TMM - The NZ Mortgage Mag Issue 8 2014 by TMM - The NZ Mortgage Mag

Issue

2014

THE RIGHT

Broker Group FOR YOUR NEEDS LEGAL COMPLIANCE IS IT BECOMING TOO COMPLEX?

SPONSORSHIP ADVERTISING HOW TO MAKE IT WORK FOR YOU

OCR REVIEW A DOVISH SURPRISE

CONTENTS UPFRONT 04 EDITORIAL

Christmas cheer comes early.

06 NEWS

2015 diary dates, Property investment trends uncovered in the recent NZ Property Investor Magazine survey, and more.

09 PEOPLE ON THE MOVE Latest appointments.

TMM’s annual survey of the mortgage broker groups. We look at changes in group structure and offerings over the past 12 months.

features 10 HOUSING COMMENTARY

The property market looks set for a post-election bounce back. Susan Edmunds tells us more

20 SPECIAL REPORT

Find out how ASB has made construction lending easier.

28 MY BUSINESS

Phil Campbell catches up with mortgage adviser Joel Oliver who discusses Auckland’s under supply problem and other industry issues.

JOEL OLIVER

columns 22 PAA NEWS

Michelle Harrison finds out what events from 2014 stand out for advisers and looks at their predictions for 2015.

24 SALES AND MARKETING

Paul Watkins explains how to get the most from sponsorship advertising.

26 INTEREST RATES

ASB’s Chris Tennent-Brown brings you the latest interest rate information and looks at future movements.

32 LEGAL

Our resident legal expert Jonathan Flaws looks at the Fair Trading Act and asks if compliance is becoming too complex.

34 INSURANCE

Steve Wright highlights the importance of personal income protection.

EDITOR’S LETTER

Christmas cheer comes early

t looks as though Santa’s elves have been working overtime to send some early Christmas cheer to the property market – or, at the very least, the Auckland region – with a post-election rebound in housing market activity. Another touch of tinsel has been added to the market outlook with economists’ forecasts of the next OCR increase moving from an initial prediction of March 2015 out to September next year. Forecasts for the OCR peak have also been downgraded from 4.5% to 4% following the Reserve Bank’s recent Financial Stability Report. You can find out more in Chris Tennent-Brown’s interest rate column on P26. Year-ends are somewhat synonymous with a bit of reminiscing and self-reflection – combined with some forward planning and goal setting to make the most of the upcoming New Year and new beginnings. Michelle Harrison spoke to a number of advisers about their impressions of 2014 and their predictions

" If you’re inclined to do your own evaluation of the past year and forward planning for 2015, our lead article takes an in-depth look at the broker groups and what has changed over the past 12 months." for 2015, which you’ll find on P22. Joel Oliver discusses the Auckland under supply problem and other market issues with Phil Campbell on P28, and Paul Watkins provides some valuable pointers for those considering sponsorship as a way to advertise their broker services on P24. If you’re inclined to do your own evaluation of the past year and forward planning for 2015, our lead article takes an in-depth look at the broker groups and what has changed over the past 12 months. We’ve included a focus on what each group offers advisers, which we hope you will find useful. This is the last issue of TMM for 2014. We wish you a safe and happy festive season and a prosperous New Year from the team at TMM.

Sharon Davis

Editor

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

Diary of events 2015 ➋OCR announcements

adviser conference ➊National

The PAA and IFA combined two-day national adviser conference starts on June 11. Between 600 and 700 advisers across both groups are expected to attend the conference at the Langham Hotel in Auckland. The programme is already shaping up to be an event not to miss with high calibre speakers and a new take on how to deliver quality, entertaining business development sessions, networking and more. Put the date in your diary and watch out for news on the programme coming soon.

The Reserve Bank makes an announcement on the OCR every six weeks and issues quarterly Monetary Policy Statements (MPS). The first announcement is on January 29. Economists currently expect no change to the OCR until September.

Here is the full list of OCR dates for 2015:

January 29 – OCR March 12 – OCR and MPS April 30 – OCR June 11 – OCR and MPS July 23 – OCR September 10 – OCR and MPS October 29 – OCR December 10 – OCR and MPS

NEWS

Growth plans for Lifetime

T - Vicky Devine -

his year, 2014, has seen a shake-up in Lifetime as the group plans for stronger growth in 2015. The group’s partnership manager Vicky Devine said Lifetime now had 12 offices, 57 advisers and 40 adviser support groups across New Zealand. The group offers all four channels of risk, investment, brokerage and home loans and has recently expanded with the purchase of Mortgage Link in Hutt Valley. Owner Sandra Algar joined the group in November, retaining the Hutt Valley premises to provide a regional hub. “Our Auckland offices which opened in 2013 have been a core focus this year along with Wellington and the acquisition of Alan and Abby Burns Red Risk business earlier in

the year,” Devine said. The group has invested in a range of resources including IT, a new brand and the appointment of Carl Drummond as national sales manager. Devine said the group “plans to reinvigorate and really develop on our customer service proposition”. “We have great opportunities for Home Loan advisers in our Auckland and Christchurch offices and have a new adviser already in training to kick off 2015 in Invercargill. “We’ve also recognised the introduction of trail back into the industry by way of a reviewed 2015 remuneration and production bonus structure which we believe will assist us with recruiting aggressively,” Devine said. ✚

are doing,” he told TMM. He said brokers like upfront commissions. “People like getting paid up front.” Westpac has reportedly seen a pick in lending volumes since it brought back trail commission, however no figures are available yet. ANZ lifted its annual earnings 17% in the 12-month period to September 30. Cash profit rose from $1.43 billion to $1.68 billion. Statutory net profit climbed 25% to $1.71 billion. Hisco said ANZ had seen market share growth in lending and deposits, cost productivity and credit quality improvements. It was now the number one residential lender in Auckland and Christchurch, markets normally dominated by ASB and Westpac respectively. ✚

ANZ boss rules out trail commissions

ANZ chief executive David Hisco says introducing trail commissions for home loans is not on the bank’s agenda at the moment. He said ANZ was watching Westpac, but doesn’t think the reintroduction of trail commission will work. “At this stage we are happy doing what we

Property survey shows

investor diversity

ust over one third of residential property investors use, on average, services of a mortgage broker or adviser, and investors with more properties are more inclined to use their services, a recent NZ Property Investor Magazine survey reveals. More than 80% of investors with 10 or more properties use a mortgage broker, as do half of those with between seven and 10 properties. More than half [54%] the respondents said interest rates was the most important factor when choosing a lender, followed by customer service at 19%. Twelve percent said that taking a loan with their current bank was an important factor, while knowledge and help with structuring loans was a deciding criterion for 10.7% of respondents, followed by incentives, such as cashbacks, at 4.3%.

Incentives A total of 34% of respondents had been offered incentives to move to another bank in the last year, but only 12% changed lenders over that period. Of the 12% who changed lenders, 41%

said interest better interest rates – or a better deal – were the main reason for the change, while 16% were leaving because of bad service or the promise of better service from another bank. Only 9% changed lenders because of incentives. Some investors elected to change lenders in order to split their primary residence from their investment property, while others decided to consolidate all their loans with one bank in order to get better rates. Flexibility and better finance structures [as opposed to better interest rates] were also common themes among those who changed lenders over the past year.

Bank, non-bank lenders Two-thirds of respondents have all their properties financed by one bank, with one third using more than one bank or non-bank lender. The majority of loans for residential property investors are placed with ANZ [30%], followed by ASB [21,34%] and Westpac [20,36%], although the percentage varies across the different investor categories. See the Main Bank Lender table for more details. For respondents who used a second bank ANZ,

ASB and Westpac were the most frequently used at 12.5%, 10% and 8.5% respectively, followed by BNZ, Kiwibank, and TSB. Only 12% of the survey respondents have loans from non-bank lenders. The more properties an investor has the more likely they are to have a loan with a non-bank lender – more than 20% of investors with more than 10 properties use a non-bank lender. Sovereign at 7.9% and NZ Home Loans at 7.1% are the most popular non-bank lenders, followed by RESIMAC [2.4%], Liberty [1.8%], and AMP, Avanti Finance and First Mortgage Trust – with 1.2% of the respondents’ market each.

Loan types On average, 36% of investors had interest only loans, starting at 35% for those with between one and three investment properties and increasing to more than 50% for investors with 10 or more properties. An average of 35% has a principal plus interest loan and 25% of residential property investors have both types of loans. ✚

Survery Percentages 1 - 3 Properties

4 - 6 Properties

7 - 10 Properties

10+ Properties

Average

Repondents

61.79%

19.64%

10.00%

8.57%

Use non-bank lenders

13.87%

5.45%

14.29%

20.83%

12%

Use mortgage brokers

34.68%

32.63%

50.00%

83.88%

36.60%

Interest only loan

34.68%

38.18%

48.15%

54.17%

36.20%

Principal + interest loans

39.31%

27.27%

33.33%

16.67%

35.30%

Both types of loans

26.01%

34.55%

18.52%

29.17%

25.80%

Brokers pulled

into new code

ortgage advisers have now been included in the code of responsible lending principles being developed by the government. A draft code has been issued and Officials have taken on calls from lenders to include advisers and brokers in the new code. Lenders must ensure that their agents understand and comply with all relevant legal obligations and policies, and that they have appropriate processes in place.

Kiwibank brakes

Law firm Chapman Tripp says this level of scrutiny would be difficult to achieve where the agent is independent. “ It is unlikely that a bank, for example, could gain such a high level of access to an independent agent’s internal processes.” Chapman Tripp also says that the Code proposes a series of rigorous checks and procedures that a customer would need to go through before gaining a “pre-approval”. “These may make it difficult for lenders to grant pre-approvals to home buyers.”

iwibank, which is looking to enter the mortgage broking market, stopped low equity lending last month, fearing it will breach its lending limits. The bank told mortgage advisers that it is unable to accept any new applications for lending over 80% that is restricted by the Reserve Bank’s speed limits. It said the bank’s high-LVR lending was sitting above its speed limit target, as it moved

The Ministry of Business, Innovation and Employment, which is putting the code together hasn’t included fees in the draft document. MBIE is awaiting the Court of Appeal decision, due next year, in Sportzone/MFT v Commerce Commission before determining what fees a lender can reasonably charge and what connection those fees must have to the credit contract in question. The Code states that lenders should reevaluate fees as soon as possible after they realise that they generated profit from fees. The code will “create new costs for lenders.” “The skill for policy-makers and regulators will be to get the balance right so that the vulnerable borrower is protected without creating an unnecessary compliance burden on business. Commerce Minister Paul Goldsmith plans to issue the final Code in March 2015 to give lenders time to adjust their processes, before it comes into force in June 2015.. ✚

into December and January when lending volume was usually lower. Kiwibank said it still wanted applications where the LVR was below 80%, top-ups where the value was less than $75,000, Welcome Home Loans, construction loans and refinances over 80% where the loan amount was not increasing in value between the banks. “Any applications that have already been submitted but are outside the above criteria will not be able to be assessed at this time.” ✚

Squirrel looks to bolt on p2p lending

- John Bolton 08

ohn Bolton’s broking business, Squirrel Mortgages, has applied for a peer-to-peer lending license from the FMA and hoped to have Squirrel Money operating by February. He said he had always wanted Squirrel to be a full-service financial service business but had not been able to do everything at first. “I pulled back and focused on mortgages, focused on first-home buyers. Now we’ve reached the maturity in the business and actually were aren’t like a normal mortgage broker, we’re a branded business with a big client base. There are things we’re not doing that we should be doing.” Bolton said he was in the process of applying to become a QFE. He said he hoped to be

able to work with an existing, good provider offering KiwiSaver. The changes were labour- and timeintensive, he said. “You’ve got to have huge amounts of infrastructure. We’re building our IT platform, it’s not a small task. I’m lucky I have some very good IT resource I could prioritise and refocus.” Squirrel will also have to appoint a board of directors and deal with more compliance and audit requirements, he said. “It’s quite big, quite expensive. The FMA talks about allowing small businesses and start-ups to get into business and while it’s not prohibitively expensive, it’s not something you can do half-arsed.” ✚

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

Tim Hurley

Westpac adds two more to team

Tim Hurley has joined Westpac Third Party in Auckland as its new Business Development Manager for the Northern Region. Hurley is a huge advocate for mortgage advisers and was instrumental in the launch of Westpac's trail model. He has over 10 years experience in banking and finance, spending time with Westpac, ANZ, ASB and ING. Most recently being Senior Product Manager for Mortgages at Westpac. “Tim's experience means he has intricate knowledge of mortgages, and is perfectly placed to work with you on even the most complicated of deals. He also has considerable first-hand experience with the adviser community during his time with ING,” Head of Third Party Banking Kylie Kneale says. Warrick Gibbs has recently joined Westpac in the Equipment Finance team to bring additional focus to commercial broker, vendor programs and leasing market. He has worked within major financial institutions in New Zealand and Australia for 25 years. His industry experience has been wide and varied including commercial relationship management, insurance development, investment management, sales finance and the development of lease solutions for commercial customers.

New BDM at SC Financial

Jennie Latham takes over from Jeff Mahoney as business development manager at Southern Cross Financial. Aucklandbased Latham has a wealth of experience in business development and sales, including working with small business owners. As a past business owner, she is passionate about helping advisers help their clients.

Jack Patel

New BDM at Liberty

Jack Patel has joined Liberty Financial as a business development manager in Auckland to focus on the distributing residential mortgages via the broker channel. Patel has returned to Auckland following a decade working in Heritage Bank, Australia.

Sarah Williams

NZ Home Loans opens three offices

Sarah Williams, a consultant with New Zealand Home Loans (NZHL) Auckland metro office since 2012 and NZHL top consultant for 2013 and 2014, has opened Ponsonby Central. Williams has been part of financial services in New Zealand since 1996, as branch manager and regional sales manager for ASB before moving on to train insurance advisers for Sovereign.    In 2011 she started SoapBox, a networking company generating referrals for more than 100 members, and now has nine groups meeting across Auckland and Hamilton. Williams was drawn to NZHL by their financial management system and the company’s individual approach to debt reduction and personal milestones.

Mark Caldwell

Two for Loan Market team

Mark Caldwell has established a Loan Market business in Timaru, servicing the Timaru and Ashburton markets and is integrated into the Ray Offices of both locations. Mark brings banking and business acumen with roles previously at Westpac and Deloitte. He has hit the ground running in the mid and south Canterbury regions, areas Loan Market have not previously serviced. Jayden McCullough has joined the expanding team in Christchurch having come out of a business banking roll with ANZ, following a successful career with ASB. McCullough is well known in Christchurch and has been set up to operate out of the Ray White Northwood office. He has made a quick start to his mortgage advisory career and looks close to $2million in settlements in his first month.

New Mortgage Express appointment

Wayne T’u has joined the Mortgage Express team, based at Harcourts’ Mt Eden office in Auckland. Before joining Barfoot & Thompson’s residential property division two years ago, T’u spent eight years in north and north eastern China, working for a major industrial property developer. Also joining Mortgage Express’s Auckland team is Stuart Dowie. No stranger to the mortgage industry, Dowie has managed his own mortgage broker business for over 15 years, and prior to that working in the IT Industry as a dealer account manager for 15 years. ✚

HOUSING COMMENTARY By Susan Edmunds

Property market bounce back New Zealand’s property market is recovering from pre-election uncertainty. Auckland is leading the way with signs of increased activity around the rest of the country, writes Susan Edmunds.

using that to buy property?” REINZ reported a record median price for Auckland in October of $640,500. Nationwide, prices were up 5.4% from October last year, to a median $430,000.

uckland’s property market has been given a boost by the release of a new round of CVs. A slowdown in activity over recent months was blamed on the election and the imminent release of the new valuations. Now the market has had its late spring bounce and borrowers, who realise the extent of their improved equity positions caused by the city’s big price increase over recent years, are looking to buy. The average increase in Auckland’s CVs was 29% in 2014 compared with 2011. Many investors used registered valuations during that

010

period to clarify the extent of their own value increases, but for some homeowners the CVs have proved a reminder that they have more wealth on paper than they expected. Mortgage adviser Karen Tatterson said she had had an increased number of calls from people wondering what they should do with a lift in equity in their properties. Some who had used guarantee arrangements to get into their first homes were contacting the bank to get those removed. Others were thinking about extending their borrowing and buying again. “I’ve seen an increase in calls saying: Now that my equity has gone up, is there logic in

PICK-UP IN ACTIVITY Chief executive Helen O'Sullivan said the pick-up in activity had been marked and had happened across the country. “We have also seen an increase in listings across most of the country, although in many places the number of listings remains below that of previous years." QV also reported that Auckland prices had been given another boost. Nationwide, QV reported residential property values increasing 5.9% year-on-year in October. Auckland’s prices were up 9.2% year-on-year and 2.5% over the past three months. QV national spokeswoman Andrea Rush said there was a lot of variation in property prices in different parts of the country. "Home values have accelerated again in Auckland since July, at a rate not seen since last year. Christchurch has also continued to increase but at a slightly slower rate,” said Rush. “Wellington has also seen values rise in parts of the city after what has been a downward trend in recent months. This rise in values has been brought about by increased spring listings activity in the capital’s property market," she said. Auckland real estate agency Barfoot &Thompson said the city had recovered from pre-election uncertainty. The real estate agency said new listings in October were up by a third compared with the previous month.

“Yields are low, prices are peaking. Is it a good time to buy? That’s up to people to figure out for themselves.” John Bolton

HIGH LISTINGS At the end of the month, the number of properties on Barfoot & Thompson's books was the highest in three months. Managing director Peter Thompson said the 939 sales in October were in line with September, as was the average $736,238 selling price. But he said momentum had returned during the month. “It always takes some months for the property market to regain lost momentum when interrupted by a lack of certainty.” Thompson said. “This trend shows up in our weekly sales figures. During the first week of October, we sold 258 properties and in the fourth it climbed to 283. “In the first week of November, we anticipate completing close to 300 sales and this, combined with the large number of new listings in October, indicates we will see a significant pick-up in sales numbers in November," he said. Banks have also been contacting borrowers, asking if they want to borrow more money. They said this was not related to the release of the updated CVs. A BNZ spokeswoman said: “An increase in CV is not on its own a good reason to borrow more money. However, it may present opportunities for some customers to utilise their increased equity to renovate or make improvements to further increase the value of their property.” ANZ customers received a letter asking if they wanted to top up their home loans or reduce their monthly repayments. LENDING OPTIONS ANZ said: “From time to time we contact customers whose repayments are ahead of

schedule, or who have built up equity, with new lending options specific to their situation. We only make these offers to customers with a strong repayment history, and we point out that increasing their lending would increase the overall term of their loan.” Broker John Bolton said he had seen situations where banks were working with a client and would ask if they wanted to borrow a bit more because of the equity that had been built up. “It’s usually ‘do you want to borrow a bit more because you’re an investors and like access to extra cash’. It’s not ‘do you want to borrow more and blow it on a boat’,” Bolton said. People were using their equity to buy more properties, he said, but the decision should not be taken lightly. “Yields are low, prices are peaking. Is it a good time to buy? That’s up to people to figure out for themselves.” Adviser Kris Pedersen said the Auckland market was still “trucking along, as it has for the last two or three years now. But everyone in the regions, they’re the ones that suffer more with the LVR rules.” O’Sullivan agreed that the LVR restrictions were having an impact, particularly outside Auckland. “It has been 12 months since the Reserve Bank introduced its LVR restrictions on borrowers,” O’Sullivan said. “Over the past 12 months the volume of sales has trended down, and still continues to fall. Provincial regions in particular are still seeing volume trends decline, with median prices in a number of regions at best remaining flat over the past five years,” she said. “Only Auckland, Taranaki, Canterbury and Central Otago Lakes have seen their median prices rise faster than inflation over the past five years, with three regions – Northland, Hawkes Bay and Manawatu/Wanganui – seeing their median prices fall in absolute terms. The increasing divergence between the two largest metropolitan areas, Auckland and Christchurch, and the rest of the country remains in place.” PRESSURE Interest rates were now lower in many cases than they were a year ago, Pedersen said, which would keep the pressure on house price growth in Auckland. “A lot of people are not looking at where interest rates will go, they look at their monthly payment at the old 10% rate they might have been paying before and it’s dropped to 6% and they think they can afford another 40% on their loan amount.” Auckland investor Brad Tozer said he had been given a boost by new valuations of his properties. “Banks have always been open to new lending but we’re finding they’re competing among themselves,” Tozer said. “We’re with three different providers now and they’re very keen to compete against each other.” ✚

REINZ SALES: DOWN

Turnover in October was down 2.4% on the same month in 2013 but up 11.8% compared with September.

INTEREST RATES: UP

Some interest rate terms are now cheaper than they were 12 months ago.

OCR: UP

The Reserve Bank has signalled a pause in its hiking cycle..

IMMIGRATION: UP

Strong migration is putting pressure on housing supply..

BUILDING CONSENTS: UP

The trend for the number of new dwellings consented is showing signs of decreasing.

MORTGAGE APPROVALS: DOWN

Home loan approvals numbers and volume are still down significantly on 2013.

RENTS: UP

Median weekly rents are up more than 6% compared with a year ago, according to Trade Me.

011

THE RIGHT

Broker Group FOR YOUR NEEDS

Group roles have changed over the years. Changes to compliance and registration could make it a challenging year and competition may be vigorous.

he role of broker groups has evolved over time moving from an aggregator model to more of a business development and support role. As Kepa chief executive Jeff Page puts it: “Once-upon-a-time when groups started they were largely aggregators who said, ‘Come and join us; we can help you’.” Although Page thinks most groups don’t do enough of this, he believes the role of broker groups is to help advisers develop their business by providing advice, support and development opportunities. Groups had a “really important role to play in our market”, The Mortgage Supply Company chief executive, Jenny Campbell said. “A group should help their members grow their businesses, and give them real tools that they can use every day. It might be as simple as using IT, or helping to foster a new referral source – but the group needs to take a personal interest in each and every member. “As group leaders, we are also constantly liaising with lenders and other business partners,” Campbell said. “This communication is not just around any aggregation or commission issues, it is also advocating for your members, resolving disputes or quality issues.

The role of groups “The role of the groups has changed over the last few years. During the boom times prior to the GFC, groups spent a lot of time evaluating new providers and new products [such as 100% lending and low doc], and introducing these to their members. Now it is more about efficiency, and promoting

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business sustainability – both for advisers as well as lenders.” The need for broker groups was largely driven by the banks, in part because payments to a dozen groups is easier than to hundreds of individual brokers, but also to ensure a level of standardisation in applications and professionalism with the applications sent through to the banks. The Co-operative Bank chief executive, Bruce McLachlan, said he felt that the role of the groups was to set professional standards, use established processes and build trust on both sides. “Professionalism goes to the calibre, capability and integrity of the advisers, and includes special processes and behaviours,” McLachlan said. “A core part of that is training and education, and information flow – keeping people up to date with developments in the market and the bank latest offerings.”

Group performance In TMM’s annual survey of mortgage broker groups, we looked at changes in the groups over the past year and what each group offered its members. Although most groups were happy to take part in the survey, Mike Pero Mortgages, Mortgage Express and Roost Mortgage Brokers chose not to, so we have limited information for those groups. NZ Financial Services Group [NZFSG], a fairly recent merger of Allied Kiwi and Loan Market, is by far the biggest adviser group in New Zealand both in terms of adviser numbers [475] and loan volumes [$6,9billion]. NZ Post subsidiary NZ Home Loans is likely to retain the second place slot with loan volumes

of $1.2b, with a 17.64% year-on-year growth, considerably higher than NZFSG’s 9.45% annual growth, but off a much lower base. Mike Pero Mortgages, owned by Australian group Liberty Financial, and Mortgage Express, owned by real estate firm Harcourts, have nationwide representation and would have loan values in the region of $1b and $800 million respectively, based on TMM’s 2013 survey figures. Mortgage Express has 45 brokers, up from the 39 reported in 2013. TNP Home Loans was the fourth biggest group last year. They have since amalgamated with the Ginger Group and rebranded as Kepa. Although the order is not necessarily clear we expect that Mike Pero Mortgages, a combined TNP and Ginger now under Kepa, and Mortgage Express would fill the third to fifth biggest group slots by loan value. Quite who sits in the sixth biggest slot is also not clear. The Prosper Group with a loan value of $420m for the year to the end of September and has achieved a year-on-year growth of 20% for the past two years. Mortgage Link is also in possible contention at sixth-place; they did not provide figures to September, but gave full-year projections to the end of March, 2015, at $460mn. Mortgage Link expects a stronger performance in the second half of the year, making the figures difficult to compare. Refer to adjacent table.

Changes over the past year Two new groups have emerged on the scene this year. In July TNP merged with the Ginger Group to form Kepa, owned by Kepa Financial Services Limited, with former TNP managing

director Jeff Page taking on the role of chief executive at Kepa, while TNP former director Jamie Coltman has not taken an executive role at Kepa, but does sit on the board. Mike Sweeny has taken on the role of national sales manager at Kepa and Rick Irvine is the regional sales manager for South Island. Former PAA general manager Jenny Campbell has joined forces with David Windler and David Hart, who resigned as head of Loan Market last year, to form a new broker brand and aggregator group – The Mortgage Supply Company. The group launched in November with more than 20 members and offices in Auckland and Tauranga. They felt there was a need for an independent group that focused solely on mortgage advisers. Campbell said: “I have been concerned that aggregators have become highly corporatised, and I'm not sure that is such a great fit for people who moved to mortgage broking looking for more autonomy in their careers. Back in the pre GFC days, a number of groups [even though they were quite large], had a real family feel about them. Their aggregator was not just facilitating access to lenders and a CRM, it was

about feeling that someone cared about you and your business, and having the opportunity to work with other like-minded people. “My other main reason to launch a new group is that the mortgage advice industry is highly fragmented with hundreds of small brands. I believe this dilutes the value of advisers in the minds of consumers. There is a huge opportunity for new independent mortgage brand in New Zealand. Especially a brand that is not as prescriptive or expensive as others out there.” Prosper teamed up with Remax this year, adding to the existing alliances of NZFSG and Ray White, Mortgage Express and Harcourts, and Mike Pero Mortgages and Mike Pero Real Estate. Although details are sketchy and have not been made public Mike Pero, the founder and face of Mike Pero Mortgages, is being sued by the company he founded. Pero no longer has interests in the mortgage business and left the board in June this year. Since then, Mike Pero Mortgages has initiated to High Court proceedings, one against Pero personally and against Mike Pero Marketing. Pero is, however, CEO of Mike Pero Real Estate, which is jointly owned by Mike Pero Mortgages and Mike Pero

Marketing. It could be interesting to see how this battle plays out and what affect, if any, it has on the group’s performance.

The groups in detail Deciding which group is the best fit for your needs can be complex and should be based on more than an intuitive feeling, a friendly handshake or an off-the-cuff recommendation from a colleague. Depending on what sort of service and support you want from the group, membership options are varied. Options arrange from a simple aggregation model for a flat monthly fee, to branded business solutions with back office support, or your own franchise business. Advisers with different levels of experience will probably find different models more appealing. To make it easier we’ve put all the available data in one table to enable you to make an immediate comparison, and we’ve provided more detailed information for each group. Refer to table on the next page.

Group Performance Group

Annual Loan Volume to 30 Sep 2014

NZFSG

$6.96bn

up 9.45% y/y

475

up 17.64% y/y

200

Change in loan volume

Advisers 2014

NZ Home Loans

$1.2bn

Mike Pero Mortgages

estimated $1.1bn

data not provided

47**

Kepa

n/a

amalgamated group

100

Mortgage Express

estimated $880mn

data not provided

45**

Prosper Group

$420mn

up 20% y/y

Mortgage Link

$440mn*

data not provided

Newpark Broking Services

$180mn*

data not provided

$138mn

up 4% y/y

The Motagage Supply Co

n/a

new group

20+

Lifetime Group

data not provided

similar to last year

Roost Mortgage Brokers

data not provided

* estimates for full year to end March 2015 ** broker figures established from website count

Group structure and offerings

NZFSG CEO Brendon Smith

NZ Financial Services Group ➤ $6.9bn ➤ 475 Members - 175 joined, 31 left NZ Financial Services Group (NZFSG) is the largest broker group in New Zealand with more than 475 mortgage brokers, and a total group size of 750 members including insurance advisers. Broker numbers were stated as 400 in last year’s survey and this year it was reported that 175 members joined and 31 left the group. Approximately 5% of mortgage advisers with NZFSG are registered AFAs but a large number undertake on-going education, such as completing the National Certificate for Financial Services. Loan volumes increased by 9.45%, up from $6.35b in 2013 to $6.95b in 2014, which is similar to the previous year’s 9.48% growth and NZFSG expects future growth to continue through strategic long-term partnerships. The group plans to achieve this not by adding new brokers, but by increasing revenue for their members. Using the long-term relationship philosophy NZFSG plans to offer clients a wider range of financial services throughout a person’s life cycle. The group, owned by the White family, Brendon Smith, Brian Greer and Bruce Patten, has evolved with technology and provides leadingedge support services, which in turn creates long-term business value for broker members; this includes the group’s proprietary software, MyCRM, which is free for members to use. NZFSG offers several membership options that accommodate the needs of different advisers – including a flat fee, and hybrid flat fee membership model, as well as a branded option under Loan Market. Chief executive Brendon Smith said NZFSG was, “a business-to-business brand representing excellence in systems, support and compliance for both individual and groups of mortgage and insurance advisers. We fit best with smart, professional advisers looking for a long-term sustainable partnership that provides value to the adviser, client, suppliers, and NZFSG”. The NZFSG groups offer a number of options for risk cover from referrals to an insurance specialist to the adviser writing their own risk, and everything in between. MyCRM supports home loans and insurance and the group provide regular training for both. NZFSG has a general insurance solution with a leading NZ insurer; members can refer clients and have cover quoted and bound over the phone. It’s easy and members receive a competitive up-front and renewal income stream. This arrangement will expand in the

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Group

Membership Type

Membership Cost

Remuneration %

NZFSG

Dealer Group -Flat Fee

$400/month

100% to adviser.

NZFSG

Dealer Group Hybrid Model.

$250/month plus 5% of upfront commission

95% to adviser.

NZFSG - t/a Loan Market

Branded Business Solution.

NZ Home Loans

Franchise.

n/a

Commission-based capital growth model.

Kepa

Dealer Group.

Currently under review

100% to adviser.

Adviser Co-operative.

$300/month plus an additional $417/month to be a shareholder

Advisers pay a flat fee and all applicable remuneration is passed back to them.

Prosper Group

Shareholders - t/a Prosper.

$250/month per individual, up to a maximum of $500/ month for mulltiple advisers.

100% to adviser.

Prosper Group

Aggregator - under licence

as above

100% to adviser.

Prosper Group - t/a NZ Property Finance

Remax arm.

as above

Shared commissions.

The Mortgage Supply Company

Aggregator - Flat Fee.

$400/month + GST (includes CRM).

100% to adviser.

The Mortgage Supply Company

Mortgage Brand.

Lifetime Group

Dealer Group.

Production tier levy model.

Production tier levy model with share of upfront, trail commission and year-end production bonus.

Mortgage Link

Mortgage Brand.

$530/month + GST (Discounts apply where office has multitple advisers).

99% to adviser.

Newpark Broking Services

Aggregator.

$250/month + GST

97.5% to adviser. Increases to 98.75% if more than $1million a month written.

future to allow members to write domestic insurance for their clients if they wish.

Loan market Through Loan Market NZFSG also provides a consumer-facing brand for advisers to tap into, while allowing them to retain 100% business ownership and autonomy. The model facilitates the entire front end of the business with a very professional look and feel of corporate quality. Members also enjoy referral opportunities through NZFSG’s relationship with the Ray White Real Estate group and other national networks. Loan Market also holds an annual international conference where members can network share knowledge and best practice for the benefit of all. The group also works closely with advisers to help them grow their business and achieve their business goals.

Tiered commission based on individual production.

The Loan Market business also operates the Insurance Market brand providing a nice synergy for advisers wishing to integrate insurance solutions into their business. Loan Market chief executive Brian Greer said 2014 was all about rationalising and refocusing the business. “Our merger with Allied Kiwi enabled us to rationalise the business and only focus on advisers who were 100% committed to the Loan Market brand,” Greer said. This enabled them to identify penetrations gaps across the country and to focus on growth.” The brand now has 90 Loan Market advisers across the country, with Invercargill being the last gap left to fill. Greer said 2015 see a focus on helping advisers grow their businesses; as well as a heavy focus on the Auckland market to develop a tighter, more team-like approach – especially with the Ray White network.

CRM

Client data and trail

PI Cover

Risk Cover Options

KiwiSaver

MyCRM - not compulsory.

Members have the ability to export their database and will continue to receive trail. No handcuffs.

Competitive group scheme povided by NZI - or the broker can choose an individual or industry body scheme.

Options range from commissionbased referrals to the adviser writing their own risk cover.

AFA’s provide KiwiSaver advice to clients.

as above

Xplan compulsory.

Data and trail remain in group when advisers leave.

Available through Lumley.

Comprehensive risk management plan.

Members are allowed to offer KiwiSaver.

Xplan derivative not compulsory.

Broker owns the data. Trail commissions released subject to adequate clawback provisions being put into place.

Discounted rates throught The Abbott group or brokers own choice.

Risk cover offered through specialist Kepa advisers.

Members allowed to offer KiwiSaver if suitable trained and qualified.

Xplan compulsory.

For non-corporatised adviser the data and trail passed over to them. For corporatised advisers, Share has purchased and owns the book. The adviser does not get it back.

Mainly Marsh via Lumley through the PAA.

Risk cover offered through own advisers.

Members are allowed to offer KiwiSaver.

Xplan - compulsory

Belong to the adviser - we have no claim on them.

Group PI cover provided

Advisers either trained in risk or refer to others in the group.

Members free to choose but not encouraged to promote KiwiSaver if they are not AFAs

Free to choose.

as above

Free to choose. Our own Fire and General division can help.

as above

Free to choose.

as above

Finware - not compulsory.

We have an adviser data guarantee - all data will be passed over efficiently. Advisers can stay with our CRM provider if they wish.

Access to comprehensive policy through Lumley if required.

Online Fire and General option and referral scheme with Share.

Members allowed to offer KiwiSaver as long as compliant under current legislation.

as above

MyCRM compulsory.

Remain the ownership of Lifetime Group.

Mainly Marsh via Lumley through the PAA.

Through Lifetime Risk and General Insurance channels as referrals with share in remuneration.

Referral process to a Lifetime specialised AFA.

Finware - not compulsory.

Advisers own clients.

Available through the PAA or Newpark General.

Risk is through Newpark Financial via referral to Newpark Advisers. Fire and General by referral to Tower or Newpark General.

Members offer Kiwisaver as class advice using Generate.

Finware or Newpark Toolbox - not compulsory.

as above

NZ Home Loans chief executive Mark Collins.

NZ Home Loans ➤ $1.2bn ➤ 200 Members – 40 joined, 10 left NZ Home Loans is a franchise-based loan and risk company, owned by Kiwi Mortgage Holdings Limited, a subsidiary of NZ Post. The national groups’ loan value grew by 17.64% year-on-year from $1.02b in 2013 to $1.2b this year, compared to growth at just over 8% for the previous year based in figures provided to

TMM, although when asked, the group said they had a 10% growth rate for the 12 months to the end of September. The second biggest group has 200 members, all RFAs, and has introduced some changes this year including refreshed technology, national sponsorships, and new partnerships to increase value for their members. Members use NZ Home Loan’s proprietary CRM software XPlan with remuneration being a commission-based capital growth model. The group’s lending panel of Kiwibank, Resimac and Sovereign is relatively small, when compared with the rest of the groups. The challenge for 2014 was operating in the new LVR restricted environment. NZ Home Loans chief executive Mark Collins said the group worked with their supply partner and

added new products, such as Welcome Home Loans. With around 60% to 65% of their loans being like-for-like refinance, which doesn’t fall under the restrictions, they were also able to negotiate generous over 80% limits. “For 2015 our biggest focus is the use of technology for sales and service. Technology is changing the way people want to interact, and we plan to see where and how we can use technology to enhance our face-to-face service,” Collins said. “The banks are using technology to reduce staff and cut down on their cost-to-service ratio, but we want to use technology to get closer to our clients and engage them.”

Jeff Page CEO of Kepa.

SHARE managing director and CEO Scott Black.

Kepa ➤ $unknown ➤ Newly formed group with 100 members

SHARE ➤ $138mn ➤ 58 Members – 5 joined, 12 left

Kepa is a new risk and mortgage adviser dealer group formed in July this year as a result of a merger between TNP and the Ginger Group, to benefit from combined economies of scale. Owned by Kepa Financial Services Limited, the group aims to provide an environment that focuses on business development for the adviser. The group has around 100 mortgage advisers, up from the 87 for TNP in 2013, and offers professional and compliant software solutions using a derivative of XPlan one of the most popular CRM options in Australasia, as well as comprehensive training and development support – including business analysis and a focus on income diversification The group offers life as well as fire and general insurance through specialist Kepa advisers. The membership costs are under review, but under TNP Home Loans last year mortgage advisers paid a flat fee of $402,50 a month, or $172,50 a month under the hybrid model for mortgage and risk advisers. Kepa chief executive Jeff Page said: “We’ve got some very aggressive plans for growth and development over the next 12 months.” They are looking to grow the business by adding new advisers, but the main focus will be an investment in providing advisers with development and support to grow their businesses.”

SHARE is the largest nation-wide branded adviser-owned cooperative, owned by advisers, for advisers with 33 RFAs and 25 AFAs. The group’s loan value at $138m was 4% up on last year. Members pay a flat fee and all remuneration is passed back to them, and can considering a shareholding option. The group, formed in 2008, has seen its share price increase by 29% over the past year and dividends of $366,000 were distributed to advisers. SHARE has also accelerated its corporatisation strategy, increased its social media presence and introduced an audit facility. “The key driver for SHARE [which is primarily an insurance-based aggregator with a mortgage arm] is our corporatisation strategy,” SHARE managing director and CEO Scott Black said. Most advisers ran their own business and own their own books but SHARE is progressively buying adviser’s books and providing succession planning. Under this model, new advisers can work alongside older advisers. This allows newer advisers to manage a large book sooner than they would otherwise and allows older advisers to exit over time and not lose value in the business. “It works very well in the insurance where there are a lot of renewal income streams. Over time, it will become more relevant to mortgage advisers,” Black said. SHARE will be working with The Mortgage Supply Company advisers to provide renewal income from risk referrals. For 2015 Black says the focus is “more of the

same – and the fast the better.” They bought about a dozen advisers’ books last year and plan to the same, if not faster next year. “The net asset value of the business doubled over the last two years, and we’re looking to achieve 20% growth each year,” said Black. Geoff Bawden shareholder and director of Prosper.

Prosper ➤ $420mn ➤ 28 Members Geoff Bawden and Ali Toumadj formed the Prosper about eight years ago. The group has 28 mortgage advisers, including three AFAs, 24 RFAs and one QFE adviser. There’s been no movement in membership this year, but three new recruits are in the pipeline. Prosper’s advisers are based in Auckland, Waikato, Bay of Plenty, Wellington, and Marlborough and the group is working towards national coverage. Loan value for 2014 was $420m, with Prosper recording a 20% year-on-year growth for the past two years. Bawden said they group was not doing anything in particular to achieve this growth level, but their volume was low and it’s “moving back in the direction we want it to be”. This year the group has introduced Remax representation throughout the country under the New Zealand Property Finance banner, and they are in the process of finalising a strategic alliance with educational provider Stategi for training and professional development. The group has three membership options, including a shareholder option for those trading under Proper, an aggregation model under a licence, and those falling under the Remax arm trading as New Zealand Property Finance. For risk options, advisers are either trained in risk or they pass on a referral to others in the group. Prosper has its own fire and

general division within the group with direct agreements with insurers. Geoff Bawden said: “We’re not just about aggregation; we are about sharing, working together and helping each other build sustainable businesses.” Paul Gill general manager of Mortgage Link and Newpark Broking Services.

❝ Professionalism goes to the calibre, capability and integrity of the advisers, and includes special processes and behaviours -Bruce McLachlan-

❞

Mortgage Link ➤ $460mn* ➤ 31 Members and Newpark Broking Services, said. – 2 joined, 1 left Gill says members are allowed to offer Mortgage Link was formed in 1994, and is owned by advisers through shareholding. The group, which operates on a licence model, has 31 advisers, predominantly RFAs and one AFA, slightly down from the 34 advisers reported in TMM’s survey last year. Strong growth in volumes is expected this financial year as the group has recently gained Jetan Patel as a member (see P8). Patel is part of accountancy firm Pike Pate, which writes significant volumes of business. Mortgage Link expects loan volumes to be around $460m for their full financial year to the end of March 2015. “Given we have added a number of advisers over the last year/months, our growth is more related to adviser numbers adding volume than any big change in market growth for us,” Paul Gill general manager of Mortgage Link

KiwiSaver and it is done under class advice using Generate. Risk is provided through Newpark Financial and members can refer business to Newpark advisers. Fire and general is done either by referral to TOWER or to Newpark General. Training and development have been the focus for 2014. Gill says the same programmes are being run out across the two groups [Mortgage Link and Newpark Broking Services] and for the first time they held a combined conference this year. The group has four key areas of development – service, sales, finance and compliance, and has also been doing a lot of work around compliance and helping its members with documentation such as disclosure, statements of advice, scope of service, AFA returns and

ABS documents. Plans for 2015 are focused on technology with the roll out of updated software with Finware, and includes web-based front end for adviser or client input and will allow clients access.

Newpark Broking Services ➤ $180m*➤28 Members – 11 joined Mortgage Link and life insurance company Newpark Financial Services jointly own Newpark Broking Services. The group has a total of 28 members with 24 RFAs and four AFAs, up on the 14 members reported last year. Newpark Broking Services offers a nonbranded flat fee aggregation model plus a small percentage of commission. If you write insurance, the group also offers a discount option and a cap on maximum commission amount paid per month. The group is closely aligned to Mortgage Link with the same 2014 focus and 2015 goals.

The Mortgage Supply Company chief executive Jenny Campbell.

The Mortgage Supply Company ➤ $unknown ➤ 20+ members stated; 13 listed on website The Mortgage Supply Company is a new mortgage brand and adviser aggregator formed by Jenny Campbell, David Hart and David Windler. Chief executive Jenny Campbell said: “As a new group, we have had the luxury of designing our systems and services from adviser level up. We are implementing original new ideas and systems for lead generation, as well as referral systems. This is all underpinned by adviser friendly technology. “We are using FINWARE – a mortgage specific CRM system that is far more than just a work flow tool. It is a true business tool, and is already capable of submitting online applications. This CRM provider is an independent third party, which gives our members confidence in the integrity of their personal and client data.” When asked if the CRM was compulsory, she said: “We don’t like the word compulsory! We are able to point out the benefits to advisers, and the fact that using a good CRM makes regulation and compliance much easier to manage.” The Mortgage Supply Company offers an adviser data guarantee. Campbell said, “This means if you choose to the leave the group, we guarantee that all data will be passed over in a timely and efficient manner. Advisers can choose to stay with our CRM provider if they wish.” The group has members in Auckland, Bay of Plenty, Manawatu and Wellington, and are keen to partner with South Island advisers as well. Campbell estimates that the group will have grown to about 100 members by next year, but says it is not a bums on seats exercise. “We are an independent, fresh new mortgage brand that is owned and operated by well-known mortgage professionals. We are proud to have a business model built on the cornerstones of integrity, transparency and professionalism. We don’t want to be the biggest group – just the best.”

For risk offerings The Mortgage Supply Company has formed a strategic alliance with Share. “Share reflects our business philosophy of transparency and professionalism, and they are a great fit for our team. We have formulated a brand new way of referring customers to specialists, which ensures clients get fantastic advice and advisers et remunerated fairly for referral business. We also have an online fire and general option for advisers,” Campbell said.

Lifetime Group managing director Warren Stephen.

Lifetime ➤ $unknown ➤ 10 Members – 1 joined, 1 left Lifetime is privately owned with shareholders made up mainly from advisers and management working within the group. It has 10 members, all RFAs, with one new member in the pipeline for a January 2015 start. The group has advisers based in Wellington, Nelson, Marlborough, Canterbury, Timaru and Southland and offers a turnkey business environment with a fully-supported home loan model. Advisers are provided with full training, tools and support from a dedicated support and management team. The remuneration model is attractive upfront, and equity rewarding, based on production annually. While use of MyCRM is compulsory, Lifetime does offer fulltime support to help advisers manage this. Lifetime provides full back office support, office costs, marketing, IT and lead generation. Advisers only have to pay for registration with the FSPR, a dispute scheme and personal indemnity. There are plans to introduce a levy reimbursement for these fees based on tier production levels. The group has recently invested in new branding and marketing strategies, and added an internal referral model and improved its workflow documents. Risk cover is provided, via referral, through Lifetime’s risk and general insurance channels for a share in remuneration. "2014 has had its own challenges. We're strong in the regions and have had to work hard around the LVRs," said Lifetime partnership manager Vicky Devine.

"In Christchurch the business activity is roaring and that is our focus now and for the next two to three years. We have a strong strategy for growth and want all of our offices to have a home loan presence in addition to fire and risk. We have aspirations for offices in central North Island and are having some robust discussion around that. We know we've got to be smarter with communication with clients and we have someone staring in a full time marketing and communications role early in December. We've got a client database of more than 70,000 people and we need to doing sophisticated client communication and retention - and add value for out clients." Roost Mortgage Brokers, which was acquired by the AMP Limited group of companies in June 2007, also elected not to take part in the survey. They have nine brokers members based in Northland, North Shore, Auckland, Wellington, Canterbury, Queenstown, and Otago according to their website, with brokers running their own businesses under the Roost brand. This is down from the 12 members reported for 2013.

Outlook for 2015 The general consensus on the outlook for 2015 is slow but steady growth, with hard work paying off, although there is some concern about what changes the FAA review might introduce. Mark Collins from New Zealand Home Loans thinks it’s going to be a “steady as she goes year”. He expects interest rates to remain pretty stable and that bank competition will continue – with cash and prize offers – keeping the market lively, but doesn’t expect a dramatic change from 2014. “It’s still going to be a tough year ahead. Competition within the industry is pretty strong and changes to compliance and registration could make it a challenging year. It’s going to be nose to the grindstone stuff. I think the volumes will be there, but you’ll have to work hard to get them,” Prosper’s Bawden predicts. “As 2015 emerges we’ll get more information about the FAA review,” SHARE managing director and CEO Scott Black said. Most people will sit back until the legislation is enacted before reacting. The FMA and industry bodies have signalled that we need an increase in professionalism, so we are likely to see an increase in legislation for RAF's. Whether this means education, registration or other forms of compliance remains to be seen. ✚

Following on from her role as head of the NZMBA and PAA, Jenny Campbell has launched a new mortgage advisory group – The Mortgage Supply Company. TMM asked her why she has embarked on this new project, and why advisers may want to join her.

his past year has seen

some major changes in the mortgage aggregator space. The dust has settled around the various mergers/purchases of a number of groups, it became clear that there is a great opportunity for a new type of mortgage group – one that is independent, and owned by - and run for - mortgage specialists. And so our new group - The Mortgage

Supply Company launched in November as a nationwide mortgage adviser brand and aggregator group. Integrity, leadership and transparency are the cornerstones of our group. We are creating a team of respected and professional industry leaders, who will focus on truly revolutionizing our industry. My partners in this venture are familiar faces to many mortgage advisers - David Hart, the former CEO of LoanMarket (who is now running a very successful advisory in Tauranga), and David Windler, another respected mortgage adviser who initially developed The Mortgage Supply Co. brand. Our aim is simple – to be the number one mortgage brand in the country. Currently there is no clear ‘mortgage expert’ in the minds of consumers, and we believe that we are uniquely positioned to become top-of-mind with the New Zealand public. Our underlying philosophy is also our key message – ‘Kiwi’s helping Kiwi’s’… We all know that the correct home loan is probably to most important financial decision you can make, and we want consumers to see us as the ‘good guys’, helping them get the loan that is right for them. The philosophy of ‘Kiwis helping Kiwis’ is also reflected in our proposition to members.

This group is owned and operated by mortgage professionals, and members may have an opportunity to take an ownership stake, as well as representation at Board level. This is a unique opportunity for advisers to have a clear voice within their group, as well as one to the general public. Fostering key relationships is also a central platform of our group. We aim to work cooperatively and in partnership with other like-minded product providers, lenders and adviser groups. Even though our group is mortgage focused, we still believe that advisers need to address client’s insurance needs. We have developed a unique strategic alliance with a risk focused group – SHARE, who literally ‘share’ our philosophy around client care and quality advice. This enables us to implement an entirely new referral opportunity for advisers, to ensure that we completely cover client’s needs. We are now actively looking for advisers who are interested in joining our ‘family’, either under this exciting new brand, or you can choose to join our group as a nonbranded member. So if you are interested to hear more, please contact Jenny Campbell (in confidence) on Ph 021 622 884, or email jenny.campbell@mortgagesupply.co.nz.

SPECIAL REPORT Brought to you by ASB

GET READY FOR THE CONSTRUCTION BOOM

onstruction lending is

a specialist area but one which many mortgage advisers need to upskill on as it is a growing area of the market. New Zealand’s housing affordability problems have been blamed on the imbalance between the supply and demand in the market. The government’s response has been to work with councils and develop Housing Accords and Special Housing Areas to increase the number of houses. Loan Market adviser Bruce Patten reckons New Zealand is on the cusp of one of its biggest ever house building periods. Building and Housing Minister Nick Smith said in the latest National Construction Pipeline report that building and construction activity in New Zealand is expected to reach unprecedented levels by 2017. “The report points to the biggest construction boom this country has seen in decades totalling $100 billion over the next three years.” “Growth in construction activity is on the

cards for every region in New Zealand,” the minister said. Patten says it is a specialist area of lending and the process can be a drawn out one requiring a lot of work. However, he is pleased banks a have loosened the criteria and are starting to make it easier. Construction loans usually start as an interest-only loan with a maximum limit that can be drawn as progress payments are required by the builder. Typically, at conception, the loan may only be drawn sufficient to fund the section

purchase however the loan 'limit' will be set at a level sufficient to cover your section purchase plus the amount of your fixed price build contract, or build budget, depending on the nature of your project. At completion of the build, the loan is converted to a standard loan. While there are not a lot of mortgage advisers who specialise in new build finance there is likely to be an increase. House builders G J Gardiner recently established its own mortgage broking business Onion Home Loans. ✚

CONSTRUCTION LENDING MADE EASIER New home building is expected to rise over the next five years – particularly in Auckland and Christchurch. This will provide more opportunities for lenders and brokers to help meet customers’ needs for construction lending.

ew home building is expected to rise over the

next five years – particularly in Auckland and Christchurch. This will provide more opportunities for lenders and brokers to help meet customers’ needs for construction lending, including construction loans of more than 80 % LVR (loan to value ratio), which are classified as exempt under the Reserve Bank’s LVR restrictions subject to certain criteria. However, undertaking higher levels of construction lending is not without risks for lenders. Past history demonstrates additional consideration must be given to the quality of lending decisions and lending processes. Construction loans typically see the lender approving and advancing funds as the building progresses towards completion. This differentiates construction loans (new builds and also major renovations) from other lending, where the security value is essentially known or fixed. Building a new home can also be a stressful time for customers. And a big part of their experience is determined by whether builders and lenders agree when payments are required and can be made. Both lender and customer need to be comfortable in making payments and have confidence the build is progressing as scheduled in their contract. Where problems or delays occur, these need to be resolved quickly. Failure to address issues can cause building projects to stall and result in a loss of goodwill between the different parties. ASB made changes to its construction lending policy earlier this year to strike a balance between simplifying the building loan process, while still ensuring there are sufficient quality checks on the property. Feedback we’ve received on these changes from customers, building firms and brokers has been very positive.

❝ A change

to valuation approach for construction loans means ASB considers the completed value from a registered valuation in most situations to calculate the LVR.❞ The key changes ASB has made in relation to construction loans are summarised below: ➊ A change to valuation approach for construction loans means ASB considers the completed value from a registered valuation in most situations to calculate the Loan to Valuation Ratio (LVR). ➤ In the past, ASB took the lesser value of land plus cost to build, or the completed value, to calculate an LVR. Now, we typically take the lesser figure only if there is a 10 per cent variation between the two. This change means the valuation better reflects the market value

of the finished property, as the completed value often exceeds the land plus the cost of building shown in the contract. ➋ Progress payment requirements have been streamlined by removing the requirement to get council sign-off for interim progress payments, saving both customers and lenders time. This change helps ensure builders can be paid on time and are less impacted if there are council inspection delays. ➤ This allows for progress payments against a builder invoice, provided requests are consistent with values set out in the fixed price contract. ➤ Providing independent quality checks from a registered valuer at key milestones (for example, roof on stage and on completion) means ASB no longer needs to see evidence of council sign-off for each progress payment. ➤ The code of compliance from council is now a 60-day, post-advance condition. This means customers can move in when they are happy to, not when the council dictates completion has occurred. This allows for final payment and possession conditions to be met earlier if agreed by the customer and builder. ➤ The new policy can be applied to fixed price contracts with registered master builders and New Zealand Certified Builders. Exceptions to these groups are considered on a case-by -case basis. ➌ Loans are documented at housing variable interest rates for turnkeys with a twelve-month drawdown period, which has provided greater certainty and commitment for customers and builders completing turnkey proposals. Customers can continue to access ASB’s team of experienced lenders to discuss their construction needs so the process can be simple and remove the complexity for our customers. For more information on ASB’s construction lending policy please contact your local ASB third party banking broker centre or call us on 09 4484224. ✚

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PAA LEGAL By Michelle Harrison Karen Tatterson

Finlay Abbot

Year of variables for buyers, sellers,advisers John Bolton

Tony Mounce

How will you remember 2014?Recollections of a possibly captious year are recorded by prominent property and finance advisers.

very year brings with it many of the same challenges and opportunities of the year before, but also new dynamics, trends to understand and potential to grasp. How would you describe 2014? What will you remember about the past 12 months? Some of the common themes that have been coming up in conversation include the impact of LVR; interest rates; property shortage; strong price competition among the banks; and the lift in refinance activity to name a few. We spoke to a number of advisers about their experience and the notable take-outs of the year. What were the big stories for you?

On the impact of LVR “Lending restrictions had a pretty significant

022

impact on my sector of the market, which is very much first home buyers. It’s hard to do something about a macro issue like that, but notably it tends to be that when one sector closes for business another one opens. The sell-and-buy market has been very good to me this year. My mature client base was feeling a bit locked out by first home buyers because they could manage to sell their house, but couldn’t buy another one.” Grant McFlinn, Mike Pero, Auckland “The high LVR speed limit has had a large impact on both home loan and insurance business. Typically, for me, they are reasonable borrowers and are great customers. I haven’t banked a single high LVR loan since the speed limit came out. Incredible! Fortunately, a number of larger investors have re-entered

❝ There’ve been

a lot of different mortgage propositions this year that we’ve had to come to grips with and how we handle them ❞ -Tony Mounce-

Grant McFlinn

the market [not in the same market, but rather multi-flat properties] and have been busy refinancing, purchasing and building.” Finlay Abbot, Finlay Abbot Mortgage Broker, Wellington “The LVR restrictions really emphasised the role of advisers in educating clients and keeping them in the property race. Many first home buyers just assumed they couldn’t buy a house after the LVR restrictions came in, so this year’s been about helping them understand all their options and setting their sights on reaching their goal over time. Obviously, this makes business more challenging, but no one can argue with the satisfaction of getting first home buyers into a home and once they are in, they are great referrers.” Karen Tatterson, Loan Market (PAA Board Member), Auckland

On the price wars “The banks have resorted to price as their primary driver for growth, so they end up cutting each other’s lunch and we get caught of the middle. It means that a lot more people have been chasing price and as a result the refinancing market has certainly increased. We don’t focus on refinance – it’s not a market you’d want to build your business around because it’s reasonably short term and things like cash incentives are a short term phenomenon. But at the moment the market is crazy with this stuff so we have definitely found that we are doing more refinancing.” John Bolton, Squirrel, Auckland

On trends and market moves “I have seen more inquiry come from the internet this year than any other – not all of it high value [or of any value] but it’s definitely increasing. I have noticed that more clients want to do everything by email. This trend continues to grow which suits me. It’s a massively effective means of communication if you judge it and use it correctly.”Finlay Abbot. “One change I have noted is that people are looking outside of the square and are looking at lenders other than the main banks. They are looking at non-bank lenders as an option and short term solution either to get them out of a situation or to get them into a property. That’s a definite change from previous years where it just wasn’t a choice for them and there were no exceptions; it had to be a named bank.” Karen Tatterson. “We’ve got an interesting market in Christchurch with this new thing called ‘as is where is’ which is where the owner of the property has taken a cash pay-out from the insurance company in lieu of getting their house rebuilt, and then sold the land and the shell. There’ve been a lot of different mortgage

propositions this year that we’ve had to come to grips with and how we handle them.” Tony Mounce, Tony Mounce Mortgages, Christchurch “Towards the end of the year, the market has picked up again. I think we got through the elections with a stable government and interest rates are stable. Stability is good. It’s boring but it’s good. There’s nothing worse than interest rates that are going up and down like a yo-yo; it’s a pain to deal with… The best thing for us is consistency; you want to be in a market that’s reliable and you know what you’re facing and I don’t think we’ve seen an end of macro-prudential tools. I think you’re going to see ongoing experimentation in terms of how the Reserve Bank can control property markets without having to resort to higher rates and as advisers we’ve just got to be prepared for those changes – across any market really. It could be larger investors in terms of the changes in capital; it could be bank servicing calculators… who knows?” John Bolton.

On the positives and predictions “A positive for me has definitely been a greater return on investment in terms of my time. I’m not dealing with the same volume of clients, but I am still getting a lot of first home buyer referrals. Probably because when you help a first home buyer, they are more than happy to refer; they’re the ones that are not just having an idle thought about buying a home; they are getting up in the morning and thinking, ‘How am I going to make this happen?’.” Grant McFlinn. “No question – the positive of the year was Westpac bringing back trail commission and their support for advisers, especially effective advisers who are building good businesses and are here for the long haul." Finlay Abbot. “I think there will be enhancements to KiwiSaver in April which will be good for next year. We should also see a continuation of more of the same positive activity in the housing market.” Tony Mounce. “We have definitely seen an increase in activity since September. We’ve had the election, interest rates haven’t gone as crazy as was predicted earlier this year and so people just have more confidence. They are heading to the market and are actually keen to buy.” Karen Tatterson. “2015 – watch this space! I think that for the end of this year and into next, the Auckland market in particular is going gangbusters. You’re going to see a whole lot of activity up here; the confidence is back in the market." John Bolton. What have been the positives, the challenges and the trends for which you’ll remember 2014? ✚

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SALES & MARKETING LEGAL By Paul Watkins

Getthe mostfrom sponsorhsip advertising

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Does sponsoring events and local organisations work? Paul Watkin’s explains how to decide whether to enter a sponsorhsip deal, and how to make it work

efore we get into the mechanics of making sponsorships work, appreciate that there are two kinds of sponsorship. One is a true marketing decision, as I will explain, and the other is just a donation. Let’s say you are called by a local group looking to raise money through an event and they ask for $500. They say that you will get your name on the programme, be mentioned over the PA system, and be one of 20 on a sponsor’s board. This is a donation and not a sponsorship! The business value to you will be zero. Your only motive would be that you support the cause, or as a local business you want to support local initiatives. So if you do concede to such requests, create a category of expenditure called ‘Donations’. This will put it in perspective so that you don’t expect a commercial return or confuse it with true sponsorship.

Expect to spend more So with the small stuff now explained, how do you profit from true sponsorship? A general rule is that you can expect to spend two-anda-half times the amount that the sponsorship asks for. For example, if the cost is $5000 to sponsor something, then expect to spend at least $12,500 to make it work as you want it to. Here is an example from a company [not financial services] that was invited to be one of 10 sponsors of an outdoor music performance. The event attracts 10,000-plus people, mostly families, so the target market was right. They paid $2500 to be a sponsor, but then spent an additional $2500 on 1000 Frisbees which were handed out at the event. The printed message on the Frisbees said: “Text in your name to 021… and be in to win $1000.” More than 2100 attendees texted in. These people, who were now identified by their cell phone numbers, became the basis of future text campaigns. The recipients had the option to opt out at any time, of course. The total promotion cost $6000, with only $2500 being the sponsorship part. This is a good example of making a sponsorship opportunity work. The fee asked for is only a 40% of the total cost. The real value is access to that audience to launch your own promotion. This could be to generate a list as in the example above, to promote a new service, to get likes on

❝ Being one

sponsor among three is much better than being one among 20. ❞ your Facebook page, to drive traffic to your website or to be part of an overall multi-media campaign. Be clear in your objectives when you plan the promotion.

Evaluate opportunities Now you have a feel for how to make it work, here are some ways to evaluate sponsorships. The first is the most obvious, being: Is it your target market? If you want working families aged 35 to 55, then does this opportunity present a good number of these? Be specific in your targets. The second is to consider if it fits your brand. For example, sponsoring a rodeo is seen by some as an act of animal cruelty, so consider how it might be perceived by existing and potential clients. Equally, if you sponsor a car-boot sale [regardless of the cause], is being associated with selling cheap junk a good idea for your brand? Think it through. The cause you sponsor can help or hurt your image. We judge you by the company you keep. Consideration number three is the relative cost to exposure. Is the cost relatively small compared with other avenues of reaching this group? Are you getting more exposure, or more targeted exposure, from the sponsorship compared to other marketing avenues? This brings up the issue of numbers. Let’s say you are specifically want to target investment property buyers. You might be better to sponsor a group of small business owners [200] as opposed to a general group of 10,000 at a family day. The more specific you are in your targeting, the more effective your promotion.

Other sponsors Next, consider your relative exposure among all sponsors of that event or group. How many sponsors will there be? Will you stand out and be noticed among the other sponsors? Being one sponsor among three is much better than

being one among 20. Don't get lost in the list. Being the bronze sponsor can sometimes offer little recognition and be totally overshadowed by the gold sponsor. On the matter of other sponsors, ask to see the list of all sponsors. Do you have competitors among them? Any lenders? Other financial service firms? Anyone who may taint the event and therefore you get associated with it? On that note, you might want to be seen in the company of large well-known companies that elevate your influence if it has large sponsors. You could also look to join forces with a second sponsor. Returning to the example of the outdoor music performance, the firm concerned could have approached a shopping centre to put up the $1000 prize, for which they would have both been recognised as sponsors. Both would have benefited at little cost.

Do you believe in the cause? Do you support the cause? If you don't believe in the group or their battle cry then stay away from it. If you fake your support you will be noticed and it may hurt you. The best sponsorships are those in whose causes you believe. Most families have a pet, so the SPCA or Cat Protection League could be a good one for you – but only if you genuinely believe in their work. Similarly, Habitat for Humanity may fit with your brand, as it is providing housing. Your sponsorship in these instances may allow you to use their logo on your own promotional material. If you back a social cause, then it may be possible to have them mail or email something to their mailing list. They would never surrender the list to you, but they may agree to you producing a flyer that can be sent to their list. It would come at a cost on top of the sponsorship cost, but could be worth it. This raises the question of events versus ongoing sponsorship. Events are one-off activities where you get a big, but fleeting, splash. Ongoing sponsorship is like that for Habitat for Humanity, where you are a regular contributor. Which is better? The answer depends on how you intend to leverage it in a promotional campaign over and above the actual sponsorship. Brand awareness is almost meaningless. Having your logo seen on a billboard at an event will not motivate action or make your phone ring. People see hundreds of logos every day and don’t make a call to that firm. There has to be a call-to-action campaign built around that visible logo. Sponsorship should be an important element in your marketing activities. Sponsorship can provide you with a profitable return if you have clear objectives, a well thought through leveraged campaign behind it, and pick the cause or event well.

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INTEREST RATES Chris Tennent-Brown

Dovish OCR review surprise The fiscal environment is ripe for easing the restrictions. Unless present criteria are met, resurgence in prices remains very real, notes Chris Tennent-Brown.

lthough the RBNZ’s

decision to hold the Official Cash Rate (OCR) at 3.5% in October was widely expected, the dovish tone of the OCR Review statement was more of a surprise. A very subdued inflation environment has seen the RBNZ water down its tightening bias substantially. The central bank is still considering further policy adjustment this cycle, but has opened the door to the possibility that it won’t need to raise the OCR any further. The benign inflation environment was highlighted in the 1% p.a. CPI inflation reading for the third quarter. This contributed to us changing our OCR forecast - we have delayed the timing of the next RBNZ rate hike from March to September 2015. And beyond that, we have another OCR increase pencilled in for March 2016 for an OCR peak of 4%, lower than our earlier forecast of a 4.5%. These changes impact our mortgage rate forecasts. We see the risks to our forecast of further OCR increases and, in turn our short-term mortgage forecasts, as balanced. Inflation could yet pick up materially for a variety of reasons. But the longer the RBNZ remains on hold the greater will become the conviction

026

that growth, migration and the housing market are past their peak, and the less likely future OCR increases would become. The global influence on local interest rates is also important. Local interest rates (particularly longer-term rates) change because of offshore developments regardless of what the RBNZ is doing, or not doing, with the OCR. And right now global interest rates are still incredibly low. For example, the German 10-year Government Bund yield is less than 1%, trading around its all-time lowest level. Despite the impressive run of US data over the second and third quarters, the US 10-year Government Bond yield continues to trade under 2.5%, which is very low by historical standards, especially when considering the economy is now expanding at a respectable growth rate. New Zealand’s equivalent 10-year Government Bond yields just over 4%, a much higher return, although very low by our own historical standards. As well as influencing New Zealand’s Government Bond yields, these low global rates are influencing longer-term local mortgage rates.

LENDING RESTRICTIONS Within the RBNZ’s November Financial Stability Report the RBNZ highlighted the sharp slowing

in housing market activity, particularly among first-home buyers, in the wake of the high-LVR restrictions taking effect in October 2013. Nonetheless, the RBNZ noted that the housing market remains very stretched, pointing to the continued high level of house prices relative to such fundamental metrics as incomes and rents, particularly in the two hotspots of Auckland and Christchurch. In addition, the RBNZ points to the increase in indebtedness among house buyers, with Auckland again highlighted as a concern. The lending restrictions were always designed to be temporary, so the logical question is when might they be removed? The RBNZ has highlighted three main criteria for removing the restrictions: ➜ Whether house price inflation and housing credit growth have returned to more sustainable levels. ➜ The risk of a resurgence in housing market pressures after the removal of the restrictions. ➜ And whether the policy is creating significant market distortions. Everything for easing the restrictions is moving in the right direction, but the criteria aren’t met at present and the risk of resurgence in prices is still very real. A key risk we and the

RBNZ see is housing demand from strong net migration, which has yet to peak. Although it could start to show signs of peaking by early 2015, in recent months the net inflow has been very strong. We see the second or third quarter of next year as the likely timing for the RBNZ to ease the restrictions.

WHAT’S IN IT FOR BORROWERS? First, the maintenance of the high LVR lending restrictions means the challenge of a higher deposit 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 remain in place. Floating mortgage rates move fairly much in lock-step with each RBNZ move, and have lifted 100bps, or 1% so far over 2014. Accordingly, the RBNZ’s signal to pause likely means a period of stability for floating mortgage rates until the RBNZ moves again next year. But for fixed-term mortgages, particularly the two- to five-year terms, global developments have been an important influence (on top of the RBNZ’s influence via the OCR). Over the next year, we expect that 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. Longer-term mortgage rates can still move over the year ahead, even if the RBNZ holds the OCR steady at 3.5%. Underlying wholesale rates and fixed-term mortgage rate movements will likely lift in anticipation of central bank hikes, rather than after the actual interest rate adjustments from the RBNZ or offshore central banks.

VARIABLE MORTGAGE RATE Our peak OCR forecast of 4.0% implies the variable mortgage rate will reach around 7.25%, reflecting a fairly direct transmission of the remaining 0.5% of expected OCR hikes. We expect short-term fixed rates to eventually settle between 6.5% and 7% and the 5-year rate to settle around 0.5% higher, just above 7%. Since March, despite the RBNZ’s OCR hikes, fixed-term mortgage rates have been held down, and have 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. Both of these influences contributed to relatively low 1- to 3-year fixed rate specials at times over recent months. It has been possible for borrowers to sometimes access fixed-term rates that were lower than when the RBNZ began raising rates back in March. It is impossible to predict the exact mix and timing of bank competition, and strong downward pressure on local wholesale rates stemming from offshore interest rate markets. But the RBNZ’s signal to pause, and the low global rates are helping keep the six-month rate and some targeted specials on offer under 6%, significantly below the floating rates at the time of writing. Borrowers should monitor these developments, and discuss the options with their mortgage providers if they are looking to fix.

"The central bank is still considering further policy adjustment this cycle, but has opened the door to the possibility that it won’t need to raise the OCR any further.”

% 8

Home Loan Rates

Source: ASB 10-year average 1-year ahead

7 1-year ahead

6 current

October 2013

Variable Rate 1-year rate 3-year rate 5-year rate

Home Loan Rates

5-year

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. That’s a lot to consider, but despite all the variables, there are still a number of things that we can identify. Firstly, the 6-month and 1-year rates are the cheapest rate right now, significantly below the floating rates. So borrowers can create some certainty, and obtain a lower rate than floating by fixing for short terms. Many of the carded rates at the main banks out to around 36 months are lower than floating rates at the time of writing, meaning borrowers can create interest rate certainty and at the same time save on interest rate costs. Secondly, all fixed rates are still 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 sixmonth or 1-year terms for the next five years, and compare the interest rate expense with the interest rate of the fixed terms available today for longer terms.

TIGHTENING Based on our forecasts, rolling these shorter terms is still a cheaper strategy than locking in the longer terms such as the 4- to 5-year rates. But this really hinges on our view that the RBNZ’s next phase of its tightening cycle will be far more drawn out than the phase just completed, and the OCR will peak at 4.0%. It’s also important to note these calculations are based on carded rates – the periodic availability of special rate offers skew the calculations, and are important for borrowers to consider. We stress that if the RBNZ hikes more aggressively than we expect (i.e. more hikes early on in the next part of the cycle and/or lifts the OCR higher than 4.0%), then these shorter-term rates will lift more than we are forecasting, making the strategy of fixing for short terms more expensive than the longerterm rates on offer today.

7 3-year 2-year

6 1-year rate

Variable Rate

Source: ASB

Jan-13

Jul-13

Jan-14

Jul-14

Jan-15

With this in mind, a key thought is that fixing for longer terms now does give extra insurance against stronger OCR increases than we are expecting. Depending on borrowers’ risk appetite, that insurance may be worth taking. As always, there are risks to the assumptions behind our forecasts. New Zealand interest rates could be higher or lower than our forecasts. But with the economy growing well, and influential global rates expected to rise, we continue to think it is prudent to plan for more mortgage rate increases from today’s level over the year ahead.

FINAL THOUGHTS More interest rate increases should be expected over the next two years. Borrowers can lock in some certainty and pay a lower rate than current floating rates. Floating rates should be fairly steady while the RBNZ remains on hold, but are still set to rise the most out of all the mortgage rates over the next year or so. 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. 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: there is more to it than just picking the lowest interest rate. ✚

027

MY BUSINESS By Phil Campbell

Under supply for over achieving Auckland Auckland developers face an under supply problem. High council fees and high cost of development land has not slowed the building boom says Joel Oliver, managing director of SuperCity Mortgages. liver Joel O

You operate successfully in a burgeoning Auckland market. Is it as bullish as conveyed to the rest of the country? It certainly is – the median price of homes sold by Auckland’s largest real estate agency hit an all time high in October. The median price of homes sold by Barfoot & Thompson was $655,000 in October, up $20,000, or 3%, from $635,000 in September and surpassing the previous all-time high of $652,000 set in March this year.

What is the main problem – space in which to build or lack of open spaces to develop?

There is certainly a under supply problem. The main problem is the cost to develop land into sections, along with the high council fees and their inefficiencies. The government is overhauling the Resource Management Act to reduce the time and cost to develop land. The longer we wait for this, the higher prices will go.

How did you start out and where?

The independence of acting as a broker allows you to find the solutions and help your clients to meet their goals and realise their financial dreams. Being a lender for a bank means you are focused on acquisition of new lending; therefore, the attention to your existing clients falls to the wayside - which never sat right with me. The concept of having a true client for life philosophy under the broker model was a big motivator. So, I decided make the leap of faith and left a fantastic 13-year lending and management career at ASB and ANZ. When deciding who to work for, I was very surprised at what each brokerage offered in return for their slice of your commission. Long story short, it was take a lot and give little. It also seemed the best brokers were lone rangers and didn’t have offerings to entice more good brokers. There was also a void in the broker

market in New Zealand that Mike Pero had left behind [post sale]. You could ask any client, ‘When you think of a mortgage brokerage’, who do you think of? If they didn’t say Mike they’d just shrugged their shoulders.

How has your business performed in the current boom?

In a year of operation we don’t have a lot to compare. However, business is very, very good. We are experiencing month-on-month increases in business written. I don’t believe that this is all to do with the boom. Our point of difference is that we are not transactional brokers; we see ourselves as our clients’ financial Hub, which means that we are really empowering the client to stop and think and tell us what their financial goals are. Once we have an understanding we can educate, refer and recommend. This will be anything as simple as referring to a solicitor to get a will in place, right through to financing a renovation to create equity in order to leverage to purchase their first rental property, for example.

Does evidence exist of a possible diaspora because of the tight Auckland housing market?

People do what they can to stay in Auckland for many reasons. With more business able to operate remotely via the internet, you always hear stories of people selling up in Auckland and moving to that $500k mansion in the middle of goodness knows where. However, this is a very minuscule diaspora if compared with migration to Auckland. Mt. Maunganui/Tauranga is a popular target for fed up Aucklanders to migrate to. This generally, however, comes at the cost of limited job opportunities and salary/income caps. It’s all relative and you have to weigh up the pros and cons. I recently helped a client purchase their first home in Feilding; very tidy home at $250k for a property that would fetch $1.8m in Ponsonby. They were on joint income of $110k which is the same income as the average Aucklander, whose average house price is $650k. I hadn’t seen a debt to income ratio like that for a very long time.

The rest of the country looks on in envy at Auckland’s growth in recent years. Apart from Christchurch, which we know is a special case, will the rest of the country catch up? It really is quite simple economics. The supply and demand equation is why Auckland is having rampant growth – lack of supply and ever increasing demand with record migration from both abroad and internally. For other cities around the country to have capital growth they will require increased demand - population

"Being a lender for a bank means you are focused on acquisition of new lending; therefore, the attention to your existing clients falls to the wayside - which never sat right with me.”

a client’s lending structure to get them their twelfth investment property. We treat all clients with the same care and exceptional level of service.

Are current government regulations adequate or can they be improved? Definitely can be improved. When I became a broker I was disgusted at how easy it was. Anyone can become a broker as long as they don’t have a bad credit check. I have heard of house painters becoming brokers because they like property and will do brokering on the weekends. How is this good for our industry? Some aggregators have been signing on anyone and everyone to collect fees to the detriment and reputation of our industry. It looks like we are slowly putting steps in place to rectify the open door. I applaud Westpac for enforcing the mandatory week introduction course with the PAA for any new broker they give accreditation to.

In general, which age/salary brackets are easier/difficult to facilitate?

In very general terms, the 35-to-50-years-olds are your dream clients. They have incomes above the national average, they have good equity in their owner occupied properties and they would now like to find out how to best utilise this to their advantage, which more often results in purchasing a residential investment property. The age that is difficult and due to no fault of their own are 25-to-35-year-olds; the first home buyers.

Do you see an end to the current boom?

growth. Auckland is the Super City and therefore is the place to be for growth, prosperity and opportunity.

Which areas outside Auckland do you think might prosper?

The areas with a spill over effect from Auckland’s population growth would be good ones to look out for. Hamilton, for example, with its close proximity to Auckland is one city that is experiencing strong population growth and some good capital growth. This will more than likely continue slowly but surely over the next three years. Warkworth is looking to have some growth at present with a lot of development and construction being carried out.

Do you find customers in general know a little about finance?

I believe year-on-year clients are getting a little more educated. Reasons vary. If a mortgage client seeks advice direct from a bank, then they are faced with a dilemma of finding an experienced and knowledgeable banker. Oftentimes they will be frustrated and seek their own education online, which can be very overwhelming and conflicting. If we are talking about the knowledge of why they should use the services of a broker in general, we still get asked numerous time how much we charge, how does it work and do you deal with banks or do you lend out your own money? People simply do not have enough knowledge about brokers.

What type of clients do you deal with – industry, residential?

Although we seem to attract the big investors and high value clients, our belief is that no deal is too small. We are experts in wealth creation so educating a first home buyer about how to reduce debt fast to create equity and buy their first rental property is similar to restructuring

No, it will continue for years to come. New Zealand has just been ranked the third most prosperous country in the world [2014 Legatum Prosperity Index] and more people are realising this. Look at our recent immigration records for example. We are in the financially safest part of the world with the strongest banking system in the world. Apart from a very small Swedish bank, ANZ is the safest bank in the world. Offshore wealthy investors can see New Zealand’s potential, hence the rapid buy up of our assets and also that our commodity is food and water, which is becoming more and more precious each year globally. We produce 10 times more food than our population. These factors together with the supply and demand issues we face, it is very hard to see the end of the boom. However, history tells us that it will always bust, then recover then boom again. So, go and make your hay because the sun is blinding.

How difficult has it been for first home buyers with the difficult lending restrictions?

It was very difficult for the first six months the restrictions came into play. However, after that, despite the numerous stories on first home buyer sob stories in the media, banks actually started to lend up to 90% again and funds became available in their restricted 10% pool of funds allocated in their respective lending books. We financed many over 80% deals (some up to 95%) in the past six months with ANZ as their pool was much bigger than the other banks. ✚

029

Sales & Marketing

Self-regulate By Sharon Davis

Seven ways to increase your before it’s too late

income in 2015

Sharon Davis highlights seven options with income-boosting potential for brokers to consider in the New Year.

he end of the year is a good time to reflect on the past year and to plan to for the year ahead. It pays to look at what aspects worked well for you so that you can focus more energy there, as well as to identify areas where there is room for improvement. With this in mind TMM has identified seven areas with potential to help grow your sales volumes. We suggest you pick only one or two options that have the potential to work best for you and to and focus your attention on them to give your 2015 income a boost.

ALTERNATIVE MARKETS With activity in the first home buyer market still a little muted in the wake of the LVR equity restrictions imposed by the Reserve Bank last year, it makes sense to look for potentially more active alternative markets. Diversifying your customer base could be the key to increased volumes for 2015. Here are four markets with growth potential into which you could consider expanding. Residential property Investor market: Recent residential property market data suggests that the property investor market, especially around Auckland, has picked up any slack in first home buyer activity following the LVR restrictions. According to the Reserve Bank’s November Financial Stability Report

➊

030

❝ The growing

migrant market clearly provides another niche market for enterprising advisers to tap into. ❞ property investors now account for 40% of the residential market activity. The property investment space is a fairly complex and specialised niche – but if you’ve dabbled in property investment, and if it is an area that interests you, this potential avenue could be worth exploring. Construction lending market: New construction lending does not fall under the Reserve Bank’s LVR restrictions – this includes all residential lending to finance the construction of a new residential property, with either staged payments or one lump sum payment on completion.

➋

The Reserve Bank estimates that only 2% of all new builds will come from high-LVR borrowers, but both first home buyers and residential property investors are able to access this lending which is subject to a 10% speed limit. Construction lending is also a little more complex, but could provide a viable financing alternative for equity-strapped prospective home buyers and residential property investors alike. Over 60s market: New Zealand, along with most developed Western countries, has a rising population of people aged 65 and over who are living for longer. These silver seniors will soon account for one-fifth of the Kiwi population – and 20% of the national population is a market worth targeting. According to the latest census figures more Kiwis are earning superannuation or a veteran’s pension that are earning an income from self-employment or running a business, which highlights the potential of this portion of the population. A reverse equity mortgage is one fairly obvious option to offer this market. A recent study of the New Zealand reverse equity market undertaken by the Safe Home Equity Release Plans Association found that the main use for these mortgages in New Zealand was for debt repayment, followed by home improvement and travel. Car purchases, aged care

➌

requirements and gifts also featured on the list. The study also found that the product was not a “set and forget” product, but was actively used by borrowers to fund the stages of their retirement. With a quick brain storming session it is possible to come up with other products and opportunities within this growing demographic. Migrant market: Immigration figures hit an all-time high recently. “Net immigration flows rose from near zero over 2012 to an annual rate of 41,000 people in the year to July 2014,” according to the latest Financial Stability Report. While Statistics New Zealand has just released figures that show 47,684 people relocated to New Zealand on a long-term basis this year, and net immigration figures are expected to increase to 55,000 in 2015. The growing migrant market clearly provides another niche market for enterprising advisers to tap into. With migrant number favouring Auckland the opportunities will be greater in that region, as well as around Christchurch with migrants arriving to work on the rebuild. Apart from catering for the obvious language and cultural gaps, try to identify any knowledge gaps that migrants would have when it comes to the local property market and provide this information as a way to build trust and potential business relationship.

➍

STRONG REFERRAL NETWORK A strong referral network is probably the most important foundation for any broker. Inward referrals: Referrals are the lifeblood of the mortgage industry. It’s important to build up a network of people within the industry who refer business to you. This includes estate agents, accountants, solicitors, insurance advisers and other financial advisers. Keep in touch with your referral sources and remember to thank them for any business they send your way. Word-of-mouth referrals from customers are one of the most effective forms of advertising but it is the type of advertising that is earned, and built up over time. For successful advisers, referrals from satisfied customers account for up to 70% of new business, making them a top priority. Don’t be afraid to ask your customers for feedback to help you improve – and to refer any potential business your way. Outward referrals: One tried and tested way to increase turnover is to upsell; if someone wanted to buy a torch, you could ask if they would like to buy batteries and a replacement bulb for the torch as well. Unless you’re trained in risk or have qualified as an AFA some options to upsell or sell-on, at the initial point of sale, in the mortgage industry are limited, but there is the option of referring your customer on in return for commission.

➎

➏

Outward referrals – for risk or Kiwisaver, for example – is another potential income stream for brokers. Aim to either join a group with a competitive referral and on-going income scheme for referrals – or work at establishing your own reciprocal networks.

REPEAT BUSINESS Selling to an existing customer, with whom you already have already built rapport and trust, is much easier than finding and selling to a new customer – so look out for opportunities where you can add value and get repeat business. Develop a client for life philosophy: Many opportunities exist for repeat business for mortgage customers, from refixing a loan, to refinancing, to buying a holiday home or branching into property investment – all of which mean it is a mistake to view helping someone to get their first home loan approved as a once-off transaction. Your customers needs and circumstances will change over time – and a good adviser should be tuned into these changes and milestones and assist with re-fixing or suggest refinancing options, or suggest splitting a number of properties across different banks, for example. Often a proactive approach is needed to both help your customer and provide repeat business and repeat income. ✚

➐

031

LEGAL By Jonathan Flaws

Fair Go IN FAIR

TRADE

A raft of regulations has been designed to protect consumers and advisers, but is compliance becoming too complex?

s the world becomes more complex and regulated, advisers are being drawn further in to the vortex of legal compliance. For mortgage advisers it is not limited just to credit law but to a variety of laws that affect the way all business must be transacted. The Credit Contracts and Consumer Finance Amendment Act 2014 now points the way to these laws. One of the Lender Responsibility Principles in section 9C(3)(f) of that Act requires a lender, in relation to an agreement with the borrower, to: â&#x20AC;&#x153;meet all the lender's legal obligations to the borrower, including under this Act, the Fair Trading Act 1986, the Consumer Guarantees Act 1993, the Financial Service Providers (Registration and Dispute Resolution) Act 2008, and the Financial Advisers Act 2008, which include: (i) obligations in relation to disclosure, credit fees, unforeseen hardship applications, and credit repossession under this Act; and (ii) prohibitions on false or misleading representations and unfair contract terms under the Fair Trading Act 1986; and (iii) the guarantee that the service of providing credit and any other services will be carried out with reasonable care and skill under the Consumer Guarantees Act 1993.â&#x20AC;? This obligation does not just belong to the lender but to any person acting as an

intermediary between the borrower and the lender to assist the borrower to obtain credit. If a lender is receiving an application via an adviser to the borrower, it will require the adviser to confirm that compliance with the Lender Responsibility Principles in the adviserâ&#x20AC;&#x2122;s interaction with the borrower. The items in subparagraph (i) relate to obligations under the CCCFA. The obligations under subparagraph (iii) relate to obligations on both the lender and the adviser under the legislation relating to the provision of financial services and the provision of financial advice. These matters are fundamental to the business of all professional advisers who provide advice to clients on mortgages. The Fair Trading Act 1986 [FTA] also imposes duties on mortgage advisers. It is equally as important to be aware of, and understand, the obligations under the FTA as it is to understand obligations under the CCCFA. Though Section 9C of the CCCFA connects the two pieces of legislation, it could be argued that the FTA obligations are more important because they govern the way all business activities are to be transacted. Even if you act in compliance with the CCCFA, you might still be exposed to penalties under the FTA.

FTA information A good place to start to get yourself up to speed with the FTA is the Commerce Commission website www.comcom/

govt.nz/fair-trading and the Commissions YouTube channel www.youtube.com/ commercecommission. The Commission is responsible for administering the FTA and its website includes such useful tools as fact sheets and guidelines. Not all fact sheets will be relevant to mortgage advisers, but it is well worth running through the list as many of the concepts in the FTA override, or are carried through into, the credit legislation. In many respects the obligations in the FTA are a more generic statement of the specific obligations found in the credit and financial adviser legislation.

Fair trading fundamentals The FTA is consumer legislation and is designed to protect the interests of all consumers. When looking at any legislation it is useful to look at how the legislation explains its purpose. The FTA explains its purpose as follows: 1A Purpose (1) The purpose of this Act is to contribute to a trading environment in which: (a) the interests of consumers are protected; and (b) businesses compete effectively; and (c) consumers and businesses participate confidently. (2) To this end, the Act: (a) prohibits certain unfair conduct and practices in relation to trade; and

(b) promotes fair conduct and practices in relation to trade; and (c) provides for the disclosure of consumer information relating to the supply of goods and services; and (d) promotes safety in respect of goods and services. It is hard to argue against the motherhood statements in subsection 1. It is socially appropriate that consumers’ interests should be protected against those with a commercially superior bargaining position. It is also commercially appropriate that competition should be fair and effective and that both consumers and businesses can trade with confidence. (a) No contracting out So it’s not surprising that, as a general rule, parties can’t agree to contract out of the FTA. If you include a provision in a contract or terms of engagement with a client that overrides a provision of the FTA, it is unenforceable. In contrast, if you include a provision that imposes a stricter duty or provides a more advantageous remedy against the supplier of a service than that imposed by the FTA, the higher contractual threshold will apply. There are exceptions to the no contracting out rule but these apply between parties who “are in trade”. (b) “in trade” While the expression “in trade” is not specifically defined, “trade” is defined to mean “any trade, business, industry, profession, occupation activity of commerce, or undertaking relating to the supply or acquisition of goods or services or to the disposition or acquisition of any interest in land.” Which means that providing advice or assistance to borrowers or potential borrowers is “in trade” and covered by the FTA. (c) Misleading and deceptive conduct If there is one section of the FTA that overrides everything else it is section 9 which contains the simple requirement that: “no person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.” It may be simply stated but it is far from simple to define and explain exactly what this means. It is the sort of deceptively simple statement that brings a smile to the face of litigation lawyers for it leaves open huge opportunity to interpret or misinterpret the plain words. The hook in this section lies in the words, “is likely to”. The particular consumer may not be misled or deceived but, as explained by the court in a recent case: “If the conduct objectively had the capacity to mislead or deceive the hypothetical reasonable person, there has been a breach of s9. If it is likely to do so, it has the capacity to do so.” ” (d) False or misleading representations The general prohibition on misleading or deceptive conduct is followed up by a prohibition on misleading representations

Terms

❝ It is socially

appropriate that consumers’ interests should be protected against those with a commercially superior bargaining position. ❞ in connection with the supply of services. For example, among the list of prohibitions, a person can’t make a false or misleading representation: • that the services have a particular approval, use or benefit; • with respect to the price of the services; or • concerning the need for the service. This means that it would be misleading to make a claim about the benefits of a particular loan from a particular lender if in fact that benefit was not available to that borrower. Equally, quoting an interest rate to a borrower when you know the lender would never provide that rate to this borrower could well be misleading. The third bullet point contains a potential issue. Persuading a borrower to refinance a loan when there is no real need for or benefit to the borrower to refinance breaches this prohibition on misleading representations. (e) Unfair contract terms A recent amendment to the FTA has created a regime for the regulation of unfair contract terms (UCT). This regime applies only to standard form consumer contracts. The UCT regime will come into effect from March 17, 2015, so that standard form contracts entered into after that date. A contract entered into before that date but varied or renewed after that date is to be treated as a new contract and that contract in its entirety must comply. The UCT regime is not one that can be enforced by an individual. In other words, a person cannot on their own claim that a term of the contract to which they are a party is an unfair term and is therefore unenforceable. But if that term has already been declared to be unfair by the court, then every instance of that term in every standard form consumer contract is unenforceable. In this case a person could use the unfair term as a defence. Only the Commerce Commission has the power to seek a declaration from the court that a term is an unfair term. An individual can therefore only complain to the Commerce Commission if the individual believes a term is unfair.

There is relevance to both the expressions standard form and consumer contract. In general terms, standard form means that it is a contract that cannot be negotiated – everyone either takes it or leaves it. For example you will notice that a loan contract tends to be split into sections that can be described as the specific details applying to that loan and then the general terms. The general terms will be standard form contracts. A consumer contract need not be the same as a consumer credit contract. A family trust or a company or a business can be a party to a standard form consumer contract but not to a consumer credit contract. It is not the identity of the party but the type of goods. If an item, such as a refrigerator is purchased by a company then the contract is a consumer contract for the purposes of the UTX regime because it relates to goods or services that are of an essentially domestic or personal type. But it is not a consumer credit contract because the borrower is not a natural person. When considering if a term is unfair the court has to consider three elements: ➊ does the term cause a considerable imbalance between the parties rights and publications? ➋ is the term is reasonably necessary to protect the legitimate interests of the party advantaged by the term?; and ➌ would the term cause detriment to a party if the term were applied, relied upon or enforced?. In considering these factors, the court must consider the extent to which the term is transparent and also consider the contract as a whole. It is easy to get excited about the concept of the UCT regime but in reality, it is not going to be a simple matter to establish that a term is necessarily unfair in accordance with the regime. Nor is it going to be a simple matter to get the attention or interest of the Commerce Commission to seek a court declaration. There will be terms that stand out like the proverbial dogs testicles as being unfair. But there will be terms that clearly advantage the lender and may seem unfair but are nevertheless necessary to protect the legitimate interests of the lender. It is important to understand the UCT regime and downloading and reading the Unfair Contract Terms Guidelines prepared by the Commerce Commission is a good place to start.

Summary There are other aspects of the FTA which may be of interest, such as rules regarding auctions of property including real estate, that change the way auctions are undertaken. You need to be aware of the FTA and how it can affect all of your business activities. But if you go back to the purpose of the FTA and think about what it is seeking to achieve, it is hard not to look at its intentions and its provisions and come to the conclusion that it is fair enough. ✚

INSURANCE By Steve Wright

reasonable income, household income will probably drop very significantly and all the pressure to earn enough will suddenly be heaped on the healthy spouse – a really good recipe for a family break-up!

Reasonable benefits

Only one-in-five working adults have income protection. Steve Wright considers why so few people seem concerned, and highlights why they should be. Invulnerable The likelihood of being disabled, or unable to work, and thus without an income for a period long enough to place a family under severe financial strain is relatively high, perhaps even as high as 20% for working age adults. Families are far more likely to lose their homes to mortgagee sales as a result of disability than they are to losing them to fire, yet many home owners without income protection will probably have house insurance.

Valuable asset

arious surveys and research projects show that many working adults, whether employees or self-employed, have no private insurance to protect them against the inability to work as a result of disability. Estimates indicate that as many as four out of five may have no monthly disability cover at all. Not being able to earn an income because of disability represents a massive potential financial risk and, incidentally, it does not matter whether you are self-employed, generating your own income or an employee picking up a regular pay cheque. So why are so few properly protected?

Ask clients what their most valuable asset is and nine times out of 10 they will tell you it’s their house. In fact, very few people live in homes worth more than their own income earning ability. Even at relatively modest income, mum and dad are worth a great deal of money to their family. An annual income of $50,000 [assuming a modest 1% annual increase] is worth more than $1.7 million over a 30-year working life and almost $2.5m over 40 years. How many clients understand how valuable they are? I suspect most don’t, probably because their value is intangible.

Work consequences Being unable to work for an extended period of time can cause significant financial loss. Never being able to work again is a financial disaster. Finances aside, living with a serious disability is obviously a significant issue for the disabled person but there are significant impacts on their family too. The one additional challenge they don’t need is a financial one because then the whole family becomes “financially disabled”. Even if the healthy spouse earns a

While ACC does provide a reasonable level of benefits [up to 80% of income to a maximum of $94,553 a year, so effectively income exceeding $118,187 is not covered by ACC], it only provides those benefits to people disabled as a result of accident. ACC does not pay benefits for disability caused by an illness. On average, only around one third of disability is caused by accident. The vast majority of disability is caused by illness and thus not covered by ACC at all. Government disability benefits provided by WINZ, even if you are entitled to them [they are means tested], are very modest and are unlikely to prevent the loss of the family home in the event of significant disability.

Expensive? A common misconception among advisers is that income protection is expensive. If advisers think it’s expensive so will their clients. The way insurance companies display quotes probably contributes to that misconception. A male non-smoker aged 35 can get life cover of $1million for around $50 per month but $5,000 per month income cover can cost double that [with a four-week wait and benefits paid to age 65]. The true value of the income cover is not $5000. It’s potentially $5000 per month, every month, for the next 30 years. This could amount to more than $2m if indexed [as it must absolutely be!] and inflation continues tracking at its current 20-year average at around 2%. On this simple comparison alone, income cover and life cover costs no longer look so different. But income cover premiums can be reduced significantly by taking a longer wait period, sometimes by as much as 50% with a 13-week wait, yet in that case, for long-term disabilities, the potential value drop is insignificant. Naturally, the cost is only one aspect to evaluating what wait period is appropriate for any client, but it does highlight that the simple belief that income protection is expensive is not universally true. If you believe income protection offers great value for money it is likely your clients will also.

Solution It is likely many people have never considered their own value, nor the likelihood and consequences of not being able to work, nor that insurance might be a solution to the risk – simply because they have never seen an adviser. These things are not obvious, nor intuitive, and they are not on the education curriculum. They rely on good advisers to educate them and this can’t happen unless you can get in front of them. When you do get in front of them, helping them understand the risks, how valuable they are to their families and the true value of income cover, will increase the likelihood that they buy into the need to accept your recommendations. Good for the client, their family and your business. ✚

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