TMM - The NZ Mortgage Mag Issue 1 2019

Issue

01

2019 Working together to create tomorrow's advisers today

New horizons for mortgage advice

MIRROR TEST BROKEN

DATING YOUR

PROSPECTS

WORLD RECORD

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CONTENTS

20 LEAD XX

XX

UP FRONT

22

There’s regulatory change on the horizon but mortgage advisers are jumping into 2019 in a positive mood, Daniel Dunkley reports.

FEATURES

04 EDITORIAL

12 REGULATION

Brace for change

Broker groups plan for future

16 HOUSING COMMENTARY Uncertainty abounds

21 PROPERTY NEWS Rule changes have impact

6 NEWS

10 PEOPLE

RBNZ's loosening of LVRs; TMM keeps you up to date Royal Commission's NZ with the latest industry wimpact; APRA's interest-only appointments. changes welcomed; and more.

26

18 SURVEY

Property investors in conservative mood

COLUMNS 14 KIWISAVER

Don’t skimp on asset allocation decisions

26 MY BUSINESS

A record-breaking mortgage adviser

28 SALES AND MARKETING Wooing your clients

30 LEGAL

Double-down on client information

32 INSURANCE

What’s the point of medical cover?

03 03

UPFRONT From the Publisher

ALL CHANGE IN 2019

Welcome back to another year. Hopefully you have had a good break and your batteries are fully charged for what is likely to be an electric 12 months.

In my nearly 20 years of being involved in the mortgage advice industry, I’ve seen a lot of change. After talking to key people around the industry, my forecast would be that 2019 will be a year of significant change.

Interestingly, one of the drivers of change will be what’s happening in Australia.

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry handed its final report to the Governor-General and its recommendations around adviser remuneration where ground shaking.

It wants commission to go and customers to pay a fee to mortgage advisers.

This may seem like the sky is falling in, but there needs to be some perspective bought to the debate. Yes our big banks are all Australian owned and what they do will have an impact on this side of the Tasman.

But remember the New Zealand market is very different to the Australian one.

Key differences are most home loans in Australia are variable while in New Zealand it’s pretty much a two-year fixed rate market. Also Kiwi advisers have been better at diversifying their businesses, than their Australian counterparts.

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Added to this New Zealand had been a new trail market for many years. That only really changed when Westpac and BNZ brought back trail.

The best messages to take on board are that it is still business as usual here. But as an industry we need to be far more united and much, much better at articulating the value that good advice brings.

I love this quote from Partners Life. "We believe independent advice drives the best customer outcomes and we will continue to advocate and defend for a robust and sustainable IFA market in New Zealand".

We are already seeing that. Dealer group bosses in New Zealand acknowledge that the lending environment here is changing significantly. It’s much harder to get deals through the banks, particularly the big ones, and the non-bank sector is becoming more vibrant and important.

I expect we will see new lenders in the market this year, and our sources say that at least two Australian non-banks are seriously looking to enter our market in 2019.

The interest rate environment is likely to be benign this year and these wonderfully low rates will continue. The Reserve Bank confirmed that in its recent Official Cash Rate announcement.

The shock for some mortgage advisers will be regulation. The groups are making good progress in finalising their plans for the new-look regime. Whether that has filtered down to their members and individual advisers is a moot point.

If there is one thing you should be doing, it is spending time thinking about the future of your business.

It’s going to be an exciting and challenging year, but also a good one. All the best for 2019.

Philip Macalister Publisher

PUBLISHER: Philip Macalister SUBEDITOR: Dawn Adams SENIOR WRITERS: Miriam Bell, Susan Edmunds, Daniel Dunkley CONTRIBUTORS: Paul Watkins, Steve Wright, Jonathan Flaws, Michael Lang GRAPHIC DESIGN: Debbie Morgan ADVERTISING SALES: Philip Macalister 0274-377527 philip@tmmonline.nz

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TMMONLINE.NZ/NEWS

By Daniel Dunkley

Top advisers say the Reserve Bank’s decision to loosen LVR restrictions will boost homebuyers, but warn tighter credit and loan servicing conditions will restrain volumes.

As of January 1, LVR rules were loosened by the central bank for both investors and owner-occupiers. Banks will be able to provide 20% of their owner-occupier loans to borrowers with a deposit of less than 20%.

While lenders will be able to allocate 5% of new investor loans to borrowers with less than a 30% deposit.

Jenny Campbell of the Mortgage Supply Co predicted a boost in business, but said conservative lending behaviour was unlikely to change.

Campbell said she was “surprised to see the tweak to the investor rules”, adding: “Advisers are crazy busy right now – this could well be a ‘perfect storm’ – lots of house stock on the market, amazing low rates, and now more lending available for first home buyers.”

The Advice Group’s Stephen Wilton described the loosening as “great news”.

He added: “The release of the additional equity which can be used by clients to help put together their investment or retirement plans is a good result.”

Nick Tuffley, ASB chief economist, said he was surprised by the loosening of rules for investors, as well as owner-occupiers: “They went further than a lot of people thought.

We thought they might wait, given signs the market might be lifting over spring.”

Tuffley cautioned there was still a “broader policy to make it easier for owner occupiers and make it more challenging for investors”.

The release of the additional equity which can be used by clients to help put together their investment or retirement plans is a good result.

Stephen Wilton

Interest-only changes welcomed The Australian Prudential Regulation Authority has relaxed restrictions on interest-only lending, and mortgage advisers hope the decision will have a positive impact on New Zealand’s lending market.

APRA confirmed it is ending its supervisory benchmark on interest-only mortgage lending. Banks had been forced to limit interest-only lending to 30% of overall mortgage lending under the rules.

The interest-only limits, introduced last year, led to a sharp drop in interestonly lending in Australia and also in New Zealand.

Mortgage advisers say the APRA

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curbs have made it more difficult to obtain interest-only lending facilities for property investors.

Advisers hope the Australian changes will see New Zealand’s big banks become more receptive to interest-only lending once more.

Squirrel’s John Bolton said: “I don’t think the Australian regulators want to see too much changed, but this will lead to a more informal approach, rather than a tough regulatory approach. It is nice to have the softer message. When you have a good customer pushed to P&I, it is frustrating having to fight to keep them on interestonly.”

Reserve Bank proposals could force $2 billion mortgage hike: UBS The Reserve Bank’s new capital proposals could force Kiwis to pay $1.9 billion-$2.7 billion more for their mortgages each year, investment bank UBS has warned.

Swiss investment giant UBS believes New Zealand borrowers could be hit with rate hikes due to the costs associated with the new proposals, which were first mooted by the central bank last month. UBS believes banks will pass on the cost to home loan customers.

UBS estimates Kiwis could have to pay up to $2.7 billion more on their home loans each year to fund the capital requirements. It believes the rules could see rates jump by 80-125 basis points.

RBNZ, led by governor Adrian Orr (pictured), wants banks to keep an extra 20% to 60% on their balance sheets to guard against risk in the financial system. The capital rules, if implemented, would be the highest bank capital ratios in the developed world, UBS says.

The bank adds: “We believe the RBNZ’s endeavors to strengthen the banks could come at a significant cost to the NZ economy as they appear to be materially underestimating the likely mortgage repricing.”

Adrian Orr

PHOTO COURTESY OF RESERVE BANK OF NEW ZEALAND

Advisers predict LVR boost

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New owners take reigns at FMT New Zealand’s largest non-bank lender First Mortgage Trust has been taken over by the private equity firm Capital Group.

Under the deal Capital has acquired the company which manages the trust, First Mortgage Managers Limited, was sold for an undisclosed sum. FMT has a loan book sitting at $614 million which is made up of 670 loans and 1032 securities.

Over the trust currently sits at $759 million.

FMT is a conservative lender, favouring the Golden Triangle of Auckland, Waikato and Bay of Plenty.

It will do interest only loans or capitalised interest loans. It offers bridging finance,

development loans, residential and commercial plans, construction loans and equity releases.

Generally it will be “in and out in two years” with any loan. A key difference between FMT and other non-banks is that the client pays all its costs.

Capital Group director Greig Allison said his firm would invest with “a long term view”.

It invests in a broad range of real estate assets, from apartment blocks to loan books.

FMT, was founded in 1996 as the successor to five regional law firms’ nominee companies and has grown to hold $770 million in funds under management.

The sale will not impact the way FMT’s funds are run, and Capital Group has given FMT management its full backing.

FMT says it will continue to lend only on first registered mortgages on residential, commercial, and rural land and buildings.

Peter Washer, chairman of First Mortgage Managers, said it would be “business as usual within the organisation”.

FMT chief executive Tony Kinzett said: “While this news does represent change at an ownership level of the management company, we are pleased that it remains ‘business as usual’ with no change to office locations, and a continued unchanged lending policy for our valued clients.”

Calls for calm after Royal Commission report The Australian Royal Commission has rocked the mortgage broking industry.

TMM asked New Zealand advisers how the report will impact the local market.

NZ Financial Services Group chief executive Brian Greer says while there is a lot of uncertainty around the future, advisers have to get on with business-asusual.

“I don’t think the sky is falling. I don’t think we need to panic,” he says.

The New Zealand market is very different to Australia. Across the tasman 80% of loans are on variable terms while New Zealand is predominantly a two-year fixed rate market.

Also, New Zealand advisers have been much better at diversifying their businesses.

He also points out that there has been a “long period in New Zealand where we had no trail.”

John Bolton CEO of Squirrel Mortgages, described the report as a “massive backwards step” for advisers and a “witch hunt”.

“I was disappointed that they jumped into commercial relationships, when their evidence was anecdotal. I didn’t see any proper analysis. Trail sets up an [adviser] business to be customer focused, rather than being focused purely on sales.”

Bolton acknowledged changes to trail look imminent and will have an impact in New Zealand: “There are only a few banks paying trail and it disappeared post GFC, so we have been through this before.”

Bruce Patten of NZFSG said the Royal Commission final report had caused uproar among its members. He said advisers need to wait to assess the real impact on Australia, and possible knock-on effects here.

Patten said: “We have a measured

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have one staff member whose primary function is assisting clients in managing their mortgages and the trail income contributes and is in place for this exact service so the comments that brokers are receiving income for nothing doesn’t seem correct to me.”

AUSTRALIAN REACTION

John Bolton approach to the situation. There is going to be pain in Australia but it is hard to know what that pain looks like here. We have been through worse things, such as the GFC, and survived.”

Craig Pope of Wellington-based Pope & Co Mortgages said the future of trail looked “shaky”. He added: “If it does stop there it will probably stop here as well.

There’s a good chance clients will not get the same quality advice.

Pope said it would be more difficult for adviser businesses in the coming months.

“We will have to be cautious over the next few months. It does make me nervous about expanding our business any further.

We may have to be more cautious with our growth plans.”

While Kris Pedersen, of Aucklandbased Kris Pedersen Mortgages, said changes to the Australian fee model would “strengthen” banks. He said the changes would be “more likely to hit smaller banks are non-bank lenders as consumers will not be exposed to as much of the market”.

Pedersen said his firm dedicates trail fees to customer service, and rejected Haynes’ comment trail was “money for nothing”. Pedersen added: “We

Meanwhile in Australia a massive campaign is being put together to protect the channel.

Australian adviser groups including the MFAA have taken aim at suggestions of a fee-for-service model, saying it will drive customers to go direct with their bank. Hayne suggests banks charge their direct customers a fee in order to address the balance.

MFAA chief executive Mike Felton He said: “When mortgage brokers are no longer paid by lenders, it may well be that lenders dealing directly with borrowers should be required to charge a fee to recover the costs that would be avoided if the loan were to be originated through a broker, but which are incurred if originated directly. This would be in order to prevent lenders competing unfairly with brokers.”

Australian Prime Minister Scott Morrison has defended the mortgage advice industry, calling it a “pretty important service”.

He said he did not want the sector to “wither on the vine”, according to the Sydney Morning Herald. He added: “These are tens of thousands of small and family businesses that help mums and dads get a good deal on their mortgage and so they don’t have to just face the banks themselves...It’s [a] pretty important service. We want to make sure that Australians can still have access to that service.”

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THE LATEST NEW APPOINTMENTS TMM keeps you up to date with all the new appointments in the mortgage advice profession.

WOOD’S ROLE SOLELY NEW ZEALAND NOW

Peter Wood is no longer the chief operating officer for Bluestone in Australia.

However, in a management reshuffle, he has been re-appointed as Managing Director, New Zealand.

Bluestone Chief Executive Campbell Smyth says this comes “off the back of the strong growth that the New Zealand business has experienced since relaunching in December 2017.”

“The recent changes in our executive team reflect the evolving needs of our business as we expand our offering and reach in the Australian and New Zealand markets,” Smyth says.

Wood says he will remain based in Australia but will continue to visit New Zealand.

He says Bluestone has been conservative in New Zealand today and was looking at “getting out of second gear and into third.”

Wood declined to disclose how much business Bluestone has written in New Zealand since it returned to the market.

WESTPAC FINDS NEW BDM

Nicky Skinner Westpac has appointed Nicky Skinner as its new Business Development Manager for the South Island based in Christchurch. Skinner brings 14 years of banking experience to the role with her most recent as a Bank Manager.

Prior to that she was a Personal Manager as well as working in Private Banking (as an AFA) and Credit as a Credit Manager.

Skinner has already established some great relationships with mortgage advisers and is looking forward to developing those further.

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FORMER FX MAN TAKES UP CEO ROLE AT TRAINING FIRM

Ashlee Wiblin Dan Bell Dan Bell has been appointed Chief Executive of Strategi Group – New Zealand’s leading financial services training and compliance provider.

Bell has more than 15 years financial services experience, most recently as Head of International expansion for XE.com and HiFX and interim Managing Director for their North American operations. He was previously a senior member of HiFX and Currency Online in New Zealand for many years, where he was responsible for managing a large team of FX advisers in New Zealand and Australia.

Prior to that he was with ANZ National Bank as a Senior Dealer in their Global Markets team, advising clients on financial markets risk.

“I am excited to be joining Strategi at a time when the industry is about to go through the next phase of change and growth. I want to get out and meet as many people in the industry as possible to find out their key issues. I hope to be able to bring a wider perspective to Strategi and introduce some of the innovative ideas I have seen work so successfully elsewhere.”

finance deal they need saying, ‘that was too easy!’,” she says.

Wiblin will be based in Marlborough providing home loan advice and assistance with securing finance for fixed rates, variable rates, revolving credit, Low Doc / No Doc – as well as assistance with bridging finance, reverse mortgages and construction loans, home loan packages and personal loans.

Also joining MX is Seng Ang. His background is in the financial services and mortgage industry. Before joining MX, Ang worked as a commercial lender at ANZ, a fraud examiner at IRD, as well as accounting roles at Flight Centre and Smith & Caughey.

Mortgage Express general manager David Gopperth said, “Seng has extensive knowledge and expertise to share with his clients. He understands the value of going the extra mile for his clients and works hard to find the right solution.”

Seng will be based in Auckland and can assist with home lending advice, and commercial and development opportunities.

He is fluent in Mandarin and English.

MX KEEPS ADDING ADVISERS Ashlee Wiblin is the newest adviser to join the Mortgage Express team.

Having worked for a number of years in the motor vehicle finance and insurance sector, Wiblin feels her next logical step is into the mortgage industry.

“I aim to bring a fresh perspective to the industry. Working with my clients, I’d like them to walk away having secured the

Seng Ang

FUNDING FROM $ 50,000 TO $1,000,000 SPEED CONVENIENCE TRUST Roger Rao The third adviser to join MX recently is Roger Rao. He has been at NZ Home Loans for 13 years as the Ormiston branch owner. In 2016-2017, Roger’s branch was one of only three out of 80 branches to be awarded the “Big Business Award”.

“I have built my own personal wealth through investing in property by adhering to my philosophies of careful planning and paying it forward,” he says.

Roger will be based at the Harcourts’ Botany office and will be providing both mortgage and insurance solutions.

NEW ADVISERS AND FRANCHISE OWNERS AT MPM

Shalu Sansanwal has bought the MPM Auckland franchise.

She is a qualified accountant, loves working with numbers and helping people better understand how they can get ahead.

Mani Faletanoai has purchased an MPM franchise in Auckland. He brings with him more than 26 years of professional sales, property investment and business ownership experience to the team.

Faletanoai is fluent in English and Samoan and is passionate about helping people achieve their property goals.

Lauren Hunter has become a mortgage adviser in the Waikato. She's been with MPM Waikato since 2016 and has recently moved into a new role as an adviser. Her previous banking roles and time working at Mike Pero have given her a solid foundation in the financial industry.

Amol Prakash has joined Paul Lucas in his Dunedin franchise as a mortgage adviser. With a Master’s Degree in Business and Finance, Prakash is ready to assist his clients by ensuring they have the best finance and insurance to suit their needs.

Kamna Singh has joined MPM as a mortgage adviser in an existing Auckland franchise. She loves to help people by utilising her problem-solving skills when dealing with both banks and non-bank lenders. Singh has worked in the financial industry for more than eight years. ✚

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REGULATION

By Susan Edmunds

Mortgage groups’ intentions become clearer New regulations are on the horizon and mortgage adviser groups are closing in on decisions about how they’ll tackle them.

2

019 is the year new financial advice regulations take hold.

Over the next few months, the industry can expect the Financial Services Legislation Amendment Bill to pass, and the new code of conduct for all financial advisers to be finalised.

While there are some final boxes to tick, there is a clear picture emerging of what will be expected under the new regime.

By the end of the year, everyone in the industry will have a choice: Apply for a transitional licence for their business to become a financial advice provider (FAP) or opt to come under the umbrella of another organisation that has.

Anyone giving advice will be either a financial adviser or a nominated representative, a model similar to the current QFE structure.

While, for authorised financial advisers, this is largely an administrative process, shifting from being individually authorised to entity licensing, the shake-up is much greater for registered financial advisers.

Mortgage groups are stepping up to take on some of the administrative burden from their members.

Josh Bronkhorst, managing director of Mortgage Link, said he was optimistic about the new regulatory regime.

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The group intends to become a FAP, with its branded advisers operating within it.

Non-branded Mortgage Link members could decide whether they wanted to be part of the group licence or operate on their own.

“For a branded business, it does make sense to have all advisers under the licence. At this point I’m not saying it will be compulsory,” Bronkhorst said.

Becoming a FAP rather than just an adviser group means more responsibility and regulatory obligation but Bronkhorst was not concerned.

He said the group had done a lot of work over the last couple of years developing its new customer relationship management (CRM) system, which would become a powerful tool to make sure everyone was using a single process – and would be an easier way to monitor the advisers’ activity.

“We’re fortunate that we’ve always been a smaller group. We work very closely with our advisers, however like most mortgage groups there hasn’t been much oversight of the day-to-day running of an adviser business. Especially with the new CRM, we’ll have a lot more visibility around what happens on a day-to-day basis in the business. We’ve implemented additional systems internally that will give more regulatory oversight into the

adviser business.”

Mortgage Link put a lot of time into training advisers, particularly around advice processes, he said. “Our advisers have been doing a great job. Basically, from what I’ve seen it will be just tweaking a few things to make sure everyone is ticking all the boxes every time – record-keeping, more comprehensive notes … making sure they are following the same process every single time.”

At Mike Pero Mortgages, chief executive Mark Collins said there was still a bit of guesswork to be done around what the final regime would look like. Nothing would be certain until it was finally signed off.

His preparations were tempered by memories of being at Sovereign when the first round of regulatory change was introduced. “At first all advisers were going to have to be AFAs and we built an entire regulatory programme with 25 people working full-time on it and then a month out it was decided that some advisers could be RFAs and pretty much nothing changed.”

Collins said Mike Pero would become a FAP, with financial advisers working within it.

Nominated representatives would not be appropriate for dealer groups, he said, because they were a better fit in a situation where the advice process was locked down,

as in a bank. Mortgage advisers needed more freedom to spend time with clients and delve into their needs.

He said two or three businesses within the group operated businesses outside Mike Pero and they would have to have their own licences if that was to continue. But he said it was likely that it would become difficult for independent firms to carry on without support from a bigger organisation.

“Is that practical, what does that mean, how much does that cost? Regulatory costs tend to go up rather than down. A lot of advisers might initially think ‘I’ll run my own FAP’ but the regulator is not going to want to directly regulate 2,000 advisers

Regulatory costs tend to go up rather than down. A lot of advisers might initially think I’ll run my own FAP but the regulator is not going to want to directly regulate 2,000 advisers and I suspect it will make it costprohibitive to license an individual adviser firm [on its own].

Mark Collins and I suspect it will make it cost-prohibitive to license an individual adviser firm [on its own].”

Collins said the regulatory changes were positive, and seemed to take the whole industry to AFA standard or higher. “The higher the barrier to entry to the industry, the better … it’s almost too easy to enter right now.”

He said Mike Pero was already focused on protecting its brand, so many of the mechanisms that would be required of a FAP were already in place. “Everyone comes in knowing they’ve got to use the system, this is how you do it …”

Regulation might drive a focus on different areas, depending on the detail of what was required from licensees.

Darren Gannon, founder of the Newpark group, said his organisation planned to take a licence and would help advisers take their own as well, if that was what they chose

to do.

Some advisers in the group had just started out while others had been doing it for 40 years, he said. “You can’t say one size fits all. I don’t think we have a choice, we have to cater for both.”

Those who took their own licence would have more flexibility he said, while there would be stricter rules involved with operating under someone else’s. “Not all advisers will like that.”

But he said while the process of getting the licence might be straightforward, it could be more difficult for some advisers to maintain them – keeping up with the ongoing licensing requirements could be more administrative work than many wanted. “How much time will it take to run a licence a couple of years on?”

Gannon said most advisers came into the industry because they liked dealing with people, not paperwork.

NZFSG head of growth Bruce Patten said the group would apply for a transitional licence that all advisers could operate within for the time being, if they chose.

“We’ve got some reasonable-sized groups within the business and they’ve already indicated they’re doing their own [licences] – but at this stage we’ve made the commitment with an intention to assess it as it evolves.”

Patten said he expected it to be “relatively easy to get a licence and very hard to retain one”. “If what happens in Australia happens here, people went out and got one then gave it up and rolled under groups.”

NZFSG has already appointed an audit and compliance manager, who will do audits on all advisers before they can operate beneath the NZFSG licence. That would involve some education work at the outset to help advisers understand what was required, he said.

Mortgage Supply Co chief executive Jenny Campbell said the group was planning a compliance, licensing and support offering that would be available to advisers. That was expected to launch at the end of February.

Last year, Kepa developed a Fit for License training scheme for members who wish to become Financial Advice Providers (FAPs) in their own right under the new regime. Kepa is set to offer training, covering subjects such as auditing, to help members.

It was expected at that point that most of the group's members would register under Kepa's FAP. Bronkhorst said most advisers just wanted to move forward and get on with things.

“The delays don’t help, it’s a distraction.

Let’s get on with it, get it done, make the changes so people can focus on the business as opposed to being distracted by uncertainty about what it might look like.”. ✚

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KIWISAVER

By Michael Lang

30 years in business*: Why asset allocation and advice beat everything else

Michael Lang gives us his five key focuses through the lifetime of a client/ adviser relationship.

F

inancial advice is much like other professional services; if clients put their mind to it, they could probably do most of it themselves.

Little of it is rocket science. But just as we don’t want to spend our weekend doing the family’s tax returns, writing a will or establishing a trust, an increasing number of New Zealanders are embracing the use of a financial adviser to ensure they get the basics right.

So, if you have decided to make a living advising others what to do with their money, you will want to know the best way to grow your clients’ wealth, and then recommend that to as many clients as possible.

The good news is, in our view, the formula for success as a financial adviser is surprisingly simple.

What is also surprisingly simple is that experts around the world from Buffett

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to Bogle agree that it has little to do with active or passive, global or local, choice of manager or how much they charge; and everything to do with asset allocation and advice.

Here are the five most common discussions we have had with advisers over the years around asset allocation and the role of advice.

ASSET ALLOCATION COUNTS

First, whether asset allocation explains 70%, 80% or close to 100% of investors’ returns over time.

While there is some debate on the exact power of asset allocation, there is little to no debate that everything else from fees to manager alpha ranks far, far behind.

So, if you wish to maximise the returns your clients get over time, make sure you get their asset allocation right.

GETTING ASSET ALLOCATION RIGHT

Second, getting their asset allocation right is also pretty simple. Unless your client is risk averse and/or vulnerable, or needs to access their capital over the short to medium term, then within the confines of KiwiSaver, investing in listed shares is the best longterm investment they can make.

It actually does not matter whether they choose New Zealand, Australian, or global shares (or all three) as they all have a similar long-term rate of return.

SAVE MORE

Third, encourage clients to save more.

At between 5% and 6% (employer and employee contributions), New Zealand’s minimum statutory contribution rate to KiwiSaver is well below our global peers: the United States is saving 7%, the United

Kingdom will be saving 9% from 2019, and Australians save 9.5% due to increase to a whopping 12% by 2025.

As long as your client is not deeply indebted and has their mortgage repayments under control, there is little danger in encouraging them to save 1% more.

Clients can always take a savings holiday, reduce their savings, or under exceptional circumstances draw down on their funds in an emergency. But they can’t get back lost years of saving.

STAY ON COURSE

Fourth, help them stay the course. It might seem silly, but clients pay advisers to hold their hands. Advisers like to think clients use them because they have Bloomberg, can access thousands of funds or subscribe to manager research.

But most industry research is available online and almost all managers are directly accessible at a reasonable price.

The thing clients value most, and are quite willing to pay for, is counsel. Most New Zealanders know that volatility is the price to be paid for a higher expected return, but it

... it has little to do with active or passive, global or local, choice of manager or how much they charge; and everything to do with asset allocation and advice. is encouraging to hear a professional say it when the markets are down.

HELP CLIENTS SPEND THEIR SAVINGS

Fifth and finally, as clients age they need help unwinding their portfolios. At some point for all of us, the pendulum will swing from wanting to accumulate more to wanting peace, quiet, and a stress-free environment to enjoy the money we have

saved.

Clients who have saved enough with which to retire may not want to put the decade or more they have in retirement at risk just to earn 2 or 3% more.

Because of this, high allocations to growth assets become as inappropriate for older clients as high allocations to cash are for young savers.

There are of course countless ways to refine the process, and layers of value that can be added over and above what is discussed here.

But for professional financial advisers, whether they are AFAs or RFAs, getting these basic five things right is of tremendous help to clients, and to society as a whole as it can reduce the burden on taxpayers to fund New Zealanders’ retirements. Most importantly of all, good advice improves the utility we extract from the incomes we earn. *2018 marked NZ Funds’ 30th year in business working with independent financial advisers.

Michael Lang Chief Executive of New Zealand Funds Management Limited (NZ Funds).

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HOUSING COMMENTARY

By Miriam Bell

Uncertainty flavours market

Sales activity is down but the high demand, low supply equation is still at play in New Zealand’s housing market – and that has left the experts waiting to see what happens next, writes Miriam Bell.

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roperty news kicked off the new year in a bleak fashion. Not only were there more breathless reports of tumbling house prices in Australia, but the first local data off the block announced that Auckland was looking at its first price decline in a decade.

Since then, all of December’s data has been released and the tale it tells is one of Auckland’s much quieter market which does include slight price declines. It also reveals the national market continues to slow, although various regional markets are still playing catch-up.

But commentators don’t believe that Auckland, or New Zealand, is facing a crash, or a dramatic correction. That’s because those niggling high demand, low supply drivers remain at play. Rather they think the market will be determined by uncertainty and that will mean activity is muted, but not down and out.

SALES ACTIVITY SLUMPS

It’s the sales data which most clearly illustrates the widespread slowing of the market. While the decline in activity is most pronounced in Auckland, the latest REINZ data shows that sales have fallen around the country.

Auckland saw 1,336 sales in December 2018 – which was a year-on-year decline of 24.3% from the same time last year. It was also the lowest number of sales recorded for the month of December in 10 years.

But it was not just the Super City sales which took a hit. There were 5,330 sales nationwide in December. That was a yearon-year decrease of 12.9% and it amounted to the lowest number of sales in a December for seven years.

Further, there were big falls in sales volumes in Taranaki (down 23%), Wellington (down 16.2%), Otago (down 14.6%) and Southland (down 13.4%). Overall, 12 out of the 16 regions saw an annual decrease in

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the number of properties sold in December.

REINZ chief executive Bindi Norwell says that while December is usually quiet with people focused on the Christmas holidays, December 2018 was extremely quiet.

“With national listing levels down -11.3% in November and -13.3% in December, it’s not entirely surprising that it was a quiet month in terms of sales volumes. We are also hearing that part of the lower sales volumes can be attributed to some vendors’ understanding of the value of their home.”

In Auckland, Realestate.co.nz saw new property listings down by 17.7% in December 2018, as compared to the same time last year.

While sales were down nationally, it was hard to go past Auckland’s sales slump, with Barfoot & Thompson’s latest data also highlighting it. The agency saw 504 sales in December, which was down by 46.4% on November and by 25.2% on December 2017.

Barfoot & Thompson managing director Peter Thompson says that, overall, 2018 was a more active year for residential sales than 2017. “But a stand out feature for me was the significant increase in the number of sales in the under $500,000 price category.”

LISTINGS LOWDOWN

As Norwell points out, listings are playing their part in the behaviour of the market too.

But just how they are affecting the market

varies between regions.

In Auckland, Realestate.co.nz saw new property listings down by 17.7% in December 2018, as compared to the same time last year. Likewise, Barfoot & Thompson had them down – although by less year-onyear (just 2.8%). This seems to be another contributor to the muted behaviour of the region’s market.

Realestate.co.nz also has new listings nationwide taking a hit. They fell by 13.3% from December 2017. However, their spokesperson, Vanessa Taylor, says it follows higher than normal levels of new listings in the three months prior.

It was the Wellington and Otago regions which led the drop in new listings. Wellington saw its new listings down by 23.6% year-onyear, while Otago’s fell by 24.5%. But both regions also recorded all-time high average asking prices which had an influence on the national asking price. Taylor says this reflects a classic tight supply and high demand situation.

Meanwhile, four other regions also saw year-on-year falls of greater than 20.0% in their new listings. Those regions were the Bay of Plenty, Gisborne, Nelson-Bays and Southland.

STABILISATION OF PRICES

There can be little doubt that sales activity is quieter and new listings are lower but, when it comes to prices, the data presents a mixed bag of results. However, as QV’s latest data shows, there are no real surprises in that bag either.

The December instalment of QV‘s House Price Index has values nationwide up by 1.2% in the three months to December and by 3.2% over the past year. This left the nationwide average value at $682,938. Yet value growth in the major metropolitan centres was not consistent.

The Wellington region saw values rise by 3.2% over the past quarter and by 7.8% in the year to December, leaving the average

WHAT’S DRIVING HOUSE PRICES?

value at $688,074. In contrast, value growth across the Auckland region decreased by 0.4% year-on-year but inched up by 0.1% over the past quarter, leaving the average value at $1,048,145.

Christchurch and Tauranga both saw values increase slightly over both the quarter and the year, but Hamilton values were down. Dunedin values saw strong year-onyear growth.

QV general manager David Nagel says a point of interest is the continued growth in many smaller regional towns. “Kawerau, Carterton, South Waikato and Ruapehu in particular continue to see very strong quarterly growth figures on top of solid annual growth.”

According to REINZ, December was a strong month from a price perspective because every region saw an annual increase in the median price. It also had the national median price up 1.5% to $560,000 in December, from $551,750 in December 2017.

Norwell says that the last time all regions

Kawerau, Carterton, South Waikato and Ruapehu in particular continue to see very strong quarterly growth figures on top of solid annual growth.

David Nagel, QV saw annual price increases was back in June 2017. “Additionally, Auckland finished the year in a strong position with the highest price for the region in nine months at $862,000, which was also a 0.2% increase on December last year.”

However, Realestate.co.nz’s asking price data backed up QV’s take on the market. It shows that prices have stabilised nationally, apart from the odd hotspot. Taylor says the modest annual increases seen in December reflect a smoothing out of prices, compared to the upward trajectory of recent years.

More dramatically, decline was the name of the game for Barfoot & Thompson.

Its headline grabbing new year data has Auckland’s median price of $836,792 in 2018 down by 0.8% on that for 2017.

Thompson says it’s the first time the median price has fallen below that for the

previous year since 2008, the year the GFC affected house prices. “In the past few months the tide has turned towards it becoming a buyers’ market. The over-riding market sentiment at present is indecision as to the direction the market is heading.”

REINZ HOUSE SALES: DOWN

Sales volumes nationwide were down year-onyear to a seven year low in December.

The decline was even more pronounced in Auckland where sales slumped year-on-year to a 10 year low.

WAITING GAME

This all begs the question of what exactly is in store for the market in 2019. But it has to be said that commentators across the board are not expecting significant changes.

ASB economist Kim Mundy says the REINZ data suggests that the housing market ended 2018 on a soft note, with the Auckland market remaining muted.

However, it is questionable how much the drop in sales activity reflects a slowing in regional markets, she says.

“The combination of volatile data over the Christmas period, tight provincial housing markets and possible delayed activity ahead of the relaxation in LVRs on January 1, 2019 could all have contributed to weak December sales activity.”

Mundy says that as we head further into 2019, a clearer picture of the health of the housing market will emerge. “For now, we continue to see risks of further small price falls in Auckland as the market has shifted in favour of buyers.”

Auckland’s situation is complicated by the fact that the ban on foreign buyers and tax changes are expected to further dampen demand in a housing market that is now a buyers’ market, she adds.

“However, population growth, low interest rates and the easing of the LVRs are expected to keep a floor under demand in the Auckland housing market. These fundamental supports should flow through to prices and limit the extent to which we see any price falls over the year.”

For Westpac chief economist Dominick Stephens, the impact of the foreign buyer ban is obvious in the December data and the dramatic drop in sales in particular regions, notably Auckland.

He says it is not clear yet whether the foreign buyer ban will prove a bigger deal than the drop in mortgage rates and the easing of the LVRs. “What is clear, though, is that disparities between regions in house price inflation will remain.”

When it comes to Auckland, a drop in house sales is usually a good indication that house prices are about to weaken, so there is a risk that Auckland house prices could start falling again, Stephens says.

“But prices in the lower North Island, Otago and Southland continue to roar away.

The full force of the mortgage rate decline and LVR loosening has yet to come through, so in these regions where foreign buyers play almost no role, it seems more likely that prices will continue to rise strongly.” ✚

INTEREST RATES: UP

Late last year banks across the board were offering sub-4% rates, but those days are now over. Rates remain at near-record lows, but commentators expect them to keep inching up.

OCR: DOWN

The Reserve Bank left the OCR on hold at the record low of 1.75% in November and Reserve Bank Governor Adrian Orr says they expect it to stay on hold until into 2020.

IMMIGRATION: DOWN

Annual net migration was down in October for the ninth month in a row. It is now at the lowest level in three years. But monthly net migration was up slightly in October, as compared to September.

BUILDING CONSENTS: UP

Building consents issuance nationwide continues to rise year-on-year. This has been driven by Auckland consents which have risen sharply over the year – but they fell slightly in November.

MORTGAGE APPROVALS: UP

Reserve Bank data shows mortgage lending overall was up in November, after also rising in October. New lending to investors was up slightly from the previous month, but down on November 2017.

RENTS: UP

The average national rent stayed unchanged at a record high in November. It was also up year-on-year. Average rents in Auckland also remained unchanged, while Wellington rents were up. Both are at elevated levels. 017

PROPERTY INVESTOR SURVEY

PROPERTY INVESTORS

quiet & conservative NZ Property Investor Magazine and Squirrel have just completed a comprehensive survey of investors to guage the mood of the market. Here’s what they are thinking around lending issues.

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t used to be drugs that were investors’ biggest worry, but that has changed.

These days it is government policy changes, not meth contamination, that are causing investors’ sleepless nights.

In a reflection of the new landscape, 90.89% of respondents to the Squirrel/NZ Property Investor survey picked government policy changes as the biggest issue for investors over the coming year. Additionally, 64.98% picked government policy changes as the biggest barrier to growing their portfolio over the next 12 months.

This is a dramatic change from previous years. In recent years, it has been damage to property that has earned the title of investors’ biggest worry. For example, in 2016 it was the top concern for 54% of

6%

Use non-bank lenders

64%

Use just one lender

investors. Allied to that, meth contamination was cited as the major issue for investors in 2017 (48%) and one of the top three in 2016 (38%).

When asked to elaborate, respondents’ comments showed many were not unsupportive of the changes per se. Many emphasised that bad landlords need to be dealt with. But the overwhelming consensus was that the government is introducing too many changes without thinking through the consequences and that, when it comes to tenancy reform in particular, the balance is biased towards tenants at the expense of landlords.

There was a widespread view that as it is becoming increasingly difficult to be a landlord, many landlords will exit the market while potential investors will be deterred from buying rental property. This will only aggravate the existing rental accommodation shortage, respondents said.

Respondents did have other areas of concern. The second biggest issue for respondents was the current low yield environment, with 42.69% citing it. Other issues of concern were finding good tenants (35.79%), tenants (29.99%), rising house prices (22.54%) and interest rates (21.71%).

When do you plan to buy your next investment property?

Within the next month Within the next 3 months Within the next 6 months Within the next year Never Not sure 0

018 WWW.TMMONLINE.NZ Pay off debt

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Within the next month

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GOVERNING VIEWS

10 20 30 Yet the level 0of concern over government policy changes was so 40 strong that we thought it worth getting a response from those in charge of them. We talked to Government Duty Minister Carmel Sepuloni. To start, she emphasised that the Government’s policies are aimed at building desperately needed homes and restoring Pay off debt balance in the housing market.

She says that property investors play an important part in helping address some of the housing challenges we are facing as a country.

“For majority of investors, who operate their businesses with Buythe more propertyand seek to provide decent accommodation at a reasonable integrity rent, these changes will have little impact on them.”

The reforms to tenancy laws, which are archaic, are designed to stopNeither exploitative behaviour by a minority of landlords, Sepuloni says.

“Keeping rental properties in good condition and having more secure long-term tenancies is good business practice for investors.”

They don’t believe landlords are exiting the market in large Other numbers. “The number of rental bonds held by MBIE has increased by 4.4% over the past year, suggesting that rental supply has continued 0to increase. the share of property sales 10 In addition, 20 30 40 50 to 60 multiple property owners (as measured by CoreLogic) has remained stable, suggesting a similar proportion of homes are being bought by investors Over 90% as a year ago.”

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MYTH 81% to 90% VS REALITY

A majority of survey respondents clearly believe the Government’s reforms 61% to 80%take a blanket approach and won’t impact solely on bad landlords. Many also commented that the Government appears to have negative view of investors, confusing them with speculators 31% toa60% and portraying them as out for all they can get.

Intofact, 1% 30% the survey’s results tend to paint a picture very different to that of the anti-landlord stereotypes currently in vogue. First up, farDebt-free from having huge property portfolios, just over half (51%) of respondents owned between one and three investment properties and Don’tjust know7.05% owned over 10 properties.

What are considering an 0 your main 10 drivers when 20 30 investment?

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Immediate cashflow Immediate equity creation Long term capital growth Low maintenance ...

Reduce debt and generate ...

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Buy more property

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Have you been using the low interest rates to pay off debt, or to buy more properties?

Over 90% Pay off debt 81% to 90% 61% to 80%

Buy more property

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1% to 30% Debt-free

Other Don’t know 0

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Among respondents, the most preferred Immediate strategy was to buy and hold for the long cashflow term: 61.41% choose this. In contrast, renovate-add-value-sell, aka flipping as a Immediate equity creation strategy was favoured by only 2.24%. This echoes earlier data and suggests that Long term the focus on investors as speculators is capital growth simply wrong.

Lowcommon driver for investors The most maintenance ... when considering an investment was long termdebt capital growth, with 42.98% of Reduce and generate ... respondents picking it. Immediate cash flow creation Other was the second most popular (please optionspecify) at 18.75% while reduce debt and generate income came in third with 16.10%.

0 20 Likewise, the survey’s10LVR data tends to present a case against the perception of highly leveraged investors. That’s because 34.76% of respondents had a loan-to-valuation ratio of 31% to 60% on their borrowing. A further 18.73% had their borrowing sitting in the 61% to 80% bracket.

Only 7.23% had LVRs sitting above 80% (see graph top left).

In a similar vein, when it comes to gearing on portfolios nearly two thirds (62.70%) of respondents were actually positively geared. But 15.04% were negatively geared while 17.01% had portfolios which were

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neutral. This backs up the theory that it will be newer, smaller investorsOver who feel the 90% impact of the new ring-fencing rental losses legislation – not established investors.

81% to 90%

ESTABLISHING MEANING 61% to 80%

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Squirrel chief executive John Bolton says the survey results show investors 31% to 60% are in a state of flux and unsure on what they will do next.

1% to 30% “They are generally inactive, in terms of buying or selling, and focused on improving Debt-free performance of their existing portfolio including increasing rents.Don’t This is reflected know by a majority view that prices will stay flat, 40 50 as well as uncertainty over the impact of 0 government policy changes.”

He says respondents clearly feel that Immediate the Government is being too influenced cashflow by special-interest groups, too ideological, and has not properly thought Immediate through its proposed policy changes. equity creation “The uncertainty that this has created Long term means many investors have little incentive capital growth to do anything. They are waiting to see what the changes actually are, what theyLow mean in maintenance ... reality and where it all leads. Until then they are in a holding pattern. AndReduce I don’tdebt think andtime generate ... ✚ that is going to change any soon.”

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The uncertainty that this has created means many investors have little incentive to do anything.

John Bolton

Other (please specify)

FAVOURED FIXED-RATE TERMS

40% 2 YEARS 33% 1 YEAR 21% 3-5 YEARS 020 WWW.TMMONLINE.NZ

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Bolton says he didn’t expect some of the results in the lending area. He was surprised by the number of investors below 60% LVR in their portfolios. “It is likely the result of the property boom and price appreciation as well as the more recent LVR restrictions. Many of the investors who are above that are probably newer investors.”

Another surprise was how many investors had all of their lending with one bank, he says. “This feels far too high given changing credit markets, low yields, and the risk of lower house prices. Although LVRs are on the low side, which is a good thing, I’d still expect to see investors using more than one lender.”

The survey shows nearly half of investors use a mortgage broker, which is higher than owner-occupiers about 35% of whom use a broker. But Bolton says that with changes to banking afoot more investors may want to use a broker in the future.

“Risk is what you don’t know, what you’re blind to. At the very least it’s another opinion and another set of eyes. It also helps when looking to split lending across multiple banks.”

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PROPERTY NEWS

By Miriam Bell

Changes power ahead The pace of change has stepped up, with reform details coming thick and fast, and that means landlords need to adjust to a very different environment ... We take a look at what is going on.

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ontroversial new rules around the ring-fencing of tax losses from rental properties are drawing ever closer – as the relevant Bill works its way through Parliament.

Revenue Minister Stuart Nash introduced the dry-sounding Taxation (Annual Rates for 2019-20, GST Offshore Supplier Registration, and Remedial Matters) Bill late last year. It contains the new ring-fencing rules.

The proposed change will mean residential property investors no longer get a tax break by using losses on rental properties to offset the tax payable on other sources of income such as salary and wages.

Nash says that, in conjunction with the extension to the bright-line test, ringfencing losses from rental properties will make property speculation less attractive.

“It will level the playing field between property investors and home buyers and help create a fairer revenue system.”

But many property experts are staunchly opposed to the proposed ring-fencing of rental losses. They say the change will deter many investors from going into the provision of rental property as when starting out many investors rely on losses to get by.

REINZ chief executive Bindi Norwell says they are concerned that restricting the use of rental losses for investors could negatively influence the rental market.

“That would be either by investors passing on the cost of the reduced benefits to tenants through increased rental prices or by making rental ownership a less appealing investment choice. This may lead to a reduction in rental properties, increasing pressure on the rental market and driving up rental prices.”

The public submission period on the Bill closes on February 28 but, if it is enacted, the new rules will come into effect from April 1.

Stuart Nash

Healthy Homes benefits overstated Alongside tax changes, the Government’s Healthy Homes minimum standards are heading landlords’ way this year – but a new report says the claims made about the benefits of ensuring rental properties meet the standards are exaggerated.

The Government’s much-heralded standards will set minimum requirements for heating; insulation; ventilation; moisture and drainage; and draught stopping in rental properties in a bid to make them warmer and drier.

A cost-benefit analysis by the New Zealand Institute of Economic Research (NZIER) underlies the Government’s discussion on the standards and it finds the standards would have clear benefits, including improved health outcomes.

But now a new report by Tailrisk Economics principal Ian Harrison finds that the NZIER’s analysis was “clientfriendly” and over-states the benefits of the standards.

According to Harrison, key “unhelpful” documents were sometimes ignored,

costs were systematically understated, and unrealistic methodologies were adopted that overstated the net benefits. He redid the cost-benefit analysis by including the “unhelpful” documents while correcting costs and methodologies.

The result of this was that in his assessment the net benefits of the proposed

If the Minister proceeds with any of the proposed standards that will be costly for owners and paid for by tenants.

Mike Butler

standards are strongly negative. Installing a heat pump in every rental property’s living room would come at a capital cost of $457 million bringing a net loss of $500 million, for example.

Harrison also comes to other conclusions which go against the grain in his report.

For example, he says that cold and damp dwellings are not a widespread problem for tenants – as a comprehensive survey by Building Research Association New Zealand found that only 2.7% of tenants thought that their rental was cold and damp.

Stop the War on Tenancies spokesman Mike Butler says Harrison’s report rubbishes cherished “cold and damp rental property” beliefs and exposes a series of fallacies hidden in the spin.

He says it shows the “healthy homes guarantee” slogan is bad news for landlords who may be forced to spend around $7,000 per dwelling on unnecessary upgrades.

"If the Minister proceeds with any of the proposed standards that will be costly for owners and paid for by tenants."

021

LEAD

By Daniel Dunkley

Advisers take POSITIVES into 2019 There is plenty for advisers to be cautious about, but another year of low rates, loosening LVR restrictions, and regulatory progress should ensure a prosperous year in 2019. TMM talks to leading market figures about their hopes and expectations for the next 12 months.

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ooking back at the major stories from 2018, you would think the mortgage adviser industry is in a crisis. Additional regulation, tightening lending from the banks, Australia’s Royal Commission, and ongoing curbs on investors dampened the mood last year.

Yet positives remain. The property market remains robust, non-bank lenders have flooded back into the market, and New Zealand advisers have so far avoided the heavy scrutiny placed on their peers across the Tasman.

INTEREST RATES

The past year marked a period of inactivity from the Reserve Bank as it chose to keep the Official Cash Rate at a record low of 1.75%. The next move has become increasingly difficult to predict. The RBNZ was more hawkish at the beginning of the year, before slowly adopting a more cautious tone. GDP growth tailed off towards the end of the year and inflation is not yet at the central bank’s midpoint target.

Economists are divided on what will happen next. Some think the Reserve Bank will stick to its guns and raise rates in the latter half of 2020. Others are more dovish and expect the central bank to backtrack and cut rates.

“Governor Adrian Orr has made it clear that he will be keeping policy stimulus for some time,” said Jeremy Couchman, an economist at Kiwibank. “We’re picking the middle of 2020 before RBNZ responds to a stronger inflation outlook.”

Couchman said there would be little movement on short-term rates, but longterm mortgage rates, such as five-year terms, could be “thrown around”, by events offshore, such as the US Federal Reserve’s aggressive rate hikes. Even that, Couchman said, is not guaranteed. “[US] rates may not rise as quickly as expected, and longer end rates may not rise so steeply.”

Arguably the biggest rates development last year was the return of sub-4% mortgages. Kicked off by smaller player HSBC, the big boys. ANZ, BNZ, Westpac and ASB each launched sub 4% rates in October, in a short-lived but fiercely fought price war.

The move came after the Reserve Bank adopted a more dovish tone and pushed back its timeline for an OCR hike. Rates crept back above 4% at the end of the year as lenders reverted back to normality.

Will we see more aggressive price wars in 2019? Probably not. The Reserve Bank threw a curveball to the banks in mid-December as it unveiled new proposals to make banks hold extra cash on their balance sheets, to shore up the financial system. The central bank wants the country’s major lenders to hold aside an extra 20%-60% on their

balance sheets for a rainy day. The rules would be among the strictest in the global banking system. The RBNZ proposals are highly likely to impact mortgage rates, with many expecting banks to raise rates and slow the pace of lending as they grapple with the changes.

Kiwibank’s Couchman said: “They [RBNZ] are pushing for a big increase in capital requirements. This is likely to heap more pressure on the big banks, and that will lead to higher mortgage rates, to cover the higher cost of doing business. Requiring more funding means they will be more cautious on lending.”

Lacklustre economic growth of just 0.3% in September, along with the new RBNZ capital requirements, has prompted some economists to predict an OCR cut.

Economists at ANZ believe the OCR could be cut by 25 basis points this year and a further 50 basis points in 2020, due to global uncertainty and the RBNZ proposals.

Squirrel’s John Bolton said advisers need to prove their value beyond finding the lowest rate: “There are significant opportunities for

The very best referrals come from our existing customers, so it is about doing the job well. If you can do that, you will continue to grow share in the market.

John Bolton 023

LEAD

brokers, and generally, adviser industry is going to do well. The main thing is giving personal advice and building relationships.

The very best referrals come from our existing customers, so it is about doing the job well. If you can do that, you will continue to grow share in the market.”

years ago. The rubber won’t really hit the road for a couple of years.”

Adam Ward, BNZ General Manager, Third Party, Consumer & Wealth, believes the Financial Advisers’ Act gives brokers a chance to build confidence and trust. He said: “The FSLAB and licensing changes coming our way are positives. I don’t believe there’s too much to be worried about. You need to stay informed, think about your business. The new requirements are about doing right by your customer. If you’re running a good business, you shouldn’t have any concerns.”

REGULATION

More details around the new Financial Advisers regime emerged last year, but the market is still waiting for final details and an official start date. The Code Working Group outlined the minimum qualification requirements for advisers, while the costs of compliance under the new regime have also been published. But for many, the sense of uncertainty lingers, particularly for advisers pondering their licensing arrangements under the new regime.

When the new Financial Advice regime comes into effect, advisers will be required to operate under their own FAP licence or an employer’s. Single advisers will have to decide whether to become a FAP under the new regime or become part of a

A TALE OF TWO HOUSING MARKETS

It will bring further improvement to the industry. This is a profession, and things have to be done in a proper, systematic manner.

Ajay Kumar

There will continue to be strong testing of income and expenses, making sure borrowers can service theoretical rates of 7%-8%. Banks will be pretty careful despite the speed limit changes.

Kelvin Davidson 024 WWW.TMMONLINE.NZ

bigger business. While aggregator groups will ponder whether to become a FAP and take on extra regulatory and compliance burden.

More paperwork and compliance is expected this year. Yet advisers see the positives, as the mortgage advice industry aims to professionalise and formalise.

Ajay Kumar, of Global Financial Services, described the forthcoming Financial Advisers Act changes as “great for the industry”. He said: “We’re excited about the changes. It’s a good thing for advisers, it’s a good thing for consumer outcomes, and that should be our aim. It will bring further improvement to the industry. This is a profession, and things have to be done in a proper, systematic manner.”

Squirrel’s Bolton agreed, and expects the first year of the new regulation to be “fairly light touch”. He added: “Lifting standards is a brilliant thing. It will be interesting to see how regulators and banks manage the massive workstream they have ahead, with so many people getting licensed.”

Bolton added: “There’s an opportunity.

The first year will be pretty light touch, it will be tick the box compliance, and you’ll have a provisional license. It will be slightly underwhelming like the AFA/RFA changes

The Auckland property market finally slowed last year after years of meteoric growth which left home ownership out of reach for many would-be buyers. According to the Real Estate Institute of New Zealand, median prices in Auckland were $867,000 in November, compared to $880,000 in November 2017. The government’s foreign buyer ban, lingering LVR restrictions on investors, and the prospect of ring-fencing rental losses have dampened the market.

The picture was different for the rest of New Zealand. Excluding Auckland, median house prices rose from $399,000 to $450,000 last year. Property market experts believe there is plenty of road left to run for New Zealand’s smaller cities and regions, with a low rate environment and under supply of housing stock. Initiatives including KiwiBuild will not take effect for several years, meaning the country’s chronic property shortage will continue to sustain price growth.

CoreLogic Senior Research Analyst Kelvin Davidson said the loosening of bank LVR speed limits in November could provide a small boost to borrowers, but said this would be tempered by the recent RBNZ capital proposals. Davidson expects the big banks to remain “cautious”: “They will have to hold more capital and will be wary of that. There will continue to be strong testing of income and expenses, making sure borrowers can service theoretical rates of 7%-8%. Banks will be pretty careful despite the speed limit changes.”

Davidson expects Auckland to remain flat this year: “There’s a lot going on, with KiwiBuild, but what hasn’t changed is unaffordability. Prices are still $1 million.” Davidson said he expects a “slow and steady” market across the rest of the country.

Kiwibank’s Couchman expects the New Zealand market to enter a period of “consolidation” this year. He said: “The past six years have pushed house affordability away from people in Auckland and it is harder for people to enter that market.

The rest of the market will play catch up, and we still need more supply. We expect house price growth to pick up modestly.

The loosening of LVR from January will play out in a similar way to loosening at the beginning of 2018.”

ROYAL COMMISSION IMPACT

One of the most significant issues for banks and mortgage advisers in 2018 was the Australian Royal Commission, which unearthed endemic misconduct within Australia’s major banking groups. With the big four here all Australian-owned, there have been concerns the ripples from the Commission will be felt in New Zealand.

The Reserve Bank and Financial Markets Authority have begun a review of New Zealand lenders, but have indicated no major problems in their initial findings.

Aussie mortgage lenders also face pressure about their pay relationships with advisers, with Commission Haynes expected to recommend a ban on trail commission in Australia. During the Royal Commission, leading figures such as

We’ve already seen the big banks dramatically change their practices. This means advisers may find some customers becoming more frustrated and struggle to get finance.

Mark Collins

Commonwealth Bank of Australia CEO Matt Comyn have even suggested advisers shift to a fee-for-service model. While the latter suggestion is unlikely to come into effect, Hayne is expected to recommend a ban on trail commission.

How will the Royal Commission impact New Zealand? Kumar of Global Financial Services downplayed the effect of the trail ban: “We’re definitely expecting some pressure from the Royal Commission, but if you look at the Australian market, the level of trail is significantly above that of New Zealand banks. Some of the major players here, such as ASB, do not pay trail.”

Kumar expects advisers will need to place more emphasis on conduct, compliance and culture over the next year, as the fallout from the Royal Commission continues: “Advisers will need to be more vigilant, more responsible. It will impact the banks, they have already stopped staff sales incentives.

This could be good for financial advisers.”

The Commission will continue to affect lending, says Mark Collins, CEO of Mike Pero Mortgages. Collins believes non-bank lenders will take advantage: “We’ve already seen the big banks dramatically change their practices. This means advisers may find some customers becoming more frustrated and struggle to get finance. To provide a positive customer outcome, advisers will need to broaden their offering, including non-bank options.”

BNZ’s Ward said banks are “well aware of what was going on across the ditch”. He added: “At BNZ, we’re looking at everything that comes out, be it from APRA, the Sedgwick report, Productivity Commission, we look at that and try to think about how it might play out in New Zealand. We ask ourselves what should we be doing, and does it feel right? We are proactively looking at developments and making informed decisions. We’re working alongside the aggregator groups, most of which have partners in Australia.”

TAKING POSITIVES INTO 2019

With more regulation, an unpredictable global housing market, and Australian developments to contend with, mortgage advisers will need to weave through another minefield in 2019. Yet advisers are bullish on the industry’s prospects and value proposition for customers.

Andrew Scott, the General Manager of new mortgage group Newpark Home Loans, says advisers who can adapt to change will be successful: “It’s not rocket science, the days of competing on price alone are coming to a close. Brokers now have to think about their value proposition. It boils down to having a great brand and pushing towards diversification. There is merit with sticking with your knitting, but advisers

There is merit with sticking with your knitting, but advisers should try and provide different services under one roof and one brand.

Andrew Scott should try and provide different services under one roof and one brand.”

Scott said advisers that embrace technology would benefit from improved processes and even lead generation: “Those that will struggle when the tide is out are the businesses that have not invested in their systems and processes to support lead generation.”

Mike Pero’s Collins agreed advisers need to look beyond mortgages: “We see a great opportunity for advisers to diversify into new areas of lending and insurance. During a home loan application, an adviser will ask about the customer’s assets and liabilities.

Having this detailed understanding of what additional services a client may need allows an adviser to take the natural next step.”

Meanwhile, Bolton expects mortgage advisers to continue to grow their market share this year. He also believes it will remain an attractive profession for newcomers: “Brokers are continuing to win a bigger share of the market. The removal of sales incentives from banks puts more pressure on branches and empowers the adviser channel. More people are moving towards using a broker, and more people want to become brokers.” ✚

025

MY BUSINESS

By Miriam Bell

RECORD BREAKER Whether he’s assisting first home buyers into homes or breaking world records for charity, Squirrel Mortgages’ Brad Luiten is motivated by helping others to achieve their goals.

WHAT PROMPTED YOU TO GO INTO THE MORTGAGE ADVICE BUSINESS?

I worked in banking for four and a half years before becoming an adviser. I used to work at ASB bank and I really enjoyed writing mortgages. I felt that I was stretched between too many products there and wanted to specialise in one and mortgages was the one that I saw a good future with.

HOW HAVE YOU LEARNT THE BUSINESS?

I learnt about basic lending within ASB and I then picked things up from my interactions with clients. When I joined Squirrel I just listened and learned from the existing team and picked up tips and tricks from them.

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WHY ARE YOU PASSIONATE ABOUT BEING AN ADVISER?

I enjoy helping people and helping people into their first home is an awesome feeling.

The excitement on their faces makes the hard work worthwhile. I also like to make sure they get the cheapest deal so I enjoy offering advice on how I think they can approach the offer process.

HOW DO YOU APPROACH BUSINESS DIFFERENTLY TO OTHER ADVISERS?

I really want every deal to work. I will look at all possible options and if I can’t get it to work I will look to set up a plan to make it work in the future. I’ve had clients that I’ve worked with for three years to get them into a position to get their first home. We are also impartial on which bank we go to so we can make sure that our clients always get the best deal.

DO YOU MAKE USE OF SOCIAL MEDIA AND NEW TECHNOLOGY OR PLATFORMS IN YOUR WORK?

Squirrel have a marketing team and IT team who are onto this. Our marketing team are constantly looking for the best option to get our brand onto the market and our IT team are second to none. They have implemented our own CRM system which we work through. It makes the process as easy as possible for us, our clients and the banks.

WHAT HAS BEEN THE HIGH POINT OF YOUR TIME IN THE BUSINESS?

There have been a few high points, but helping first home buyers over a long period to get to a point where they can purchase has been really enjoyable. I also like to achieve record months.

I can’t think of any bad advice that I’ve been given. But I would just block it out if I was given any.

CAN YOU TELL US A BIT ABOUT ALL THE RECORD BREAKING AND CHARITY WORK THAT YOU DO?

AND HOW ABOUT THE LOW POINT?

I haven’t had a low point in the business as yet. I’ve been with Squirrel for three and a half years and I have enjoyed all of my time here.

DO YOU HAVE A MENTOR? IF NOT, WHO HAS MOST INSPIRED YOU IN BUSINESS AND IN LIFE?

I don’t have a mentor as such. But we are an open plan office and I work with some really experienced advisers who I have learnt a lot from.

WHAT’S THE BEST AND WORST ADVICE YOU’VE RECEIVED? The best advice would be that you can’t actually help everyone. You can do as much as you can and set up plans for them to get to a position to buy but they have to commit as well.

In 2015 I set a Guinness World Record for the fastest 10km on crutches. I completed this in 1 hour 13 minutes. It came about because I was meant to run the 2014 Auckland Marathon but got a stress fracture in my leg six weeks out from the event. I had already had people donate as I was running for Starship Hospital and I felt like I had to complete a challenge.

So I decided to complete the record attempt on crutches and trained for 10 weeks leading up to the event where I broke the record by about 20 minutes. I raised around $2,500 and also had 20 Playstation 2s and Xbox’s along with a load of games donated so that they could be given to the wards in Starship.

In 2016 I completed the world record for the most number of golf holes played in 12 hours while running. I completed 237 holes (13 rounds, three holes) and beat the Guinness World record by 16 holes. I raised $3,000 for Bowel Cancer NZ but my main goal was to raise awareness as a good friend passed away earlier that year due to bowel cancer. I held that record until April 2018 when an American beat my record by eight holes. My intention is to get the record back again this year and I am in the process or organising an event where I will do this.

WHAT CHALLENGES – FOR YOURSELF OR FOR THE INDUSTRY – DO YOU SEE AHEAD?

The main challenge will be if property prices increase too much further as this could make it unaffordable for first home buyers to get into the market at a younger age. It means they would have to rely on parents to help out even more than what they are now. The Government’s KiwiBuild scheme aiming to build 100,000 homes in 10 years is unachievable. And that means the demand for houses will still be there and property prices may increase due to this.

WHAT ARE YOUR BIGGEST LONG-TERM BUSINESS AND PERSONAL GOALS?

their first homes as possible. This is really rewarding for me.

My sporting goals include gaining my world record back in speed golf, breaking my 10km (32.40), half marathon (1 hour 11) and Marathon (2 hours 39) personal bests.

But my main personal goal is setting a good example for my kids so they have every opportunity to succeed at whatever they want to achieve.

WHAT ARE YOUR TOP TIPS FOR OTHER ADVISERS?

If you say you are going to do something, make sure you follow through and complete what you said you were going to do. ✚

FROM: Whangaparaoa. I have lived there my whole life.

FAMILY: My wife Nina and my two kids Max (14) and Bella (8).

OUT OF WORK INTERESTS: Running, golf, crossfit, speed golf, cricket.

FAVOURITE FILM: A Star is Born and Bohemian Rhapsody.

FAVOURITE BOOK:

Dom Harvey’s – Running, a love story. I rate the book because I’m mates with Dom through running.

FAVOURITE MUSIC:

Greenday, Killers, Offspring.

MOTTO: Work hard, train hard,

play hard.

My long term business goal is to continue helping as many first home buyers into

027

SALES & MARKETING

By Paul Watkins

Dating your prospects Paul Watkins talks about relationship building with your prospects and being continually mindful of tech changes along the way.

I

’m sure you will know the concept of sales funnels. It’s where you have a group of semi-qualified prospects constantly feeding into your funnel at one end, being progressively qualified as they pass through a process, and a smaller number ultimately becoming clients.

As this profession faces changes, notably due to the internet, it’s a good idea to critically re-examine how you fill and process your sales funnel. Here are three facts to set the scene and explain why you need to do this:

1. UNDERSTAND THAT WEBSITES DON’T GENERATE LEADS

They used to, and possibly by chance you still get the odd lead through them, but you will rarely – if ever – find a point of difference that can be explained on the site.

Worse still, Search Engine Optimisation (SEO) is getting harder and it can be quite

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expensive to maintain your rankings in Google. If you are not on the first page of searches and they don’t see what they want in your headline, you will get missed.

2. WHAT MATTERS NOW IS BUILDING TRUST TO YOUR CHOSEN NICHE

You all know the acronym, WIIFM, which is now truer than ever. Prospects all think their circumstances are different and want specific solutions that fit their "unique" circumstances. But as Rachel Hunter used to say, “it won’t happen overnight, but it will happen.”

Trusting your professional service provider rules to each niche. Focusing on a specific niche (you can have more than one) allows you to tailor your message to suit. We are becoming more sceptical about life.

The internet allows us to check facts, to compare offers, and to ignore geographical boundaries when purchasing services.

Mortages are not exempt from this.

3. BUYING ON OUR OWN TERMS

The third fact is that we like to avoid being "sold to" and want to buy on our own terms.

As a lead, I want to know more. I want to sense that you know what you are doing and that you can be trusted with your advice. A big purchase, like mortgages, is not taken up lightly. I might need time to think it through.

Give me a little bit of time.

You need a source of leads. What is important here is to look for quality over quantity.

Rather than just lots of prospects flooding your funnel, which requires a robust and time-consuming process for qualifying them, get better leads to start with.

Fortunately, this can be achieved with relative ease and very low cost through social media, which is by far the dominant player on the internet. Ignore it at your peril.

Facebook still dominates, but Instagram and Snapchat are huge now. Most users go into these apps multiple times daily.

This article is not about getting leads to start with, but how to convert them into clients. I’ve discussed using social media to generate leads in previous articles.

So, let’s assume that you have leads coming in through well-crafted social media or other online campaigns. The campaigns are designed to secure names and email addresses of course.

What do you do with this email address?

Email them and ask for a time to call? Put them on your newsletter list and hope they eventually call?

Send links to articles, with a “thought you might be interested” headline? None of these will work the way you want them to.

Your first four emails should be sent either one or two days apart. In general terms, this is what I suggest that you say in each one.

EMAIL ONE: As they have given you their email address to receive a free giveaway of sorts (e-book, checklist, etc), the first email should be a thank you. Simply acknowledge their request for the free giveaway and possibly reiterate the value it offers them. Do not ask for an appointment, for them to call, or in any way make it like a sales pitch. It’s a thank you.

EMAIL TWO: This can be a case study of someone in similar circumstances.

Remember that you know their situation to a certain extent as you targeted a specific niche. The case study would have to be a real one, but numbers and situation slightly changed to protect confidentiality.

It could be based around a case where someone structured their loan wrong and how it looked right when they innocently took it out, but on reflection, had they structured it differently, they could have

Better leads can be achieved with relative ease and very low cost through social media, which is by far the dominant player on the internet. saved thousands or taken years off the time to repay it.

End it with a promise of more. Something like, “My next email will explain why …”

The reason this works is that you are slowly building trust with genuine addedvalue, using curiosity to do so. It’s like leaving a TV programme with a cliff-hanger ending each time.

EMAIL THREE: You must deliver on the cliff-hanger ending from email two, with new and once again genuine added value. This would be again based on the niche you are after, be they first-home buyers, investment property buyers, or those looking to refinance. Be very specific and never try to cover more than one niche in each email.

On this content, I have had advisers ask why you would give away so much good stuff. They might now just go direct to a lender, armed with stuff they didn’t know before.

Interestingly, this rarely happens.

The reason is that they are now feeling comfortable with you and are starting to believe that you can help them with little effort on their part.

Once again, this email must end in a cliffhanger, such as “my next email will explain the very real benefits of …”

EMAIL FOUR: This one can include a solid call to action. Up until now, this wasn’t included, as the purpose was trust building.

The call to action is either an invitation to meet or call.

A point that must be made here is that this requires a small amount of automation.

You could end the email manually of course, but that would require constant monitoring.

There are low-cost automation processes that can be built into your funnel so they always get sent on time, personalised to the recipient.

Think of this as being like "dating your prospect".

You first contact when they saw your social media ad was the blind date. You had never met before. Then your first email is the "Hey, I enjoyed meeting you".

The next one is taking them out to dinner, so they get to know you better. The fourth one is when you ask to go steady with them.

I’d like to end this article with a quote from highly successful serial entrepreneur and marketer, Gary Vaynerchuck. “What used to work is always the thing that is going to put you out of business.”

It’s time to think in terms of how the work lives now, which is online, constantly in social media and with a sceptical eye.

✚

Paul Watkins writes blog content and newsletters for financial advisers.

Is your Marketing not Getting the Results it Used to?

The online world is dominating all marketing activity right now and that it unlikely to change. Is your message clear and resonating with prospects? Is your website generating leads? Are you using social media? Are you sending newsletters to keep in touch with increasingly dis-loyal clients?

I can offer a marketing review to you or your team, to examine what works, what doesn't work and what can be changed or improved. I can also offer high-value, low-cost newsletters filled with lending, insurance and lifestyle articles.

Call or email me to discuss what best suits you.

Paul Watkins Speaker / Marketer / Writer 0274 747 285 paul@paulwatkins.co.nz

029

LEGAL

By Jonathan Flaws

The broken mirror Lenders are now asking advisers for more information on their clients at loan application time. Jonathan Flaws explains what advisers need to do to meet these requests.

W

hen the mirror test was explained to me by a broker some years ago, I thought it was a joke.

If a prospective borrower breathed on a mirror and it fogged, this indicated that the person was breathing, therefore alive, therefore eligible for a loan.

I suspect it was a joke for if the loan was required to be mortgage insured, the LMI provider would need information and a representation from the broker/lender that the borrower could afford the loan; had provided sufficient evidence to that effect; and that evidence had been verified.

Not anymore.

The NZ Herald business section on Sunday

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January 13, 2019 reported that “All the banks were asking mortgage advisers to confirm lending was being done responsibly”. It suggested that one bank was asking brokers to sign a declaration form to this effect. The form prompts brokers to ask borrowers if they anticipate or plan on any changes in their life that would make it harder to meet their repayments. The document was not used to calculate eligibility for a loan but to make sure that the brokers had the right conversations with borrowers.

An adviser commenting to the Herald said that brokers were questioning the closer scrutiny and asking why the banks need to know?

The Herald reported the broker as saying

that brokers were having to spend more time justifying why a person should be allowed to borrow that much. Another broker is reported as saying that banks want to be able to see you can afford a mortgage.

Banks wanting a declaration from the broker that the borrower could afford the loan, had provided evidence to support that, and that evidence had been verified must surely be the sound of the mirror breaking?

Or is it the sound of a large penny dropping?

Isn’t it exactly what an LMI insurer required back in the day? It certainly is what the Lender Responsibility Principles require.

And it should be no surprise that lenders who have this responsibility are passing it

to alert prospective borrowers to get their act together and ensure they have full and explicit information available when they approach a broker to help them find a loan.

BROKERS AND THE LENDER RESPONSIBILITY PRINCIPLES.

Ever since the passing of the amendments that introduced the Lender Responsibilities into Part 1A of the Credit Contracts and Consumer Finance Act 2003, lenders have been required to make reasonable inquiries to be satisfied that the lending will meet the borrowers’ requirements. They have also been required to ensure that borrowers can make payments without suffering substantial hardship.

While part 1A only refers to lenders and not brokers (as do the similar provisions under Australian credit law) you have to expect that when there is a third-party intermediary between the lender and the borrower, the lender will require the intermediary to act on its behalf and adhere to the same responsibility principles. If these lending responsibilities are imposed only upon the lenders, it is entirely over to each

Applications made through agency channels, for example brokers, may be higher risk so it is possible some lenders will ask you to carry out greater due diligence than you expect. down the line to the parties who have face to face contact with the borrower and expect them to follow the same principles and acquire the information for them.

To be fair, the Herald article is a short piece designed to attract the attention of readers. I am sure that the brokers quotes were selected, perhaps out of context, to make the theme of the article seem more dramatic. If the comment about banks and mortgage affordability was included to suggest this is new, then it was surely taken out of context.

The headline “Banks paying closer attention to home loan affordability” is not in itself overly dramatic or unexpected. I expect that the driver behind the article was

individual lender to interpret their application as they consider appropriate. That is their right and in fact their obligation.

A broker now needs to understand what each lender requires and how these requirements fit into the responsible lending principles. You probably need to have a ready explanation for your borrowers when they push back at being asked for information which they may not consider relevant.

But just as importantly, you should regularly review the Responsible Lending Code and make sure that every year as part of the continuing professional development requirements you refresh your understanding of the Code.

BROKERS AND AML/CFT

As with responsible lending, most lenders will have their own regime for undertaking Client Due Diligence for their borrowers and Enhanced Due Diligence for those designated as higher risk such as companies and trusts.

Again, in many cases you will be asked by the lender to undertake some or all of this due diligence for the lender. In the absence of specific instructions from a lender as to how this is to be carried out you should make sure you are trained and up to speed with the different types of CDD and the forms that can be used.

While the majority of your borrowers and transactions may not be low risk for AML/ CFT purposes there will be instances when you may deal with higher risk transactions.

In 2014, the Department of Internal Affairs published its Sector Risk Assessment for non-bank non-deposit taking lending (ie most non-bank lenders) and assessed the overall risk of this sector as low. However, this SRA identified a number of factors as higher risk factors.

You should be aware of these and if they occur, consider whether you need to do more than just carry out the minimum.

The nature, size and complexity of business may indicate a higher risk.

For example: • if the lending limit is high or a borrower asks for a limit that seems in excess of what is required for what they tell you they wish to do.

• if the borrower asks for loan characteristics that are out of keeping with their requirements, such as payments that appear higher than they need be, or the ability to make payments in cash, or they ask for payments to be able to be made by or through a third party, particularly if that party is based overseas.

• if the borrower is based in a high-risk overseas country.

• if the application is not made face-to face eg entirely online.

The SRA indicates that applications made through agency channels, for example brokers, may be higher risk so it is possible some lenders will ask you to carry out greater due diligence than you expect.

You may also want to be prepared for higher risk transactions and have identified specialist AML/CFT organisations that can help you carry out EDD, particularly if your borrowers are overseas.

As with responsible lending, keeping refreshed on AML/CFT as part of your annual continuing professional development programme will help. ✚ Jonathan Flaws is a partner at legal firm Sanderson Weir.

031

INSURANCE

By Steve Wright

MEDICAL INSURANCE:

Why exactly do we need it?

Steve Wright outlines the case for having medical insurance and why you should offer it to clients.

I

ncredibly sad stories regularly make it into the media about sick people unable to get treatment.

Sometimes it is about delays in getting treatment but more often it is about drugs not funded by the government (PHARMAC).

Cancer drugs like Keytruda, Ibrance, Herceptin, to name a few, are not funded at all or only funded for certain cases but not others.

It is not only cancer drugs though, recently there was an article on the front page of a major newspaper about a young Kiwi who apparently can’t return to New Zealand from

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Australia because her very expensive drugs (around $600,000 a year) are not funded here.

The drug is Soliris and her condition is a rare blood disorder called paroxysmal nocturnal haemoglobinuria (PNH).

We have a really good public health service in New Zealand, so it can be easy to feel that private medical insurance is unnecessary. So why exactly should we all have it and more importantly, why should you recommend it?

All public health services have limited resources. Providing sophisticated health care is very expensive. Public health

services are, and will always be, constrained by the need to balance acceptable medical service at an acceptable cost to tax payers.

This inevitably means some people will not be able to get the treatment they need, when they want it, or even at all.

Waiting lists for treatment are not new and are commonly known. Many see the main value of private health insurance as a mechanism for avoiding the waiting lists and getting treatment privately and usually with minimal delay.

This is entirely sensible if you have a need for medical treatment because, aside from the inconvenience, pain and possible

the rich". I don’t buy into this at all.

Firstly, it is not queue jumping because the private patient does not go anywhere near the public health queue at all and secondly, "avoiding" the public health service queue creates space for those who cannot afford private health, helping them get treatment in the public system sooner.

Being able to get medical treatment as soon as possible is a big benefit of private treatment but it is not cheap.

Private medical insurance pays the bill, making access to private medical treatment financially possible for many people.

Incidentally, private medical treatment also gives you some say on who treats you and where they treat you.

Is the pressure on the public health service going to ease soon, allowing a reduction in waiting times?

Having the right private health insurance doesn’t only provide the funds to pay for unfunded drugs, it also protects the whole family’s hard-earned money, protecting their financial health too.

disability a medical condition can cause, delays in treatment can often mean a small medical problem becomes a big one. Delays can cause permanent damage.

Unfortunately, some like to claim that this is unfair "queue jumping" and "treatment for

I don’t believe so.

New Zealand’s population is growing, net migration is high and our population is ageing. Older populations need more health care (how many new hospitals are we building and how many medical professionals are we training?).

On top of this, new treatments for previously untreatable conditions "adds patients" and thus demand, causing more strain on the public system.

Waiting times for treatment are not the only reason to have private medical insurance. The other big reason is treatment not funded or provided by the public service at all.

Clients may be denied treatment in the public service if they don’t meet the clinical threshold for treatment. You are much more likely to be successful pushing for treatment privately because private healthcare is a business and service providers rely on getting paid for services.

For me though, the biggest reason to have private medical insurance is to pay for the drugs not funded by the public health service.

Contrary to belief, a great many drugs are not funded by PHARMAC, or only funded for a certain condition but not another.

Fortunately, these are typically drugs not likely to be required by everyone, but nonetheless very important to those who do. Some of these drugs are so expensive they cannot be afforded either at all or without completely depleting a family’s financial wellbeing.

We are talking hundreds of thousands of dollars. Most people are not happy to deny their spouse, partner or children, the best medical treatment available.

It’s a terrible choice to have to make, deciding between potentially life changing treatment and wiping out years of savings.

This is why private health insurance is so necessary, aside from enabling the best medical treatment, the financial impact is potentially massive – exactly what we need insurance for.

Aside from helping clients understand the need for private health insurance, the challenge for advisers is recognising which health insurance products will appropriately cover drugs not funded by PHARMAC. Some products are better than others: restricted cover and low limits being significant weakness of some and others don’t cover non-funded drugs at all.

Having the right private health insurance doesn’t only provide the funds to pay for unfunded drugs, it also protects the whole family’s hard-earned money, protecting their financial health too. ✚ Steve Wright is the General Manager Professional Development at Partners Life.

033

INTELLIGENCE

Your guide to second mortgages To help advisers understand second mortgage lending criteria, TMM has compiled the following table as a guide. We have picked three key players in this area.

First home buyer

Yes - open bridge deposits

Yes

Yes

Self employed with two year's financials

Yes

Yes

Yes

Self employed with no financials

Yes

Yes

Possibly

Bridging Finance, Deposit, Refinance, Debt Consolidation, Working Capital, Subdivision, Renovations, Business GST/Tax arrears

Varied and broad

Mainly owner occupied house purchase

Not required

Don't require

Yes

Income source

All

Varied income sources (need to be verifiable)

All

Loan amounts

No Cap

$100,000 ( higher considered case by case)

no cap

Maximum LVR 75%

up to $50K loan max overall LVR 90% loans >$50K max overall LVR 80%

for seconds 10%

Nationwide

All

All.

Max term 12 months I/O & capitalised interest P&I max term 3 years

Up to 2 years interst only or upto 10 years P & I ; partially or fully capitalising loans considered case by case

max 5 years P&I

Loan purpose Bank consent or Deed of Priority

LVR requirements Regions Loan terms Interest rate types

Fixed from 14.95% p.a.

Fixed

Fixed

Adverse credit acceptable with satisfactory explanation

All considered with explanation

Will consider with explanation

Clawbacks

No

N/A adviser charges a fee which is capitalised onto the loan

N/a

Purchase

Yes - open bridge deposits

Yes

Yes

Refinance

Yes

Yes

Yes

Construction

Yes

Case by case

Yes

Asset lend

Yes

Yes

no cap

Debt consolidation

Yes

Yes

Yes

Cash out

Yes

Yes

no cap

Business burposes

Yes

Yes

Case by case Will consider with explanation

Credit history

Discharged bankrupt

Yes - with satisfactory explanation

Yes with explanation

Interest only

Yes

Yes

No

Principle & interest

Yes

Yes

Yes

Bare land/sections

Yes

Yes

Yes

Interest only period

1 month - 12 months - with the right to roll for a further term

up to 2 years

No

Investment

Yes

Yes

No

Owner occupied

Yes

Yes

Yes

Commercial

Yes

Yes

Yes

Apartments

Yes

Yes if freehold and good quality/size

Yes

Leasehold

Yes

No

Yes

Leaky buildings

Yes

No

No

Probation

No

Yes (review against balance of profile)

No

Full application and supporting documentation required

All typical application documents and amount depends on type of loan requested.

Full application

Specialist second mortgage lenders.

Main business 6-12 months bridging finance for all purposes

Avanti has a wide product offering and the overall profile of the client is taken into consideration. We review each client's circumstances and tailor a solution that best meets their financial needs.

If not sure call to discuss

Application requirements Comments from lender

The above table is a guide only. Lenders may change their criteria.

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The TOP

10 stories

of 2018 on www.tmmonline.nz There was a wide variety of stories on TMM Online since the last issue of the magazine. Here’s what mortgage advisers have been reading.

1

6

2

7

ANZ TAKES RATES BELOW 4% ANZ had announced its lowest home lending interest rates on record – 3.95% for a fixed oneyear term.

BRANCHES NOT EFFICIENT FOR MORTGAGE ORIGINATION ANZ chief executive has conceded its bank branches are “not terribly efficient” for mortgage origination, adding most of the lender's business comes from mortgage advisers.

3

TSB APPOINTS NEW CHIEF EXECUTIVE TSB’s new chief executive comes from The Warehouse Financial Services Group.

4

NO MORE REPAYMENT HOLIDAYS ANZ is axeing loan repayment holidays, promoting questions about whether mortgage advisers can continue to recommend the bank as an option for their clients.

5

RESERVE BANK TO EASE LOAN-TO-VALUE RATIO RESTRICTIONS The Reserve Bank says it will ease LVR restrictions. Here’s what is said with the release of today’s Financial Stability Report.

BNZ MOVE PUTS PRESSURE ON OTHER BANKS Changes to BNZ’s mortgage adviser commission structure are acknowledgement of the ongoing client management work they do, industry veterans say.

BANKING REVIEW FINDS WEAKNESS ON CONDUCT New Zealand’s banks are not guilty of widespread misconduct or poor cultures issues, an FMA and Reserve Bank review has found, but lenders have been criticised for “significant weaknesses” in the way they handle staff conduct risks.

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AVOID THE ONE BANK TRAP Investors can be controlled by their bank – and get badly caught out when they sell – if they rely on one lender, advisers are warning

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HOUSE PRICES PICK UP, BUT VOLUMES LOW The latest REINZ numbers show that the housing market has turned the corner, but there is a lot of variation around the regions.

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THE CORRECT FACTS ABOUT TAX AND RENTAL PROPERTIES The NZ Property Investors' Federation has produced research which show property investors pay their fair share of tax.

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