over running the group. Former general manager Paul Gill has joined Westpac where he has a role as Team Leader for the bank's mobile mortgage managers in Christchurch. Bronkhorst was a senior business manager at Newpark. MortgageLink owns 50% of Newpark Brokers Services, the which services mortgage advisers. MortgageLink will now be run from Auckland, rather than Queenstown and the group, which is strong in the provinces, is looking to build its presence in the major metropolitan centres Bronkhurst says he is developing plans for the group and he wants it to retain its “niche family feel.” He would also like to see more of the licencees become shareholders. ✚

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Erica Wills 021 659 866 13/03/15 1:43 pm

NEWS

Westpac’s

pricing promise

estpac has given mortgage advisers and undertaking it won’t come and go from the market by changing its home loan pricing. Director of third party banking Kylie Kneale acknowledged, at the first of a series of adviser roadshows, the bank’s pricing recently made it uncompetitive and difficult for mortgage advisers. The bank had pulled the pricing lever to slow business down after a very strong period of growth at the end of last year. She said the bank aims to grow at around “one times the market” but during this period it was running at “one point three times.” Kneale acknowledged frustration from mortgage advisers, especially as it had embarked on its new partnership programme. The bank was working on a project to find ways of breaking the pricing cycle. She said this “roller coaster” approach to pricing and being in and out of the market

Our advisers have access to various partner arrangements including Risk Insurance, Fire & General Insurance & other Referral opportunities. For a confidential discussion or to arrange a meeting please feel free to call:

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Kylie Kneale can’t continue. Kneale is also now on the executive pricing committee. Westpac continues to change the way it deals with mortgage advisers. Since it started it partnership programme it has reduced the number of advisers on its books from 971 to around 800.

It has recently completed a project analysing the profitability of advisers. The top 25% account for 30% of volume and 40% of the revenue from this sector. The bottom 25% don’t contribute anything to the bank, but volume. Kneale said it Westpac was looking at how it deals with the non-profitable group and acknowledged that it was “an Auckland problem.” She said the top advisers would be rewarded with better service and opportunities. Westpac is planning to launch its lending app and portal for advisers in late April. Key features of the portal include a system to provide advisers with status alerts letting them know where their deals are at. It will also have a library of documents advisers need and a chat function. Kneale said advisers who used the app would get a list of their “back-book” customers including when their loans come up for renewal. While this is something the bank has said it would do there have been problems securely passing customer information to advisers. She said the app solves that problem. The app was also designed to speed up the home loan application process and remove bottlenecks at busy times. She said the it had almost become acceptable across the market that there would be delays during the Spring home loan campaign season. “I don’t think it’s acceptable anymore,” she said ✚

We support mortgage advisers nationally 13/03/15 1:51 pm

RESIMAC now

lending nationwide

reater flexibility for investors is contained in a raft of new offerings from non-bank lender RESIMAC Home Loans. RESIMAC New Zealand general manager Adrienne Church said the company has simplified its suite of specialist lending products to make them easier for advisers and customers to understand. The company has also increased its maximum loan amounts to $1.5 million and expanded the acceptable locations for their specialist products. Church said the changes are huge and constitute the largest overhaul of the company’s program since it entered the New Zealand market. “We took this opportunity not only to simplify our product range, but to enhance it at the same time.” The company’s specialist lending range now offers three products (Specialist Clear, Specialist Plus and Specialist Assist), each with just one credit impairment level. Credit impairments levels cover a wide range from self-employed contractor to current bankrupt to discharged bankrupt. Church said the company didn’t want to attract habitually credit adverse people rather it was trying to target people in different circumstances trying to get a new start.

Adrienne Church However, due to the variety of levels offered, the specialist lending products could provide improved flexibility for investors. The company’s expansion of its acceptable property locations should also be attractive to investors. Church said that, previously, the list of locations the company could provide loans for was quite restricted. “It was basically just major cities and towns. But now we can consider loans for locations anywhere in New Zealand – like Raglan or Hokitika, although with lower LVRs.” ✚

New lending code means more paperwork

he introduction of a Responsible Lending Code will add another layer of work for mortgage advisers. The code provides guidance on the new lender responsibility principles in the Credit Contracts and Consumer Finance Act. Both come into force on June 6. Commerce and Consumer Affairs Minister Paul Goldsmith said the code and the lender responsibility principles will give greater protection to consumers when they borrow money. “They will allow borrowers to have better access to information, and better protection from those lenders who engage in predatory practices.”

Mortgage Supply Company chief executive Jenny Campbell said the advent of the code and lender responsibility principles won’t have a massive effect on the market, although they will be taken seriously. She said most lenders learned valuable lessons from the GFC and already conduct business responsibly. “Most lenders realise they need to be sure that consumers can actually afford to repay loans.” However, she said it seemed banks were going to address the issue with some changes to their servicing calculations. “They will probably collect more data for their calculations in order to make sure that their new lending is not too onerous on their customers.” ✚

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

Dennehy flies the roost

Colleen Dennehy has joined Mike Pero as a Network Sales Manager covering the North Island (excluding Wellington). She is well known to many readers as she has been in the industry for a number of years and is currently chairman of the Auckland branch of the IFA. Dennehy is a previous winner of the NZMBA Broker of the Year award (non-conforming lending). Her experience as a mortgage adviser and wide industry connections are positive attributes which will help her succeed in this new role, MPM managing director Simon Frost says.

Heartland HER gets new chief

Colleen Dennehy

Vaughan Underwood, who has run the Sentinel home equity release business since 2006, has moved onto a new role. Heartland Bank bought the Sentinel business last year and Underwood had been contracted to work through the integration process with the bank. Now that is complete he has moved onto a

new role outside financial services. The HER business now comes under the control of Heartland’s national retail manager Andrew Ford. Ford has been with Heartland for 15 years. He says: “Heartland Seniors Finance provides retirees with an option to stay in the home they love with the financial freedom and independence to enjoy their retirement”.

No tears here

Onion, the home loans and insurance sister company of G.J. Gardner Homes NZ, has appointed its new senior adviser, Rachael Lelean, to its growing finance team. Lelean’s previous career was with Westpac Bank, as a Business Development Manager for the Westpac Mortgage Adviser Unit. Onion Home Loans is a unique concept in that it is the only Mortgage Advisory service aligned to a specific construction company. The team at Onion are experts in construction finance, who work alongside GJ Gardner Homes to show people that building a home is a very real possibility, ensuring the customer is retained and not talked out of building when they go to their bank. The recent changes the Government has made with the Homestart grant and excluding construction lending from high LVR restrictions has made it more affordable for people to build and own their first home. This means building is a very real possibility for a lot of people. The Onion team recognise the importance of providing a personalised service that’s right for their clients needs. “Construction finance can be perceived as challenging, therefore I believe its important clients have the benefit of working with an industry expert to give them the right advice and show them the possibilities,” Lelean says.

Westpac adds two

Brian Chen joined Westpac Third Party Banking as the enhancement and capability manager for the Auckland team. This role was created with the focus of improving current processes and coordinating projects, while ensuring the bank are operating within their risk programme. He has five years experience in the banking and finance industries, bringing with him sales, risk management and process improvement knowledge. In his last role, he managed operational risk for the chief operating officer, chief Finance officer and the general manager of regulatory affairs, compliance and legal services. Chen is passionate about technology and plans to work with the team and advisers to improve the customer experience when dealing with Westpac.

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Mortgage Express’s Indian intake

Heather Black is Westpac’s new Lower North Island business development manager for Third Party Banking, based in Palmerston North. A property investor, she has bought and sold property in Auckland and the Manawatu over the last 13 years. Heather began her working career in London, working in finance and auditing before moving off into marketing and sales related disciplines back in New Zealand and a seven-year stint managing her own firm in Human Resources. She has experienced the third party journey through the eyes of the customer and understands the relationship between adviser, customer and the bank. This unique view will be very beneficial when dealing with advisers in her area and working with them to help grow their business with Westpac.

Loan Market robs the banks (of staff)

Loan Market has added five new advisers, with all of them having experience with either banks or insurance companies. Jay Ren has joined the growing migrant team in Auckland and is based in the dual branded Loan Market/Ray White Pakuranga office. He joins the group after a successful banking career at ASB and BNZ. Julie Scott was formerly with Westpac. She brings a good network with her and will be looking after Balclutha and Gore Ray White offices. She has joined the growing Dunedin business and will be well supported by the existing advisers. Michelle Proudfoot is another former banker with Kiwibank most recently and before that ANZ. Based in the Mount Roskill

Jay Ren area, she is looking forward to growing her business through the Ray White network as opportunities become available. Anu Nathoo has joined Loan Market from AMP. She has a strong insurance and lending background through her time with Tower and AMP. Nathoo is based in the northern suburbs and will look to grow her business from existing networks and the Ray White network as opportunities emerge. Brent Findlay joins the advisory group from the fitness industry after a career as a professional cricketer and more recently as a business banker at ANZ. He is aligned with the newly opened Ray White Papanui office in Northlands Mall.

Mortgage Express has employed a number of skilled mortgage and insurance advisers from various parts of India. It says the new advisers are fluent in the local dialect and they understand first-hand the complexities involved with buying and selling property in a foreign country. Language barriers aside, the differences in culture often complicate the process. Pradip Chakraborty, who was born and raised in Delhi, is fluent in Indian Hindi, Punjabi and Urdu and can speak Gujarati. Being of Bengali descent, Chakraborty is also fluent in this native dialect. Now living in Auckland, he is well connected within the Bangladeshi community here, and clients from Fiji, Pakistan, Bangladesh and India can benefit from Chakraborty community knowledge and expertise. Dilip Datta, originally from India, spent a long time working in the Middle East, affording him a deep understanding of Muslim culture. Datta is multilingual and can converse in English, Hindi, Gujarati, and Urdu, and has a limited understanding of Arabic. Mahesh Amrute migrated to New Zealand in 2001 from Mumbai. Amrute understands first-hand the dynamics involved in settling into a new country. As an active member of the Auckland Marathi Association, Amrute is involved in a number of community events and festivals aimed at sharing culture and customs, and building stronger community ties within the Indian community Lalit Bajaj has had over 15 years’ experience in the financial services industry, four years of which were spent as a mortgage adviser. ✚

HOUSING COMMENTARY By Susan Edmunds

Banks jostling for great deals Low inflation keeps interest rates low but how low can you go?

ow interest rates are tipped to be a driver of a hot property market, particularly in Auckland, this year. Banks are offering borrowers rates below 5% and Reserve Bank governor Graeme Wheeler has given a clear indication that there are no official cash rate rises looming. Real Estate Institute figures show 6,898 homes were sold in February this year, up 12.6% on February 2014 and the highest number of

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sales in any February since 2007. All regions reported an increase in sales volume compared to January. Year-on-year, nine regions had more sales in 2015. Waikato/Bay of Plenty had the biggest jump, up 40.6%. The national median house price rose $4,000 year from January to $430,000 in February. Auckland’s median house price increased to $675,000, the Real Estate Institute said. Quotable Value data also showed rising prices: It reported nationwide values up 6.4% year-on-

year in February, and Auckland’s up 12.2%. Westpac chief economist Dominick Stephens said data from the banking system showed strong levels of mortgage approvals and housing credit growth. He is forecasting a 7.5% increase in nationwide house prices this year. He said Auckland would likely exceed that rate of growth, while the rest of the country, including Christchurch, would come in under it. Wheeler put the blame for price inflation squarely on low interest rates. “These are among

“We’re tremendously busy, the banks are offering great deals and are very competitive with each other.” – David Windler the lowest mortgage rates New Zealanders have seen in a generation. And we see no scope for the Reserve Bank to push mortgage rates higher again this year. Consumer price inflation is awfully low, and that obliges the RBNZ to keep interest rates low.”

Great deals Broker David Windler, of the Mortgage Supply Co, said he was seeing strong levels of investor activity. That was buoyed by banks working hard to lend to borrowers with more than 20% equity. “We’re tremendously busy, the banks are offering great deals and are very competitive with each other,” Windler said. The main concern for investors was whether they were spending above the odds for a property and whether an investment would stack up from a cash flow perspective, he said. Property commentator David Whitburn, of property investment company FUZO, said buyers were extra buoyant since the March official cash rate announcement. Any concerns about the prospect of a rate rise had been eliminated and some were considering the possibility that the next move in the rate could even be down. Whitburn said it was important not to underestimate the influence of Chinese buyers in the Auckland market. Many people with money invested in China were worried about the outlook there and wanted the security of putting their money in the Auckland housing market, he said. Buyers were coming in with millions of dollars to spend and the market looked affordable compared with such places as Hong Kong.

Picking up Realestate.co.nz is reporting very low levels of inventory, which could also be expected to put pressure on prices. But Barfoot & Thompson data for February showed Auckland’s listings activity may be picking up slightly. The agency reported 1,771 new listings in February, up 47.7% on January and the highest number in 16 months. Its average selling price for the month fell by 1.3% on January to $747,521. The median price fell by 1.9% to $686,500, from $700,000 in January. Managing director Peter Thompson said that did not indicate a decrease in market activity. February was one of his agency’s busiest on record, with sales up by 9.3% on those for the same period last year. “The level of sales activity shows that, while

there is still strong buyer interest, for the time being buyers felt property was fully priced.” Property in the $750,000 to $1 million bracket was in high demand. Whitburn expected another strong year for the Auckland market. Strong population growth coupled with an undersupply would boost demand and there would be no interest rate rises to put pressure on. “There’s no slowdown any time soon,” Whitburn said.

REINZ SALES: UP

Turnover jumped monthon-month in February.

No change But he said there had not yet been any evidence of the boom spreading in any significant way beyond Auckland, as it had last decade. Between February 2014 and February 2015, the Real Estate Institute reported no change in median price for regions outside Auckland. Chief executive Colleen Milne said this underlined again the view that there are two distinct real estate markets in New Zealand – Auckland and the rest of the country. “While politicians and policy makers focus on solutions to the Auckland region’s housing supply problems, they will also be right to reflect on the need to ensure that any national application of new policies doesn’t have an adverse effect on the rest of the country,” Milne said. But there are signs that investors may be starting to look to other markets to purchase. Stephens said Hamilton had noticeably picked up. Tauranga was starting to move, albeit from a very slow start. Hamilton’s prices were infected by the increases in its bigger neighbour. QV reported that over the past three months, Hauraki District values went up by 6.5%, Waikato District values went up by 3.9%, Kaipara District values went up by 3.0%, and ThamesCoromandel District values went up by 2.3%. Rush said this trend was probably because of the “Auckland effect” as buyers looked for more affordable property. The Reserve Bank was pondering a new restriction that would require banks to hold more capital against loans to property investors. Stephens said this measure alone would only have a limited effect on the interest rates investors faced, but it could be the start of further restrictions on investor borrowing. “If those restrictions are significant, there could well be a noticeable impact on the housing market” Stephens said. “We consider property investors the marginal buyer at the lower end of the housing market, meaning they are the most important drivers of the price.

Access to capital “Property investors enjoy tax deductible mortgages, whereas first homebuyers do not, and they have plenty of access to capital. This means that property investors set a price-floor at auctions – if a first-home buyer wants to buy a particular house, they must pay more than that house is worth to a property investor, tax deductions included. “ Whitburn said the restrictions might push the banks to ask for 30% equity for property investment loans. “What can investors do? Fix now. I’m fixing for longer terms.” ✚

INTEREST RATES: UP Interest rates are not expected to rise this year.

OCR: UP

The OCR is clearly on hold and there have been suggestions a cut is possible.

IMMIGRATION: UP Migration numbers are at record highs.

BUILDING CONSENTS: NEUTRAL Building consent rates are improving.

MORTGAGE APPROVALS: NEUTRAL

The trend for the number of new dwellings consented, including apartments, is rising and is at its highest level since July 2007.

RENTS: NEUTRAL/UP

Rents are slowly increasing.

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TAKE AIM AT BROKER REPUTATION 014

Young guns or spud guns? Today’s young guns hanker for a client-for-life philosophy as they opt to educate, refer and recommend. By Jenny Keown

ost first-time mortgage brokers might be lucky to write $10 million in lending in their first year – Joel Oliver and his hard-working team of eight at Auckland’s SuperCity Mortgages & Insurance reached $250m. Across the city, Dev Dhendra, of FundMaster is flat out. Within the first year of his business, he had written $66m, this without spending a cent on advertising. The young guns of the brokerage world are young, ambitious and well-spoken. They argue they offer a different service to older generations and want to lift the reputation of brokers as seedy, commission-led and involved in sticky deals.

Oliver, 33, was a bank lender for ASB and ANZ before becoming a broker.

As a bank lender, key performance indicators are centred on new lending, and attention to existing clients can fall down, Oliver says. “This never sat right with me,” he says. “When thinking about becoming a broker, I was attracted to having a true ‘client-forlife philosophy’.” When Oliver was deciding who to work for, he was surprised at how little each brokerage offered to staff in return for their slice of their commission. It seemed as if the best brokers were lone rangers with no interest in expanding. So Oliver teamed up with three of his colleagues to form SuperCity. Fast-forward a year and the team has grown to 10 and attracting considerable business. “In a year of operation, we don’t have a lot

❝ This is what I love

about my career, learning the benefits of the corporate world, but taking out the bureaucratic noise to create a workplace I have always dreamed of. ❞ -Joel Oliver-

to compare with. However, business is very good. We are experiencing month-on-month increases in business written, [but] I don’t believe that this is all to do with the boom in Auckland.” He says he believes SuperCity is providing a financial hub where brokers talk to clients about all their financial goals, rather than just focusing on achieving a transaction. “Once we understand their goals we educate, refer and recommend,” Oliver says. “This might be anything as simple as referring to a solicitor to get a will to financing a renovation to create equity and purchase a first rental property. Our service is more about co-ordinating the financial needs of our clients than best rates and free TVs.” When he entered the industry, Oliver was disturbed at the way brokers spoke to bank loan assessors and business development managers. SuperCity aims to make the banks as happy as their clients, with quality submissions, an understanding proactive attitude and polite phone manner, he says. “Just as importantly, we have a lot of fun along the way,” Oliver says. “This is what I love about my career, learning the benefits of the corporate world, but taking out the bureaucratic noise to create a workplace I have always dreamed of.” The younger generation gets to learn about what works and what doesn’t work, from our predecessors who paved the way, Oliver says.

“This means we can ultimately change the perception of brokers in NZ. It is already happening. Broker Business is now at 32% of all mortgages for the past 12 months – for years and years it was 25%. Australia is at over 50%. We can get our industry to this level. “ Given we are a young company, as older brokers retire, we will be at the top of the broker game with increased market share with our whole career ahead of us, he says.

Auckland-based Jessica Pronk, of the Mortgage Supply Company, says she became a broker because it offered more flexibility and enjoyment.

She spent over 11 years with ASB, as a customer service manager then as a branch manager. Pronk, 34, began to dislike the bank’s corporate side and high-pressure environment, and dealing with older staff who resented her position.

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As a broker, she can work from home and manage her hours around the time she spends with her young son. Her approach to brokering is to work out what is right for the client, home visits, work through their mortgage questions and financial goals, and help them save money. Brokering is an old boys’ network, Pronk says. She thinks the younger generation of brokers is raising standards and shifting the perception of brokers being in the same league as real estate agents.

❝ I work hard for

clients in the real sense; I stand alongside them, go to auctions, give advice on the market, and develop a good rapport. I take calls after 5pm – most banks don’t do that. ❞ -Dev Dhingra-

Dev Dhingra set up Fundmaster in December 2012, and within his first year had written $66 million in lending.

Dhingra was a customer service representative at ASB and attracted many Indian customers to the bank. A proposal of his to create an Indian segment of ASB focused on lending was accepted and he became a business development manager. Dhingra, 31, hasn’t spent a cent on advertising – his referrals have been word-ofmouth. “I work hard for clients in the real sense,” Dhingra said. “I stand alongside them, go to auctions, give advice on the market, and develop a good rapport. I take calls after 5pm – most banks don’t do that.” About 90% of his clients are Indian, and he believes being able to speak Hindi means they are more comfortable with him. A Dhingra client looking for his first-home kept losing out at auctions. “I went with him to the first few auctions and was on the phone whenever he went for others, to help build his confidence,” Dhingra said. “I was always giving him positive talk about how there will be one right property for him and property buying can be disheartening but keep focused.” Before every auction, the client asked for a price indication and they discussed repayments and the client’s budget and a fair price for the auction.

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His loan approval lapsed four times, and Dev got a reapproval for him without any charge. He was only looking in to a particular area and I suggested that he look at other new developments. He finally brought a brand new house built by Fletcher, Dhinghra says. “We also helped him get movers and discounts on furniture and TV.”

liase everything for my clients.” “The best thing about my job is the people I get to meet. I tell all of my friends and family every day that I am so lucky because I get to meet so many amazing people from all walks of life and help them buy their home.” She said she believed people expected a lot more of brokers now than did previous generations. “You can’t just sit around and wait for the business to come to you,” Prosser says. “You have got to get out there.” And there is much more regulations and compliance to work through than before, she says.

❝ The best thing

Courtney Prosser , 29, worked in client and account management before becoming a broker in 2012.

A contractor for Wellington’s MoneyBox, Prosser helps clients through the process from getting their finance through to purchasing their home and all the steps in between. “My advice is also ongoing. I make sure I keep in touch with my clients regularly. I surround myself with experts in their fields like valuers, lawyers and accountants. I am generally the central point of call to help

about my job is the pe I get to meet. I tell all o friends and family ev day that I am so luck because I get to mee many amazing peop from all walks of lif and help them buy their home. .❞ -Courtney Prosser-

g eople of my very cky et so ple fe y

❝ I “I know it’s a

cliché but we work in the best interests of our clients. I find a point that I can relate to them on and make the process as smooth and enjoyable as possible. ❞ -Sam Parsons-

Sam Parsons, 24, ran his own company, Wood Pecker Signs, for five years before selling it and joining his parents’established Christchurch company, Rob Parsons & Co.

Rob and Vic have run the business for 18 years so it was very much a family affair. “Mortgage brokering evolved in to more of a consideration for me when I realised I have a big passion for people. It’s a privilege to deal with people in an important time in their lives and the first time they are spending huge money on something special. “I know it’s a cliché but we work in the best interests of our clients. I find a point that I can relate to them on and make the process as smooth and enjoyable as possible,” he says. It still surprises Parsons what people think of brokers and the view that brokers get a cut on their commissions. “Once I explain it to them, then they understand.” ✚

017

THE NUMBERS LEGAL TMM analysis

Bank low equity lending plunges TMMâ&#x20AC;&#x2122;s analysis of bank lending figures shows that registered banks have significantly reduced their exposure to loans with LVRs of 80% or more. Key points:

All banks have shown strong loan growth with Kiwibank (7%), ANZ and BNZ (5%) all above the average growth rate of 4%. ASB and TSB has growth of 3% and BNZ and SBS sat on average growth of 4%. â&#x153;&#x161;

ANZ has seen the biggest shift away from high LVR loans, with the volume falling $4 billion from 23% to 15% of its overall book. BNZ has maintained its position as having the lowest percentage of high LVR loans on its books. The percentage of high LVR loans has fallen from 14% to 11%.

Banks have been reducing the dollar amount of high LVR loans they have on their books. In the 12 months to December 31 the total value of low equity loans on their books on a combined basis has fallen by more than $7.5 billion.

Breakdown of total loan book by LVR at December 31, 2014 ANZ

ASB

Westpac

BNZ

Kiwibank

TSB

SBS

Total

$Billion

Less than 80%

51.70

85%

34.16

81%

32.53

81%

27.68

89%

12.10

86%

2.31

86%

1.41

80%

161.88

84%

80-89%

5.92

10%

5.47

13%

5.26

13%

1.68

1.71

12%

0.14

0.23

13%

20.41

11%

90%+

3.07

2.72

2.36

1.58

0.32

0.23

0.13

10.41

80% & over

8.99

15%

8.19

19%

7.62

19%

3.26

11%

2.03

14%

0.37

14%

0.36

20%

30.83

16%

Total

60.69

100%

42.35

100%

40.15

100%

30.95

100%

14.13

100%

2.68

100%

1.77

100%

192.71

100%

Market Share

31.5%

12 Month Growth

2.81

22.0%

1.12

20.8%

2.17

16.1%

1.35

7.3%

1.01

1.4%

0.09

0.9%

0.06

100%

8.62

Breakdown of total loan book by LVR at December 31, 2013 ANZ

ASB

Westpac

BNZ

Kiwibank

TSB

SBS

Total

$Billion

Less than 80%

44.81

77%

31.85

77%

29.55

78%

25.39

86%

10.71

82%

2.11

82%

1.31

77%

145.74

79%

80-89%

8.53

15%

6.19

15%

5.67

15%

2.10

1.99

15%

0.22

13%

24.91

14%

90%+

4.54

3.19

2.77

2.10

0.42

0.26

10%

0.17

10%

13.44

80% & over

13.07

23%

9.38

23%

8.43

22%

4.20

14%

2.40

18%

0.48

18%

0.39

23%

38.35

21%

Total

57.88

100%

41.23

100%

37.98

100%

29.60

100%

13.12

100%

2.59

100%

1.70

100%

184.09

100%

Market Share

31.4%

22.4%

20.6%

16.1%

7.1%

1.4%

0.9%

100%

ADVERTORIAL

XPLAN

NAMED TOP FINANCIAL PLANNING APPLICATION FOR EIGHTH CONSECUTIVE YEAR

RESS’ advice and wealth management platform XPLAN has been named the leading Australian financial planning application by research house Investment Trends for the eighth consecutive year. The 2014 Financial Planning Software Benchmark Report, now in its tenth year, said XPLAN was an “outstanding example of Australian software engineering”. XPLAN achieved a 94% score – the highest score in the ten years of the report – and led in the five categories of client management, advice provision, portfolio management, practice operations and integration. The report noted XPLAN had undertaken more improvements than all others surveyed combined and was ranked first for overall functionality. The report said IRESS continued its relentless development program in 2014, at a time when other planning applications have entered their mature stage.

“XPLAN has continued to innovate. With a global market for its wealth management applications it is adding more new and revised functionality than all of the other developers put together,” the report said. The report noted IRESS’ improvements continued to focus on real-time access to data, integration to practice workflow and support for client-facing engagement. This was on browser and tablet functionality. IRESS Chief Executive Officer, Andrew Walsh, said: “We are very pleased to be named the top financial planning application for the eighth year in a row. We do not take our market-leading position for granted and continue to focus on meeting the needs of clients through providing reliable, trusted and innovative solutions. “The past twelve months have been no exception with a significant number of enhancements to improve the access and functionality of XPLAN, for advisers and their clients and licensees.”

About IRESS IRESS is a principal supplier of wealth management, mortgage and financial markets systems in, Australia, Asia, New Zealand, Canada, South Africa and the United Kingdom. All product streams support a diverse range of roles and offer front, middle and back-office functionality for clients that range from financial service institutions through to independent operators. IRESS is a progressive, service-based organisation that employs over 1340 staff globally, with local knowledge and industry experience. IRESS strives for excellence in relationships with clients and industry bodies alike. IRESS is client-driven, responsive and promotes a culture that supports working with customers and the industry to face challenges and keep pace with industry developments. www.iress.com.au About Investment Trends Investment Trends is a leading specialist market research organisation in the Australian wealth management industry, providing new insights and decision support information to over 200 leading financial services businesses. Investment Trends combines analytical rigour and strategic thinking with the most advanced research and statistical techniques to help clients gain competitive advantage.

PAA LEGAL By Karen Mooney, PAA board member

Interest rates and the wider view Building borrower understanding is critical to refinancing options but bank wars are another impediment for advisers, writes Karen Mooney.

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… What happens when lenders offer sharper rates? You only need to have been a mortgage adviser for a short time to know – existing borrowers look at their refinancing options and home loan hunters become even more focused on rate, sometimes to the detriment of the overall structure and suitability of their lending. Don’t get me wrong, I am all for sharp rates, but the reinvigorated bank wars and introduction of the 10-year rate from TSB in February again stirred thoughts about that particular mountain we as advisers continue to climb, which is this: How can we, as a group of experts, build borrower understanding that rate is only part of the picture? It is the tip of the iceberg and what lies beneath is just as important as the sharpest, shiniest rate promoted heavily on telly, online etc. It all starts with the ‘what will’ and ‘what could’

020

conversation. We can’t predict exactly what the future will bring, but a lot of clients do know based on their plans. A little digging goes a long way in working out what they need from their home loan, now and in the future. The basics like: do you think your income is going to increase or decrease down the track; are you planning on starting a family; any big travel plans on the horizon; what kind of property goals do you have etc? Looking at the past six years, the best performing rate has been the one-year fixed rate – although of course it’s a bit like the weather, and no one really knows what that picture will be in the next six years. At the other end of the spectrum, the continuity benefits of longer term rates – knowing what you are going to pay for the next five years or more – certainly is attractive to some. When you broaden the conversation and remove the temptation to pick a rate like it’s a Power Ball number, advice really becomes useful. Each client is different so understanding the flexibility they need now and in the future can’t be underestimated.

❝ We can’t predict exactly what the future will bring, but a lot of clients do know based on their plans ❞

For example, if clients expect their income to increase, what kind of flexibility and capacity do they need to make the most of those increases for their mortgage? What can a young couple currently on a double income do with their mortgage now to be in a better position when/ if they drop to one income when starting a family? What is the likelihood that they’ll want to go overseas, rent the property, sell, upgrade, or something else two to three years later? Rounding out ‘rate shopping’ with some sound conversation about their plans, means clients can make a calculated decision – price comparison combined with other considerations – rather than just grabbing rate. All pretty straight-forward stuff for an adviser, but often new ground for clients. Broadening client understanding from simply ‘product, price and where I can get it’ is a powerful conversation and not only serves to secure the right mortgage for their needs, but clearly illustrates the value of advice – the bigger picture thinking that advisers bring to the table. ✚ Karen Mooney is a PAA Board Member and a mortgage adviser with Lifetime.

SALES & MARKETING LEGAL By Paul Watkins

$$$$$

In line with online finance tipS However you connect, people will always be impressed with contact. Does the internet make the connection easier?

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 haven’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. Seven ways to melt way your body fat - you will find this style of title and many other free e-books such as ‘10 ways to make girls fall for you’, ‘22 ways to make great coffee’ and even ‘3 easy modern ways to kill yourself’ on the internet. Why are so many offered and why are so many of them downloaded in their hundreds of thousands? You may not think so, but they are. Since they are free, the downloaders have nothing to lose. Or do they? The answer is that they are an effective way to generate a list and establish credibility. While the e-books must genuinely have to be of value to the reader –and mostly are – the motive in offering them is to generate a prospect list. To download them you generally need to provide a first name and an email address. This allows them to send you emails with, “Dear John, thanks for downloading my e-book. I would particularly draw your attention to page 7, which outline…” So while it cost you nothing

022

to get the e-book, you did give away your name and email, completely voluntarily. Each email must have the legally required “Click here if you wish to stop receiving emails…” of course. But many email marketing experts will tell you that while quite a few opt out after the first one, the rest will stay on your list for some time. What am I leading to? I want to impress that people expect value in your contacts with them. Always ask yourself, what value do I add each time you connect with a client or prospect? Newsletters can’t read like advertising and this is why advertising is having a diminishing return on investment. As I wrote about in the last edition of this magazine, the internet has changed everything yet I am not seeing the changes in how many brokers go about their business. Some have of course and congratulations there. Traditional directories are now going the way of the dinosaur, as they only list contact details. Clients want to know how you can add value to their lives and how you compare with others. This is not hard to find out now with internet searches. And if they do find your web site, what will they read? Probably that you can offer mortgagers and insurance. Wow, that’s unique! So I’ll come back to what value are you adding when they see, hear or interact with you in any way? Let’s go back to the web sites. I searched ‘mortgage brokers’ in my city to research this article. I found only one that

has a regularly updated blog out of the large number who practice here. None offered any free downloadable useful information, although a number had mortgage calculators on them. This is a good idea. However, it is not unique or explains how you are different or why I should choose you. Only two had a video clip that let me see who they were and establish how they might be different or change my mind to not go directly to a lender. I have had brokers argue with me that giving away free information will only allow the client to know how to approach lenders more effectively themselves and negates the need for a broker. They also point out that competitors may get hold of it, change the headline and use it themselves. That’s possibly true in both cases, but who cares? Your web site is still going to be found easier and you are still going to be seen as the expert ahead of them. And right now, the almost total absence of such information on most brokers’ web sites means you can have it to yourself for a while! As a prospect, if I read a range of short articles on your web site about what to watch for in seeking a mortgage, how to manage personal debt or general financial management tips, that makes me see you as the expert in your field. If I can download a checklist of things to be conscious of before I take out a mortgage, then that means I see you in a favourable light. If I can download an e-book on the ‘6 ways to finance a rental property’, then that starts to position you as the one to go to for such finance. You must build an overt level of perceived expertise to your prospects. Here are a range of titles top which that I am sure you could write. Remember that the headline or title is critical. ‘7 things your bank will never tell you about mortgages’; ‘4 tips to get you out of debt’; ‘Why you should NEVER finance your car through a car dealer!’;

‘3 painless ways to save on household expenses’; ‘13 really cheap holidays that kids will love you for’; ‘The 4 most critical considerations when taking out a mortgage’; ‘How to eliminate the greatest reason you never get ahead financially’; ‘The 4 dumbest ways to stuff up your financial life’. Get the idea? If it’s a blog or newsletter entry, then it should typically be between 150 and 300 words. If it’s a checklist, make it printable in one page. If it’s an e-book, then it should be considerably longer, but not an epic novel! There really isn’t standard number of pages, as it should have pictures, graphs and diagrams and well-spaced text. But short is better than long. I would recommend around 1,200 words max. That’s the number of words in this article. These are not an advertisement, and not a regurgitation of what is in the press about interest rates and trends. They have to be more in the opinion-piece genre and reflect your point of difference. Don’t have a point of difference? If you think this, then you haven’t given it enough thought. It doesn’t have to be earth-shattering, just pick up on a small point or aspect of your service that you can hang onto. Next month I want to pick up on this and show you how you can have a point of defence in a market that looks homogenous. In the meantime, think up ways to truly add value to your prospects so that they see you as a credible expert supplier of your service. You know you are good at what you do, but you need to prove it. You need to understand what your target market will respond to and how to tell them. “I do mortgages” tells them nothing. Tell them what you know that proves to them that you indeed do know. This takes considerably more than three words. A good number on the other hand is 1,200. Remember Tony Robbins is not the best NLP trainer out there, but he is the richest because he knows how to tell everyone about it. The ‘Men are from Mars, Women are from Venus’ author may not be the best marriage counsellor out there, but he certainly made a fortune from books, tapes, and seminars. And if you don’t want to do it yourself or lack the confidence to do so, there are good writers out there at modest prices who can do it for you. ✚ Paul Watkins writes blog content and newsletters for financial advisers.

Paul Watkins writes blog content and newsletters for financial advisers.

023

MY BUSINESS By Phil Campbell

RELATIONSHIP BUILDING

KEY FOR ROBYN

After 35 years in specialising in mainly home mortgages, Robyn Ashkettle has known only consistent good years. With a clutch of awards, Ashkettle looks to further buoyant times in 2015 in this interview with Phil Campbell. You have garnered a host of awards over recent years. It has obviously involved a lot of nous and much industry. How and where did you start?

Robyn Ashkettle: I began working at 17 years of age with NBNZ in 1976. Has it involved 99% sweat for 1% return, as it were? I have been in a banking environment all of my working life which works for me as I much prefer being master of my own destiny.

Your notes say you’ve managed some $850 million in property. Have you always specialised in home mortgages?

Robyn Ashkettle: Mainly, although I certainly love doing commercial and business loans as part of my daily challenges.

From what do you derive greater satisfaction – a settled, satisfied customer or closing a deal?

Robyn Ashkettle: A settled, satisfied customer. My customers always come first.

The world within New Zealand looks on with envy at the Auckland and Christchurch markets – do you think the rest of the country will catch-up in 2015? If so, which areas do you think should improve?

Robyn Ashkettle: I believe that residential provincial areas like Tauranga, Nelson and Queenstown and surrounds are growing and will show improvement in 2015.

Have you known better times in the Auckland market in your 35 years experience in the frenetic world of financial management?

Robyn Ashkettle: I have not always worked in the Auckland market but, yes, in early 2002 the Auckland market was like it was now.

Most difficult year?

Robyn Ashkettle: I have been fortunate enough to have had consistently good years.

"Allowing first home buyers the ability to bid at auction, without the need for a registered valuation would, in my opinion, be a dream for both client and adviser.” You offer many tools across the board – as do other brokers. How much business is carried out online and does this remove the face-to-face convivial aspect of conducting business? Robyn Ashkettle: I prefer face-to-face contact as I believe this is the best way to move forward with trust on both sides and build relationships. A small percentage of my business is online but I do expect this to grow as people become busier in their daily lives.

NZ markets appear to have been overly regulated, possibly to ward off the rogue elements in the profession but signs are emerging of a relaxation in rules, particularly for first home owners – a good thing? Robyn Ashkettle: A first home buyer in the market is always a good thing in my opinion. However, I do understand the reasons for the Reserve Bank restrictions to first home buyers.

Where in the mortgage broking world could improvements be made to assist first home buyers?

Robyn Ashkettle: Allowing first home buyers the ability to bid at auction would, without the need for a registered valuation in my opinion, be a dream for both client and adviser. Sales statistics provided by an agent to the bank would be a good guideline, as well as back up core logic values obtained online. Deposit funds for first home buyers are an issue also, as normally these funds are tied up in KiwiSaver and cannot be passed over as a deposit, on auction date. Banks should try to assist by advancing the monies against the KiwiSaver monies, coming forward to the lawyer. I also see issues with many first home buyers only having a 5% deposit when 10% is required.

With such experience you obviously have many returns, guaranteeing reciprocal satisfaction? Do any particular cases which have required that extra effort to secure satisfaction stand out? Robyn Ashkettle: No cases stand out as I always give 100% attention to every client and every deal no matter how big or small.

Following last year’s elections, do you envisage a more settled market, that it can look after itself, sans government or RB tinkering?

Robyn Ashkettle: I expect 2015 to be a continuation of last year due to high demand for housing in Auckland. I do, however, feel days on market will get longer. ✚

ttle e k h s A n y b o R 025

INTEREST RATES Chris Tennent-Brown

RBNZ

on hold for the foreseeable future The next OCR move could be up or down but with the 90-day track at a low it seems increases are off the table for the next two years.

t the RBNZ’s March

Monetary Policy Statement and Official Cash Rate Review, the OCR was held at 3.5% for the fifth consecutive meeting. The decision to hold was widely expected – the interest was more about the RBNZ’s outlook for the economy and financial forecasts that are within each Monetary Policy Statement. The RBNZ reiterated its message that interest rates were likely to be on hold for some time, and backed that assessment up by publishing an outlook for the 90-day bank bill rate that was flat at 3.7% for the next two years. The fact that the 90-day track is so low for so long reinforces our view that OCR increases are off the table for the next couple of years. The RBNZ noted the balance of risks was broadly even, and the next OCR move could be either up or down, depending on data flow. The RBNZ’s CPI inflation outlook was considerably lower than its December forecasts, and the bank has a CPI forecast

026

of only 1.7% at the start of 2017. The RBNZ is keeping an eye on inflation expectations within the economy. The RBNZ considers inflation expectations are currently consistent with actual headline inflation returning to the 2% mid-point of the target band. The bank did note with some concern, however, the recent decline in inflation expectations. If inflation expectations become “unanchored” following a period of very low inflation, the RBNZ may have to cut rates to ensure inflation returns to the 2% midpoint of the inflation target range. Specifically, the RBNZ said it would watch closely the impact of lower inflation expectations may have on wage- and pricesetting behaviour. The RBNZ’s focus the risk that inflation expectations become too low was illustrated in a scenario presented within its forecasts: a sustained fall in inflation expectations to around 1% would be worth around 50bp off interest rates. In contrast, the NZD, another potential rate

cut trigger, did not seem to attract heightened concern as yet. These factors, as well as the potential for growth to undershoot the RBNZ’s outlook or for global risks to become more serious, mean we view the risks to the OCR as skewed down over the coming months.

Mortgage influences With housing market activity picking up, particularly in Auckland, the RBNZ sees nationwide house price inflation peaking at 8% in September 2015. The RBNZ’s housing market concerns are about financial stability foremost, with for inflation spillover remaining limited to date. We think that any house price concerns the RBNZ has will be addressed by further use of prudential tools. The RBNZ is expected to enhance its prudential tool kit mid-year, adding to the high-LVR lending restrictions already in place. In early March, the RBNZ requested feedback on its latest proposal for treatment of residential investment loans, and targeted a July 1 implementation date. We expect the RBNZ will leave the high-LVR lending restrictions in place until at least late 2015. Local interest rates (particularly longer-term rates) are likely to be heavily influenced by offshore developments, particularly in the US over 2015. It’s looking increasingly likely that the US FOMC will raise rates this year, with current market pricing suggesting a September lift-off. The sustained improvement in the US economy and growing expectations of US rate hikes have seen US Treasury yields grind higher since late January. But the US 10-year Government bond yield is still only trading just above 2%, which is very

low by historical standards. New Zealand’s equivalent 10-year Government bond yields just under 3.5%, a higher return than the US equivalent, but very low by our own historical standards and over 1% lower than a year ago. As well as influencing New Zealand’s Government bond yields, low global rates have been putting downward pressure on local term mortgage rates. If US rates lift over the course of the year and long-term bond yields keep lifting, we would expect to see some upward pressure on longer-term fixed mortgages here.

Benefit 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. Property investors should also be prepared for potential changes to the treatment of residential investment loans. Floating mortgage rates move fairly much in lock-step with each RBNZ move, and lifted 100bps, or 1% over 2014. If the RBNZ remains 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 this time a year ago. 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 improving US economy, and Fed rate hike expectations together point to upward pressure on US long-term rates, and in turn long-term New Zealand rates.

Offshore interest In contrast, global deflation concerns are a downward influence on rates both here and abroad. On balance, we expect local term rates to remain low in the immediate future. We expect, however, the global backdrop to improve over the year; 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 right now the RBNZ’s signal to pause, and the low

"As well as influencing New Zealand’s Government bond yields, low global rates have been putting downward pressure on local term mortgage rates”

% 11

10 Variable Rate

Tightening cycle 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. With that risk in mind, some of the longer term rates are at times not much higher than the one-year rate, meaning a reasonably long period of interest rate certainty can be achieved at a relatively low cost.

5-year rate

8 1-year rate

2-year rate

6 5

6 Source: ASB

Jan-07 Feb-08 Apr-09 May-10 Jul-11

Aug-12 Oct-13 Dec-14

Home Loan Rates

% 8

10 -ear average

7 2-year ahead forecast

6 Current

Identifying best strategy The best choice to make as a borrower involves assessing the likely path for interest rates, the various risks to that outlook, and personal preferences for certainty and flexibility – a lot to consider. Despite the variables, we can still identify a number of things. Firstly, the six-month rate is the cheapest rate right now, nearly 1% below the floating rate. So borrowers can create some certainty, and obtain a lower rate than floating by fixing for short terms. In fact, 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.

Source: ASB

global rates are helping keep rates out to two years, and some targeted ‘specials’ on offer under 6%, and 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.

Home Loan Rates

1-year ahead March 2014

Variable Rate

1 year rate

3 year rate

5 year rate

It’s 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 Assumptions behind our forecasts bring risks, 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 some 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 ability 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. Chris Tennent-Brown is a senior economist at ASB Bank. ✚

027

KiwiSaver CHANGES By Susan Edmunds

New buyers, advisers banking on April love... The first-home property market is stirring over relaxation in KiwiSaver criteria. Brokers are bracing for a rush of first-time buyers preparing to take advantage of the KiwiSaver Homestart Grant.

rokers are expecting to see many more first-home buyers entering the property market once changes to the KiwiSaver first-home subsidy and Welcome Home Loan schemes kick in. The programmes are designed to allow buyers who meet eligibility criteria ease into their first homes. All first-time buyers can withdraw money in their KiwiSaver accounts to purchase a property. But extra assistance, in the form of a KiwiSaver subsidy or Welcome Home Loan, is available to those who comply with income and house price caps. From April 1, the KiwiSaver first-home subsidy will double for those who are buying newlybuilt homes. At the moment, borrowers can access up to $5000 each if they have been in the scheme for five years or longer but that will increase to $10,000. A couple purchasing a new home can now be eligible for an added $20,000

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to their deposit by the Government. The scheme is being renamed the KiwiSaver Homestart Grant. Eligibility for Welcome Home Loans is also being expanded. The price caps will be aligned with the KiwiSaver grant criteria, so borrowers can purchase homes up to $550,000 in Auckland, from $485,000 at present, up to $450,000 in Wellington, Christchurch and similar markets, and up to $350,000 throughout the rest of the country. Those who earn under $80,000, if an individual buying alone, or $120,000 as a couple, will qualify.

TAX CREDITS All KiwiSaver members will now be able to withdraw their member tax credits as well as their own savings. Up to mid-2011, that was a maximum of $1042 a year. Since 2011, it has been $521.43 annually. Housing Minister Nick Smith said the changes

meant a couple in Auckland each earning $50,000 who contributed to KiwiSaver for five years could withdraw $35,000 and receive a $20,000 KiwiSaver Homestart Grant. They could then apply for a 90% Welcome Home Loan and purchase a home up to $550,000 in value. Glen McLeod, of Edge Mortgages, said the changes would have many positive effects. “If both partners have been within KiwiSaver for a while they get $10,000 as a grant for an existing home and if they’re building, they get $20, 000,” McLeod said. “That’s just phenomenal,” He said he was preparing a couple of applications but had told his clients to hold off signing a sale and purchase agreement until after the changes were made. The $550,000 price cap in Auckland was still too low for many areas, he said, but first-home buyers would need to be realistic about what they could buy. “This is quite significant,” McLeod said. “It’s going to help people get into their homes now.

❝ There will have

to be expectation changes in terms of where they can buy but it’s a stepping stone. ❞

- Glen Mcleod There will have to be expectation changes in terms of where they can buy but it’s a stepping stone. If they’ve been in a position where they were completely locked now, now there are some options.” Over the past week four or five inquiries had come in from first-home buyers, he said. “I’ve said you can buy but you need to wait until after April 1.”

CAPS TOO LOW Jenny Campbell, of the Mortgage Supply Co, said the move to raise the Auckland price cap was positive. “Welcome Home Loans have been a roaring success in every part of the country except Auckland,” Campbell says. “The caps were too low and I could argue they are still a little low.” She said the scheme would really take off if lenders could be encouraged to offer Welcome Home Loans to people wanting to buy apartments. “We’ve got the Government saying first-home buyers should be looking at the apartment market but it’s almost impossible to get a Welcome Home Loan on an apartment. Lenders won’t lend over 80% on an apartment in most cases. It’s a real shame.” Apartments were a logical step for first-home buyers, especially in Auckland, she said. “Banks should make an exception for Welcome Home Loans because they’re underwritten by the Government. They are valuable loans for a lender to have. I would think they could loosen up their criteria around apartments.” Campbell said there had been rumours that the KiwiSaver withdrawal scheme was to be relaxed so that borrowers could draw down part of their savings to pay for a deposit if they were building a new home. But a spokeswoman for Smith said that was not the case. KiwiSaver funds could still only be accessed on the final settlement day. Campbell said borrowers should be encouraged to take advantage of all the assistance available to get them into the property market. “When people realise a lot more free money is on the table when you look at new homes, there will be more interest in the building sector. First-home buyers need to look at all these options so carefully; there are great options available to them. As much as we like to complain about the cost of houses, it’s never been easier or cheaper to get into the housing market. There’s so much help available and interest rates are low.” ✚

✱ Case study

Borrower in clover

Whangarei buyer Clover Isaachsen is working with mortgage adviser Marty Maher, of AMP Dynamics Financial Services, to secure a Welcome Home Loan. She has been looking at open homes and scouring online advertisements but is waiting until April 1 to make an offer in a property. “When we spoke to banks they couldn’t offer pre-approvals based on the new rules because the legislation wasn’t passed.” She said the small increase to the amount she could withdraw from her KiwiSaver account – an extra $520 a year in the member tax credit – would mean a slightly smaller mortgage compared with the purchase price. But she said the new price caps were the biggest improvement to the scheme. “Even a $20,000 to $30,000 increase over the previous $300,000 cap opens up a whole new category of eligible houses.” She said her adviser Maher had been very helpful. “It has been fantastic because they know what banks are looking for as well as what the property market is doing.” Real estate agents had indicated other buyers were opting to wait for the price caps to change.

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INSURANCE

WHY By Steve Wright

DO WE SELL INSURANCE? Is insurance necessary? Having a sound philosophical base and accepting sound compliant advice can ease your mind. By Steve Wright

hy we sell insurance should really be prefaced with, “why do clients need insurance?” and, “what should insurance do?” I think there is no question we are all better off with the protection insurance brings, as individuals and as a society in general, but what is its purpose? Why do we sell it? I guess it boils down to what we are trying to do for our clients with insurance – what does the client need to protect? I ask because the correct philosophy is fundamental to giving proper, compliant advice. Listening to what is being said around the traps lately, I’m concerned our collective thinking on these issues is becoming murky. So what should insurance do? Insurance is about paying clients a sum of money to compensate against loss, usually financial loss. Insurance is not about paying sums of money regardless of any loss; that’s not insurance, that’s something else.

PROPER ADVICE While an element of uncertainty is always involved and insurance can probably never cover every risk perfectly, having a sound philosophical base is fundamental to

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developing products clients actually need and for providing proper advice. I often hear people say things like “an adviser’s job is to maximise their client’s ability to get a claim paid” but that’s not really correct. If so, any policy that paid high volumes of benefits for relatively small insignificant risks, would foot the bill. A better philosophy would be to “maximise the client’s ability to get a sufficiently large claim paid to compensate them when they need it because they have suffered a loss”. I recall the case of an adviser fighting hard with underwriters to justify income protection for a client who was fortunate enough to own several businesses that he did not manage and who would still have received a very large income even if disabled.

UNCOMFORTABLE He wanted the client to have income protection even though the client did not need it! Whatever his reason, I remember him being uncomfortable about not being able to offer income cover even though it was not needed. Maybe his philosophy was not right. His client did not need income cover so recommending something else (he could and should have recommended more trauma cover – which even wealthy people need to

protect their wealth) would have still been compliant. Just recently, several insurance providers have introduced trauma cover initiatives to help clients afford greater levels of cover for more serious trauma conditions. Each one has taken a different approach, which, by accounts, has led to heated and furious debate about which option is the best. It seems to me that arguing about the merits of any product, without injecting client need into the debate is meaningless. Insurance products on their own have no value. Their value only becomes apparent when they satisfy a real world client financial

❝ It seems

to me that arguing about the merits of any product, without injecting client need into the debate is meaningless ❞ products for premium spend. Evidence of murky philosophy is everywhere, evidenced by debates, in the absence of actual client need, about which is better, stand-alone or accelerated, agreed value or indemnity. The pressure on insurance companies (to provide ever more generous trauma cover definitions to pay benefits when clients don’t need them) and to pay monthly disability benefits on top of ACC payments (which likely provides the insured with a greater income disabled than working!) is more proof that fulfilling an actual financial need is not paramount in our thinking.

CUSTOMER SATISFACTION

need, so arguing about which is best in the absence of actual need is irrelevant.

FINANCIAL RISK I still come across advisers who do not believe TPD pays claims. In New Zealand this is in no small way because very little TPD is sold, yet being permanently unable to work is arguably the single biggest financial risk for all of us, bigger even than the financial consequences of death. The fact claims are less likely than, for example, trauma cover is reflected in the much lower premium. Failing to insure against this risk probably comes about because of philosophy as much as competition with other

The danger of this going unchecked will be higher premiums for less protection, lower customer satisfaction with insurance and more difficult business conditions for all of us. Evidence of philosophy is particularly prevalent when it comes to paying for insurance. If you view insurance as an expense then you are likely to be pre-occupied with price (and then so will your client!). If you view insurance as the valuable asset it is (New Zealand Life and Health insurance providers paid close to $2 billion in benefits last year!) then you will more than likely focus on product quality (and so will your client). Clients who value what they have bought are far less likely to be unhappy about the cost, just as clients who have bought what they need are more likely to be happy when it counts, at claim time. ✚ Steve Wright is general manager product at Partners Life.

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LEGAL By Jonathan Flaws

Interest rates like comparing apples with apple cider t Choosing a lender is a matter of choice. It pays to keep an eye on market variables for the best interest rates.

s I write I note that the Australian dollar is now at NZ$0.9715 – an historic high. It suggests that the rest of the world is looking at the two markets and favouring our dollar against the Australian. Which is not surprising as our interest rates are currently some of the highest in the western world seem stable at current level while the Australian rates are falling. It’s interesting the effect that comparing interest rates can have on the value of currency. It’s also interesting the effect that interests rates can have on how borrowers compare mortgage offerings from different banks and lenders. Most banks play with interest rates to attract customers and it can be mesmerising to work out which is the better deal, particularly when you try to factor in potential movements in rates and try to pick the best fixed rate term. But when comparing one banks interest rates and terms with other banks interest rates and terms, are you comparing apples with apples? Are interest rates a fair comparison of the mortgage offerings?

Fair comparisons When the first of the modern credit laws came into play, the Credit Contracts Act 1981, it used the device of the finance rate to require all lenders to disclose a “true interest rate” on a uniform basis that would reduce all mortgages

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to apples to allow fair comparisons. Except that the finance rate was dependent upon the costs charged and was often not disclosed to the borrower until the loan was about to be signed so it was presented at the wrong time. The Credit Contracts and Consumer Finance Act2003 realised this was not really the best way to compare loans so it ditched the finance rate concept and attempted an alternative means of regulating lenders so that the annual interests rates advertised between lenders could be regarded as a true comparison. Interestingly, at that time Australia introduced the comparison rate into its credit laws but required lenders to make disclosure based on assumed standard loan types. The CCCFA made the assumption that the playing fields would be levelled if lenders are forced to recover their profit only out of interest rates and fees and charges are required to be reasonable and a true reflection of the costs incurred in a particular loan or the losses attributed to a particular loan. If the interest rates truly reflected the only revenue out of which a lender could derive its profit then surely a true apples to apples comparison can be made. I recently discovered that not all apples are created equal. And even a comparison is made between apples you could still end up with quite different results. I decided to expand my horizons and move into the world of craft brewing of cider.

But not using eating apples, using old world cider apple varieties with such glorious names as Peasgoodnonsuch, Yarlington Mill, Kingston Black, Fuero Rous and Biesterfelder Reinette. Cider apple tend to be more acidic and tarty. Some are even described as “spitters”, suggesting that unlike the apples bought in a supermarket or fruit shop, they are not intended for eating.

Distinct fruits As a result I’m not sure that you can compare an eating apple with a cider apple. It’s as if they are two quite distinct fruits with two quite distinct purposes – one is for eating and one is for crushing, brewing and drinking. Put another way, between the tree and the mouth, there are quite different processes going on. This makes it hard to compare one type with the other. Which is a bit like the revenue a lender generates from a mortgage. Lenders receive revenue by way of interest and reasonable fees and charges. Interest is intended to cover profit and generic operational expenses. “To be reasonable, the cost the creditor seeks to recover [by way of fees and charges] must be sufficiently close and relevant to the establishment of the particular loan, to the administration and maintenance of a particular loan, or to the actual consequences of the particular default, such that it can reasonably be said that the cost was incurred in connection with or in relation to the relevant matter.” (Toogood J in the case of Commerce Commission v Sportzone Motorcycles Limited and others). But if generic operational expenses can be legitimately dissected so that some costs that may be operational can be said to be only incurred as a result of the establishment, maintenance or administration of a particular loan, then they can be recovered by way of a fee. And if some lenders dissect their costs and recover direct administration costs by way of a “reasonable” fee or charge and others choose not to, comparing interest with interest becomes a little meaningless. Layer on top of this the fact that some

lenders, such as banks, may obtain collateral advantage from a mortgage loan. For example, the borrower may transfer all of their transactional banking to the bank and the bank receives fees and revenue from other activities. Complicate it further by factoring in that some banks will waive transactional charges, or some transactions charges for their borrowers who have a mortgage with them and it becomes more difficult to compare. The second Sportzone judgement given on October 9, 2014, looked at the composition of the variable operational costs that the lender in that case sought to recover through fees. It went to great lengths to dissect the operational expenses to determine what direct and indirect variable costs were in fact connected with or related to the lending activity represented by the loan under which the fees were charged. It found that some costs like training, travel, directors and professional and audit fees were clearly not connected But when it reviewed the justification for establishment fees, the court considered that it was appropriate to allocate: ➜ A % of the salaries and incentive payments to staff in the finance centre.

➜ A % of premises costs including storage rental, office rental, rates, energy costs, insurance, security, cleaning, maintenance, depreciation of fixtures and fittings. ➜ Bank activity fees associated with making advances. ➜ A % of communication costs. ➜ Other PC banking and direct credit and debit facility fees. ➜ A % of the salaries of the credit department staff, in this case 50%. ➜ A % of the costs of staff in the help desk and customer service department. ➜ A % of Motocheck fees. ➜ A % of salaries in the systems development area. ➜ Perhaps a % of IT production centre. ➜ A % of communications costs – paper, printing, stationary and postage. ➜ A % of hardware and software depreciation. ➜ A% of security and storage. The court, however, did not consider that the securitisation costs or the costs of capital could be included in the amounts recovered by way of the establishment fee. It then looked at account maintenance fees

and default fees and applied similar logic to permit agreed allocations of costs to each activity and therefore each fee. Like securitisation costs and the cost of capital it also considered the cost of bad debts could not be allocated to loans across the board and were therefore part of the general overheads to be recovered from interest rate.

Comparisons Putting on a lenders hat, it is good that there is now some judicial guidance on what can be recovered by way of fees. Putting on a borrower’s hat, if I don’t know specifically which lenders choose to allocate variable overheads to be recovered out of fees and charges then I really can’t sensibly compare one lender’s offering to another. Which brings me to the main point of this article – if you can’t compare apples with apples, why bother? If you bite into the apple and it tastes good – eat it. If you bite into the apple and it’s a spitter, leave it and wash your mouth out with cider. Choose the option that makes you feel good. If you can’t choose between lenders, choose one who makes you feel good. ✚ Jonathan Flaws is a partner at legal firm Sanderson Weir.

If the interest rates truly reflected the only revenue out of which a lender could derive its profit then surely a true apples to apples comparison can be made. ❞

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SALES SUCCESS

A winner's sales tips

Hawera-based Jason De Montalk recently won AMP’s New Adviser of the Year award. This award recognises the top performing adviser who has joined an AMP Adviser business between January 1 and December 31 last year.

Find Common Ground Finding common ground with your potential client will make them more at ease with you. It could be an interest, hobby, school, sport or children. You want to be advising them for a lifetime and a potential client with nothing in common is not likely to become a long term client.

Build Trust Be transparent in what you do. Make sure you are upfront, honest and you have high integrity with clients. You are often building long term relationships and having a clients trust is important so that you are their first point of contact.

Jason De Montalk receives his Best new Adviser of the year Award from AMP director of advice and sales Blair Vernon.

Support Use the support structure in your agency. The Dunlop Insurance team provides the experience and support I need to provide my clients with great service and the right advice.

Customer Service

hen I made the decision to enter the insurance industry my first priority was to help as many people, businesses and families as I could, put the correct insurances in place to protect areas of risk in their life. Through this ideal I set myself the goal to be the top new adviser for the year. Although I set the bar high, I knew my prior experience in sales and the techniques I applied to win numerous sales awards in real estate gave me great grounding to achieve this in my first year as an insurance adviser. Here are the main techniques I used to achieve the AMP #1 Best New Adviser in New Zealand 2014. ➜ Become Your Own Marketer ➜ Use as many different marketing sources to generate leads, ➜ Networking (in person and online)

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➜ Referrals ➜ Social Media ➜ Internet Leads ➜ Website (agency and personal) Always look for ways to increase your reach and don’t try to do it all. Find experts in those areas you know nothing about and get advice. My best area has always been referrals. Always ask for referrals.

Talk Less, Listen More Remember you are there to find out what your potential client needs, not to give them a pitch about the insurance policies you offer. So when you sit down to discuss with your potential client what they require, ask them questions about their lifestyle, family and what their situation is, and listen. They will tell you what they are looking for, your job is to give them good advice and the best insurance cover for their situation.

Today, clients' expectations of service are increasingly getting higher. You should be communicating well and exceeding your potential clients expectations. Ask yourself "Why are they doing business with me? What is the added value proposition for my clients"? This can be as simple as going to them, offering a free warrant of fitness on their insurance, free advice and recommendations on protecting those people and things they care about. Going above and beyond will give you an edge over your competitors.

Love Your Job Love your job and make sure it shows. Being enthusiastic and having a passion for your product and what you do will give more confidence to your potential client. Being positive will get you more sales and success. While the perception some people have in regards to insurance can sometimes be difficult to overcome, caring and being genuinely passionate about your clients in their life and situation will give you better results. Any added value of managing your clients insurances will not only be a huge benefit for your client but also for you. They will be lifetime clients, and when their situation changes, you will be right there to help advise them. I am always looking to learn different approaches. ✚

In an upcoming issue of TMM we will publish our annual list of the country's top brokers. The feature will celebrate the success and good work mortgage advisers do for their clients. It is also an opportunity to profile the biggest writers in the business and find out what makes them successful. We would like to invite all mortgage advisers to take part in this feature. The main criteria will be the volume of loans settled over the past 12 months. To take part in this feature either contact. Philip Macalister (Ph) 0274-377527 (E) philip@goodreturns.co.nz or go to www.mortgagerates.co.nz/topbrokers