TMM_02_2022

TMM 02 • 2022 • WWW.TMMONLINE.NZ

Home Sweet Home

Equity Release New: Why you should embrace KiwiSaver

How CCCFA impacts fees

Marching to his own beat

PAGE 22

PAGE 26

PAGE 28

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TMM 02

Contents

PAGE 18 Home sweet home equity release

PAGE 22 Closing the KiwiSaver gap

Increasing numbers of ageing home-owners are turning to the equity in their own houses, after finding it more and more difficult to get by.

Advisers need to move people away from the ‘set-and-forget’ mentality, to help close the gap between what people think their Kiwisaver will do for them in retirement – and what it will actually provide.

Up front

Features

04

EDITORIAL

06

NEWS

10

12

14

16

The calm before the storm.

HOUSING COMMENTARY

The average Auckland house now tops $1.5 million, but the nationwide housing boom is well and truly over.

Bank broker business booms; Non-bank takes on big boys.

Columns

PEOPLE

26

LEGAL

28

MY BUSINESS

30

SALES AND MARKETING

32

INSURANCE

FMT, Bluestone, Westpac and Kaplan Professional all announce key new appointments.

PROPERTY NEWS

House prices are predicted to fall 10%, as a number of factors shake the property world.

REGULATION

Get your full licence application completed ASAP to avoid the log-jam.

How to help borrowers decide how broker fees should be paid.

38-year-old Marchy Pang, who bought SuperCity Mortgage & Insurance from his mentor.

How to design a system where most of your callers have already pre-qualified themselves.

When even buying groceries is increasingly challenging, how much of a priority should private medical insurance be? www.tmmonline.nz

03

UP FRONT • EDITORIAL

Calm before the storm

I

t seems while everyone is busy, busy, busy, it is quite quiet in the mortgage-advice space at the moment. But maybe this is the calm before the storm.

After years of low interest rates and rising house prices, the picture has changed quickly.

With that change comes a shift in the way mortgage advisers’ businesses operate.

Instead of getting deals across the line, many advisers are going to be shifting to a phase of helping clients navigate the changing market environment.

A graph I saw recently, of forecast OCR (Official Cash Rate) increases, graphically illustrated how quickly and sharply interest rates will rise.

Predictions are that the OCR will double from its current level to 3%

by November this year. Arguably that means current home loan rates will double.

Some of this pain may not be instantaneous. For instance, a first home buyer who paid top dollars for a property a year ago and is sitting on a two-year fixed rate is not going to experience difficulty until next year.

It is in these times that the true worth of good advice will be tested.

Added to the emerging list of problems are the active investors who were buying and selling properties, and who are now facing difficulties when to comes to financing deals.

In the last major downturn, we saw many of these people get into serious trouble.

The market goes in cycles - and the ugly part of the cycle is likely to emerge soon.

Likewise, there are early signs that developers are starting to struggle to sell properties off the plan.

We have seen this before, too.

Head office and Advertising 1448A Hinemoa Street, Rotorua PO Box 2011, Rotorua P: 07 349 1920 F: 07 349 1926 E: philip@tmmonline.nz

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Philip Macalister

Staff writers

Eric Frykberg, Sally Lindsay

Contributors

Steve Wright, Paul Watkins and Carlyon 04Rupert TMM 02 • 2022

The fact that there’s been a housing shortage in New Zealand for many years has been indisputable, but it may not be long until we have an oversupply.

That, added to all these other factors, is going to change the lending industry significantly.

It’s something that mortgage advisers should be thinking about now and what impact it will have on their business model.

Home equity release In this issue of TMM, we look into the growing home equity release (HER) market. Many years ago, before the Global Financial Crisis, we had a number of players in this market, including Bluestone.

Heartland, formerly Sentinel, is the only one of that crop which remains.

It has seen significant growth with reverse mortgages. Now, there is another new player about to enter the market.

Home equity release is not something advisers are likely to be getting enquiries about every day, but it is a growth area and one all advisers should skill up on. In this issue’s lead story, Eric Frykberg provides an update on the market.

Also in this issue, we start a new column from Koura Wealth to help advisers with KiwiSaver. Like HER, this is a product mortgage advisers should be familiar with.

With all the changes happening in the market, mortgage advisers need to think about other services they can add to their businesses - to help them grow and prosper.

Philip Macalister Publisher

Sub-Editor Sandra Paterson

Design Samantha Garnier

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All contents of TMM are copyright Tarawera Publishing Ltd. Any reproduction without prior written permission is strictly prohibited.

TMM welcomes opinions from all readers on its editorial.

If you would like to comment on articles, columns, or regularly appearing pieces in TMM, or on other issues, please send your comments to: editor@tmmonline.nz

www.tmmonline.nz

05

Big bank broker business booms

UP FRONT • tmmonline.nz/news

Mortgage advisers have cracked a major milestone and originated more than half of home loans at two of the big banks in the six months to March 31.

Image: Antonia Watson

A

NZ and Westpac say more than half their home loans came from advisers in the first half of the financial year.

Meanwhile, BNZ has seen no growth in adviser-originated loans during this period.

At ANZ advisers have been steadily increasing their share of loans accounting for 39% of loans in the first half of 2020 to 55% two years later.

Meanwhile, Westpac has reported 57% of its loans came from advisers.

In the previous six months it said the number was more than 50%, prior to

Resimac takes on the banks Non-bank. Lender Resimac has started a campaign designed to raise awareness that the company is a specialist property lender.

Prospa expands loan products Business lender Prospa has launched a line of credit facility in New Zealand to existing customers and was looking to bring it to the adviser market soon.

Prospa NZ managing director Adrienne Begbie said the line of credit product gave business owners confidence that 06

TMM 02 • 2022

that mortgages arranged by advisers represented about 40% of its total loan book.

Westpac says the growth was "driven largely by our branch network being less available for customer visits as a result of Covid-19 lockdowns."

Meanwhile, in the same period BNZ’s origination through advisers remained unchanged from six months earlier at 34.6% ANZ chief executive Antonia Watson said advisers were an important source of business for the bank. Like Westpac she said branch closures due to Covid

were part of the reason advisers share of business had grown.

However, she also acknowledged lending was getting harder due to things like CCCFA, LVR restrictions and a changing housing market so borrowers needed to seek advice.

While advisers account for more of ANZ's business, its actual volume of new loan accounts fell significantly from 42,000 in the previous six months to 31,000 in this current half year period.

On the flip side average loan size ballooned out from $358,000 to $453,000 in the same period.

Resimac general manager New Zealand, Luke Jackson, says raising awareness will also help advisers when they put a Resimac solution in front of a customer.

“The new campaign will benefit brokers and advisers dramatically by making Resimac more recognisable to everyday consumers," he says.

"Our goal is to make it known that we are residential property lending specialists whose sole purpose is to ultimately help people purchase properties. By treating customers as individuals and building mortgages around their needs, we are a very different breed to the traditional financial institutions.”

“We appreciate that it can be challenging for brokers and advisers to educate their customers about lenders other than the banks, with alternate lenders only representing a fraction of the market and lacking the brand recognition of the majors.

“This campaign will help change that by creating greater brand awareness and educating customers on Resimac’s value proposition. As residential property lending specialists, we’re not distracted by other products and services like insurance, credit cards and savings accounts offered by many financial institutions," Jackson says.

they would have money available when needed, without having to pay interest on it until that need arose.

It would also save time in making loan applications each time they needed cash.

Begbie would not say how high the line of credit would go, but said in Australia, the number is A$150,000.

Prospa has recorded a highly profitable three months and said in its third quarter earnings reports that the gross value of

loans in New Zealand surpassed $100 million in the quarter.

Originations had risen 64% from A$19.9 million to A$32.7 million in the past 12 months.

In reporting its results, Prospa told the Australian exchange that it had a record third quarter with loan originations of A$172.1 million. This was up from A$120.8 a year earlier. ✚

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WWW.TMMONLINE.NZ 07

UP FRONT • tmmonline.nz/news

MBIE defends speed of CCCFA changes

BY ERIC FRYKBERG

F

rustration is continuing to boil over the Credit Contracts and Consumer Finance Act (CCCFA).

The Government has proposed some limited reforms and is working on others. The initial reforms should be in place by June – but advisers, bankers and others are stuck with the law in the meantime.

Many believe the proposed reforms are inadequate and think the Ministry of Business Innovation and Employment (MBIE) is making glacial progress, even on the limited gains.

Financial Advice chief executive Katrina Shanks says MBIE recommended only two changes to the regulations and some small changes to the code.

“So I would be surprised if it took two months to process them.”

On April 4 this year, MBIE proposed two initial reforms.

One was to stop counting savings or investments as living costs. The other was to stop adding daily expenditure such as cups of latte to the quantum of living costs, as long as robust financial data was already available elsewhere.

These proposals were then subject to public consultation, with a final version due in June.

Shanks says such a limited reform should not take that long.

“We are not talking about any complex change here. We’re talking about two simple changes in the regulations.

“I believe it can be done quite quickly.”

According to the Financial Services Federation (FSF), whose 85 members incurred an average cost of at least $2 million dollars each to administer a law they knew would be a mess, the limited reforms are insufficient.

“It was a bitter pill to have to swallow to have the deficiencies in the new regime become so glaringly obvious so early in the piece,” FSF “The change to the rules on borrowers' expenses goes no way towards addressing the overly prescriptive nature of these requirements… so the proposed change to the regulation is extremely disappointing.”

The New Zealand Bankers Association is similarly critical of the reforms.

Chief executive Roger Beaumont

describes the Government’s reforms of the CCCFA lending rules as “just a band aid.”

“We don’t think the tweaks will make a big difference for most borrowers.

“That’s because most of the existing requirements remain in place, meaning customers will still have to provide detailed information about their spending, resulting in a more painstaking process and more loan applications being declined than before the December rule change.”

Meanwhile MBIE is defending itself against suggestions that its reform process is too slow, saying it is simply following proper procedure.

MBIE recently consulted on an exposure draft of the changes and is now analysing submissions,” the Ministry wrote.

“This feedback is important, as it will improve the workability of the initial changes and reduce the risk of any further unintended consequences.

“There is also a legal requirement to publicly consult on any changes to the Responsible Lending Code.” ✚

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09

UP FRONT • PEOPLE

FMT makes two key appointments

Image: Sam Burgess

First Mortgage Trust has appointed Sam Burgess as its new head of lending.

Chief executive Paul Bendall says this is a newly created role, overseeing the lending side of the business.

“Sam comes to us with over 15 years’ experience in the banking industry bringing a wealth of knowledge and skills with him.”

Burgess has spent nearly 16 years with ASB, most recently as head of major commercial, following a number of other property finance roles at the bank.

In his latest role, he was responsible for developing a portfolio which caters for the finance requirements of professional property investors and developers.

First Mortgage Trust has also announced the appointment of Roger Ford to the role of chief financial officer. Ford has been with the company for nearly 10 years as financial controller.

Bendall says the two new appointments come as the company continues to grow, building on more than 25 years of providing investments and property finance to New Zealanders.

“The introduction of these roles reflects the changing needs of the business and will strengthen the strategic focus of the business as we continue to grow.”

Bluestone beefs up Chen Wang

Westpac adds two business development managers Westpac has seen some changes to its business development team, with two new appointments.

Chen Wang is taking over the Auckland region, and the Waikato/Bay of Plenty will become the domain of Petra Ensor.

Petra Ensor

Westpac’s head of third party, Liz Cannon, says both new BDMs have strong relationship and credit knowledge skills, and are “looking forward to forming great partnerships with the mortgage advisers in their respective areas.”

Wang has been with Westpac for nearly seven years, mostly as a mobile mortgage manager. Prior to that he was a home lending specialist at ANZ, and earlier a mortgage adviser with Squirrel.

Training provider adds to team Kaplan Professional and Massey University have continued to strengthen their presence in the financial services education market by making a key appointment.

The university and training provider formed a partnership in late 2020 with the release of the Certificate in Financial Advice (Certificate in Financial Services Level 5, Version 2).

Growth in enrolments among New Zealand’s financial advice community has now seen Colleen La Touche appointed to the newly-created role of head of business development with Kaplan Professional.

La Touche has been in the financial services industry for 010

TMM 02 • 2022

Bluestone has doubled its sales team with two new appointments.

The most recent is Joshua Martin, who comes from Pepper Money to the role of new business development manager for Waikato, Bay of Plenty, Taupo and South Auckland.

He previously covered the Bay of Plenty and Wellington regions.

Martin has more than seven years of experience in the mortgage advice sector as part of the Lifetime Group, where he worked from 2013-22, and also worked as a real estate agent for Eves.

Monique Riley is the company’s other new business development manager; she is Auckland-based.

Bluestone has also grown its credit assessment team with the appointments of Maria Gomez, Lucia Patterson, Mitch Tatterson and Cindy Sun.

more than 20 years, progressing through financial adviser support roles before becoming a financial adviser specialising in life, health and disability insurance.

She formed her own business, Valour Financial Specialists, which she later sold in 2021.

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UP FRONT • PROPERTY NEWS

The winds of change

BY SALLY LINDSAY

Housing market won’t be rescued by CCCFA changes Kiwibank senior economist Jeremy Couchman says there are bigger forces at play on the housing market than just the Credit Contracts and Consumer Finance Act (CCCFA), such as rapidly rising inflation both here and abroad.

Both Omicron and the war in the Ukraine are impacting inflation, he says.

“Omicron is pushing up domesticgenerated inflation in an already capacity-constrained economy.

Meanwhile the war has seen commodity prices such as oil surge.

“The Reserve Bank’s fight to rein in inflation is likely to see mortgage rates rise further and they are already being adjusted upwards to this new reality,” says Couchman.

Far-reaching changes The managing director of mortgage broking company AdviceHQ, David Green, agrees with Kiwibank that there is more than just the CCCFA at play for borrowers.

“A lot of changes were made from the middle to the end of last year that have had far reaching effects on the housing market and are big impediments for most borrowers: LTRs (loan to value ratios), tax, and banks using DTIs (debt-to-income ratios), even though they have not been officially introduced by the Reserve Bank.”

Green says these changes are helping to up-end up the housing market and are not being unwound.

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TMM 02 • 2022

“Interest rates and inflation are also in play, making it even tougher.”

While the proposed CCCFA changes are a step in the right direction, and hopefully lead to more common sense lending for mortgages, Green says he has seem little detail, and that it remains to be seen whether the onerous liabilities on bank and other lenders’ directors and managers will change.

“All I have seen is a couple of bullet points and not much else.”

He says the concern is all about the detail: banks’ approach to the changes and the timing of them.

“If the Minister doesn’t change the liability for directors and senior managers to put in place methods for identifying any deficiencies in the effectiveness of CCCFA compliance procedures, or face fines of up to $200,000, the changes might not work.”

The timing of Clark’s announcement on the changes came quicker than expected, says Green.

“It is a red flag. There is an election coming up next year.”

While the CCCFA is causing more difficulty for banks, Green hopes the proposed changes will avoid a credit crunch.

The CCCFA’s proposed changes include removing regular 'savings' and 'investments' from would-be borrowers' expenses, which are measured against their intended loan.

The changes also reduce the need for lenders to comb through bank statements of all borrowers – an apparent reference to the notorious KFC, McDonald’s and Christmas shopping expenses which in some cases were used by banks to decline mortgages.

The changes come part way through a review of the CCCFA by MBIE officials on behalf of the Financial Regulators Council - and there is suspicion Commerce and Consumers Affairs Minister David Clark announced some of the changes early because there is an election next year.

CCCFA changes positive, but investors nervous Property Investors Federation chief executive Sharon Cullwick says the CCCFA changes will be good for investors and all borrowers.

“The devil is in the detail and that hasn’t been revealed.”

Cullwick says investors are waiting until the market turns and the CCCFA rules are loosened, as there is not much in the way of yields being achieved. Costs are increasing rapidly.

The recent changes - the CCCFA, interest rate rises, LVR changes, and tax changes meaning property investors can no longer offset mortgage interest against rental income - stopped the Hawkes Bay Property Association’s 300 members in their tracks, for example.

“I don’t know of one investor buying at the moment.”

Westpac bank acting chief economist Michael Gordon says higher interest rates are here to stay. He says while lending regulations are likely to be less restrictive in the future than they have been to date, Westpac’s forecast is for house prices to fall by a combined 10% over the next two years.

Earning power should stop huge house price falls Although the ANZ Bank now predicts house prices will fall by 10%, up from the 7% it forecast in January, it says its optimistic view is that any larger drop will be tempered by household incomes.

“We’re simply not forecasting a household income (employment) shock that would necessitate the forced sale of properties and exacerbate the downturn”, says Sharon Zollner, ANZ’s chief economist.

She says, however, that it is entirely possible the bank’s outlook regarding household incomes and broader economic momentum is too optimistic, and that the path towards taming inflation passes through a more marked economic slowdown than it is forecasting.

“This is where the Reserve Bank’s inflation-targeting grit may well be tested over the coming year or so. Higher interest rates mean stronger headwinds for the housing market.

“Given the strong starting point, we’d still call this a soft landing – something that’s quite evident when looking at the implied house price level.”

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House prices still up a whopping 30% The bank’s house price forecast still leaves house prices up a whopping 30% at December this year compared to December 2019, pre-pandemic. In that light, the bank’s relatively pessimistic forecast seems rather optimistic.

Relative to the past few business cycles, this time may be a little different for the housing market, says Zollner.

In the past, waning consumer demand - and a softening housing market - was likely enough to halt inflation pressures and for the Reserve Bank (RBNZ) to achieve its targets.

“This time, inflation has so much strength and persistence, the RBNZ will likely need to continue hiking despite softening housing and demand.”

If house owners think the RBNZ has their backs and will act to prevent house prices from falling too much, they may be unpleasantly surprised - if inflation remains well in excess of the 1-3% target band for too long, that is.

“It’s all uncertain, but we think this is a risk well worth outlining,” says Zollner. ✚

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013

UP FRONT • REGULATION

Avoid the logjam: just do it The Financial Markets Authority warns advisers need to get their full licence applications completed ASAP to avoid delays.

BY ERIC FRYKBERG

F

inancial advisers are soldiering on with getting full licences under the new industry regime, spending thousands of dollars and devoting hours, or even months, of work to get the task done.

Despite this burden, some advisers think full licensing under the Financial Advice Provider (FAP) regulations is worthwhile. Others are gritting their teeth over an unavoidable necessity - and a majority have still to file their applications.

The Financial Markets Authority (FMA) is worried this delay may continue and that the whole process will fall way behind schedule, creating a serious logjam later on.

The authority insists it is trying to make the process as clear as possible for applicants, but admits it could do better.

More deadlines to meet Full licensing was required by the Financial Services Legislation Amendment Act 2019. As a step towards this, advisers had to obtain a transitional licence by March last year.

But there are three more deadlines to meet in order to transform those transitional licences into full licences: June 30 for Class Three licences, September 30 for Class One and Class Two licences and March 16 next year, as a final do-or-die date, when transitional licences expire.

At this stage, progress towards achieving those goals is slow. According to the FMA, 355 full licences had been approved as of mid-April, and another 32 were being processed.

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TMM 02 • 2022

That was out of a total number of licences of 1861 – both transitional and fully approved – meaning four-fifths of licences still need to be dealt with.

The FMA is not displeased about this low level of progress, but it is not pleased either, calling it “good, but not good enough.”

Acting director of regulation John Botica told a webinar for financial advisers the authority was tracking in the right direction.

“But as some of my old school report cards would often say about me, he needs to work a little bit harder, he talks too much, and he distracts others.”

Massive volume of information required One of the problems is the sheer volume of information that has to be provided.

Jeff Royle, of the brokerage iLender, lists the questions that were asked when he got his full licence last October: “Do you give advice outside New Zealand? How long have you been in the market? Do you plan to appoint directors? Do you plan to apply for additional licences?” And there was more.

“You have to have a business continuity plan, and say when you will review it; you need to have a cyber security policy, and say when you will review it,” Royle said.

“You need to reveal any other parties to your business, you have to say whether you deal with client money, you have to have an approved document process to ensure ongoing compliance, and the list just goes on and on.”

Answering all these questions took Royle 30 hours of work and incurred

many thousands of dollars in costs, but he still supports the process in principle of tightening up advisers' operating licences.

“It had to happen; I am quite proregulation as long as it is fit for purpose.

In my view, there are still people operating in the market who shouldn't be.”

One consequence of a compliance regime weighed down by volumes of detail is that people are incentivised to find ways to do it all smarter.

Royle says some of the work he had to do last year is now templated, which makes it quicker and easier.

Strength in numbers Other brokers are seeking strength in numbers.

The FMA says many brokers are ditching their sole trader status and joining aggregator groups. In fact, 320 of the approvals issued by April were for authorised bodies, according to Botica.

“I think it points to some of the traditional licence holders starting to operate under someone else's licence rather than going solo,” he says.

“It is early days, but I suspect we are starting to see some signs of consolidation.”

But this trend is not universal. Sole operators persist throughout the industry. Under the rules, they need to get a Class One licence, and the application must be in by September.

According to Botica, these applications may not be proceeding as fast as they should.

“The sole operators represent 31% of the applications we have received so far,

whereas the current mix of firms tells us that number should be tracking closer to 55%.”

Botica holds back from blaming the advisers themselves for these difficulties.

He believes some of the problems with full licensing so far can be attributed to genuine concerns among brokers.

One possibility is that intending applicants may not have enough resources to spend time on their application.

Another is they may not have the information needed - or may be nervous about using the on-line portal.

Botica believes some brokers may not have the confidence to be able to manage the licensing process properly, and may worry that what they write in their application will not be good enough.

He says case studies have shown ways to overcome those difficulties; one way of doing so is through a step-by-step approach.

“Lock away some time on a daily basis, or perhaps a weekly basis,” he advises.

“In those times, do nothing else but work on your licence application. Don't get distracted by emails and things, just focus on what you need to do.”

No one is watching in the background There was also reassurance from the FMA: it respects advisers' privacy, and is not watching over them as they work.

Another FMA staffer, Anita Frazer says the authority doesn’t see an adviser’s answers till the applicant has paid and pressed ‘submit’.

“So don't think we are going to be watching in the background. We are not trying to trick you.

“We are here to assist people get a licence, not to stop you carrying on

with your business. We may have some questions; we may ring up and ask you to clarify what you mean by something, but then we will move on quite quickly.”

To help with this procedure, the FMA has developed - and added to its website - an eight-step process.

The authority is also suggesting another way of making things easier: consider applying for a Class Two licence first up.

Even if still a sole operator, you may be thinking of expanding later, so getting it all done at once could save duplication, and an extra fee, down the track.

The fee for a Class One licence is $703.80, a Class Two $882.05 and a Class Three, $1,060.30. However, these costs are usually overshadowed by steep in-house costs as advisers prepare their application.

Apply ASAP to avoid a logjam Some in the industry have praised the FMA for processing applications quite quickly. The FMA itself says it will work as briskly as it can.

In the meantime, it says advisers need to get applications in as quickly as possible to avoid a logjam later as deadlines loom.

In a reference to this danger, Anita Frazer cites a negative experience when transitional licences were being approved last year.

“In the last two weeks [before the deadline] we had 18% of all applications coming through the door. The guys (in the office) worked till midnight for days and days to get all the transitionals processed.”

Frazer says she does not want this to happen again; there’s a risk that sort of cramming would be more difficult to achieve with more complex licences.

‘Lock away some time on a daily basis, or perhaps a weekly basis. In those times, do nothing else but work on your licence application.’

John Botica

Brokers are responding to this message in different ways.

Maurice Mehlhopt is a 75-year-old broker who now focuses on reverse mortgages. He has his transitional licence and is working on the full licence programme, but hasn't filed his application yet.

He admits he needs to get on with it.

“I’ve been through the preliminary stages, but haven't pushed the button on the final hurdle because I thought I’d wait a little; I've got some time.”

So, has the process been difficult?

“If you're not an accountant, these things are always a bit trying - but I guess we just have to do it. I don't think the process is that great; I must admit I haven't put my mind to it, but I need to.” ✚

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FEATURES • HOUSING COMMENTARY

The end of the golden weather The average house in Auckland now tops $1.5 million, but the nationwide housing boom is definitely over.

BY SALLY LINDSAY

A

uckland house values are now averaging $1.5 million for the first time.

CoreLogic’s latest House Price Index shows the market across the country has weakened - but Auckland values show more resilience, recording a growth rate of 1.8% for February.

It’s the lowest rate of growth since September 2020, which marked the start of New Zealand’s exceptional 18-month growth phase.

At that time, the strictest of the initial national lockdowns had been eased, uncertainty had dramatically reduced, and the Government and Reserve Bank fiscal and monetary support was directing money into assets.

Beneath the surface of the recent growth, however, the more expensive markets are showing visible signs that growth has slowed: North Shore at $1.67 million, Auckland city isthmus at $1.72 million, along with the more rural Rodney area at $1.39 million.

The national measure of housing prices was 0.8% higher in February, a sharp drop from the January reading of 2.1% and down from the cyclical peak rate of 3.1% growth in April last year.

CoreLogic research head Nick Goodall says given the index incorporates sales data from the past three months, February’s positive reading can be attributed to stronger sales prior to Christmas.

“Analysis of very recent sales, including unconfirmed sales, shows sentiment is changing rapidly, with vendors unable to achieve the prices of last year,” says Goodall.

Recently published lending data, from the Reserve Bank for January, shows a significant drop in mortgage activity, adding additional weight to the worsening housing outlook.

“This trend is likely to persist, as stretched affordability and improved

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choice for buyers compounds the impact of tighter, more expensive lending,” he says.

“Our expectation is the index will dip further over the coming months as continued rate hikes and tighter credit controls weigh on market conditions.

“The significant drop in the monthly rate of growth from January to February indicates a clear change in trend.”

Sales numbers slashed Residential property sales figures have dropped to the lowest number in a February month since 2011.

Data from the Real Estate Institute of New Zealand (REINZ) show sales dropped 32.8% in February from 8,324 in February 2021 to 5,597.

For the month between January and February sales declined 3.2%. February is usually the biggest sales month of the year.

Across the country, excluding Auckland, sales dropped 28.8% in the February year, from 5,412 to 3,856.

Auckland was hardest hit, with sales declining by 40.2% from 2,912 in February last year to 1,741 - the lowest February sales count since 2019.

Property prices have remained steady.

Median prices across the country increased with only Auckland and Northland dropping.

In the month from January to February this year, the national median price rose from $880,000 to $885,000, providing an annual gain of 13.5%. It’s the third month in a row the median was below the November peak of $920,143.

The median residential property price for New Zealand, excluding Auckland, increased 20.6% from $651,000 in February 2021 to $785,000 — a new record high.

Auckland’s median residential property price increased 8.2% annually, from

‘While prices are holding despite the change in market dynamics, there is now a fear of over paying (FOOP) amongst buyers’ Jen Baird $1,100,000 in February last year to $1,190,000, though down 0.8% on January. Since its peak in November 2021, Auckland has seen a significant drop in the annual percentage increase - at a level not seen since LVRs (loan-tovalue ratios) started to effectively curtail rapid property price rises in late 2015.

REINZ chief executive Jen Baird says market sentiment has shifted over the past couple of months – a trend evident throughout the February data.

While prices remain strong, the number of sales continue to drop and an influx of stock across New Zealand is easing demand pressure. This may in turn further ease price growth in the coming months.

Healthy median price increases continue in Canterbury, reaching a record high in February. Selwyn and Waimakariri lead the charge, both having reached record medians in eight of the past 12 months.

“While prices are holding despite the change in market dynamics, there is now

‘We’d expect further falls ahead now that momentum in NZ’s housing market has convincingly turned.’

Mike Jones

a fear of over paying (FOOP) amongst buyers, some of whom will be under additional pressure from legislative and fiscal changes impacting their ability to borrow,” says Baird.

As a shift in sentiment sets in, and buyers are less willing, or unable, to pay the prices we saw towards the end of 2021, pressure will come on vendors to adjust their expectations to meet the market.

House buying sentiment falls drastically The housing boom is well and truly over even the public believes that now.

Buyer sentiment has fallen to the lowest level in the 26-year history of ASB’s Housing Confidence Survey, while at the same time there’s never been a stronger conviction that interest rates are going to keep rising.

The quarterly survey to January shows the percentage of Kiwis who expect house prices to rise over the coming 12 months fell to a net 49%. That’s still above average, but well down on last quarter’s net 62%.

ASB senior economist Mike Jones says the direction of travel is clear. Housing confidence is down a sizeable 13% last quarter.

“We’d expect further falls ahead now that momentum in NZ’s housing market has convincingly turned.”

Amongst the regions, ASB says it was surprised to see Canterbury record the lowest confidence reading, with a net 42% expecting prices to rise.

Canterbury has been bucking the trend of the more general cooling in the housing market; annual house price inflation in the garden city is running at roughly twice that of Auckland and Wellington.

At the other end of the spectrum, South Islanders outside Canterbury remain the most bullish at +59%, with Auckland (+52%) and the rest of the North Island (+48%) somewhere in the middle.

But while the boom might be passing, there’s still the hangover to deal with.

Stretched affordability, rising mortgage rates, and tightening credit are not the makings of a happy home buyer.

‘It’s an indication that last year’s aggressive rate of price rises has peaked’ Peter Thompson Respondents who think it’s a bad time to buy a house now outnumber those saying it’s a good time by five to one.

“But if house prices do back-pedal a little this year, and wages rise, housing affordability should look a little better by the end of the year,” says Jones.

When asked whether it is a good time to buy a house, survey respondents have never been more definitive.

Just 7% of people think it’s a good time to buy, while 35% of people think it’s a bad time, 47% think it’s neither and 11% don’t know.

A net 28% think it is a bad time to buy (7% think it’s a good time, 35% a bad time) - the most negative reading for buyer sentiment since ASB’s records began 26 years ago.

And who could blame them, says Jones.

“The housing boom has lifted prices to extremely stretched levels, mortgage rates are rising, and the weight of expert opinion is now warning of outright falls for this year.”

Auckland prices and sales drop rapidly Barfoot & Thompson’s median selling price of $1,122,500 in February was a drop for the third month in a row and is $117,000 lower than its November 2021 peak of $1,278,647.

At $1,196,036, the average sales price for February is still the fourth highest on record, and 11.2% higher than at the same time last year, but dropping by $82,611 from its December high of $1,278,647.

Barfoot & Thompson is by far the biggest real estate agency in Auckland.

Managing director Peter Thompson says rising interest rates and tighter bank lending have combined to take the heat out of the Auckland housing market in the first two months of the year.

Thompson says February’s prices and sales numbers were down on those for the previous three months and are now in line with those being achieved midway through last year.

“It’s an indication that last year’s aggressive rate of price rises has peaked.

Price increases are easing back as buyers take a more cautious approach.

“A return to a more stable pricing environment might be in sight.”

Sales for the month at 750 were down from 801 in January and 911 in December and a significant decline from February last year, which Thompson says was exceptionally busy.

However, when compared with those for the five years between 2016 and 2020, sales numbers are typical for the early part of the year.

“March sales data will give a better indication as to whether the market is in for a more stable year, as the disruptions caused by the Christmas break and holiday season will have worked their way out of the sales figures.”

Thompson says sellers will also have had time to reflect on the changing price environment, and on whether they need to trim price expectations to achieve a sale.

New listings in February at 1,077 were modest for this time of the year but, combined with the lower number of sales, increased the number of properties the agency had for sale at month end to 4385. This is the highest number of properties Barfoot & Thompson has had for sale at month end in nearly three years.

A feature of the Auckland market now showing up in sales data is the high number of apartment sales; in February, 21.5% of all sales were for properties valued at under $750,000. During the same month last year, properties in this price bracket represented 18.1% of sales. ✚ www.tmmonline.nz

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Home Sweet Home

Equity Release

Increasing numbers of ageing home-owners are finding it harder to get by – and are turning to the equity in their own houses.

Eric Frykberg looks at what’s happening in the home-equity-release space.

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L

enders and brokers who specialise in home equity release (HER) are undeterred by a levelling real estate market.

The leading HER player, Heartland Bank, has just enjoyed the largest number of monthly applications on record.

And specialist investment company Lifetime Retirement Income is about to launch an entirely new model of home equity release, one which differs substantially from traditional reverse mortgages.

These trends are happening even though the time would not seem right to take on a reverse mortgage; it would have been better to do so three years ago, when soaring property prices could cancel out, or even overwhelm, the rising debt from a reverse mortgage.

Few jitters about releasing equity When people take on debt and prices are flat, there is only one way for their equity to go: downwards.

Yet few people are getting the jitters about this, according to Andrew Ford, who manages reverse mortgages for Heartland.

“Our customers are still faced with much higher costs, as inflation has got higher,” Ford said. “So we are seeing an increased demand for reverse mortgages, as older home owners try to deal with price increases and try to make ends meet on New Zealand Super.”

Maurice Mehlhopt, a 75-year-old financial adviser who has helped “a couple of thousand people” into reverse mortgages, sees no decline in the trend.

“Most of these people have lots of equity in their property and they look at the longer-term view.

“With interest rates now at 6%, under the rule-of-72, it's 12 years for the value of a debt to double. So I am looking at someone who is 75 and saying, ‘If you borrow $1 today, you have to pay back $2 when you are 87.

“They say, 'I don't give a damn. I am not sure I will even be here then'.”

A new model for home equity release Meanwhile, reverse mortgages are not the only model for home equity release.

One alternative is a gradual, bit-by-bit sale of the equity of a house, by a home-

owner to a financial institution. One such company is Lifetime Retirement Income, run by a former chief executive of ACC, Ralph Stewart.

Stewart says traditional reverse mortgages can create uncertainty for people because interest rates are variable.

Borrowers worry that rising interest rates could eat into their equity faster than expected, eroding the value of the stake in their own home.

So Lifetime Retirement Income will soon unveil an alternative scheme, following the Home Reversion Model (HRM).

Under this new scheme, which Stewart says gives far more certainty, people sell a tiny sliver of their house, bit by bit.

“What you do is you sell part of your equity every year for a fixed period – at Lifetime it is 10 years,” Stewart says.

“In the first year, we buy 3.5% of the value of your home, and we pay you 2.5% for it, and there are no interest costs at all.

“At the end of the 10 years, you will still own 65% of your house.”

Stewart says the scheme will be available to people over 70, and the money will not get paid to the homeowner as a lump sum, but as a regular income, payable fortnightly or monthly.

He says there are no tax obligations because the money is coming from the sale of the family home.

‘You’re talking about people in their mid70s who expected to be dead but are not, and they’re saying, “Damn it, I can't even afford to go and buy a feed of bloody oysters!”’

Maurice Mehlhopt

Instead, the tax obligation falls on Lifetime Retirement Income, and the difference between 2.5% and 3.5% goes to the IRD and to the company's profit margin.

Not universally popular, but growing Not every organisation likes reverse mortgages. One company which used to do home equity release (HER) but pulled out is First Mortgage Trust, a non-bank lender and investment manager.

Chief executive Paul Bendall says First Mortgage Trust made a strategic decision www.tmmonline.nz

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Image: Andrew Ford

not to take part in consumer financing because of low margins and CCCFA complications; reverse mortgages were a casualty of that move.

Despite this decision, reverse mortgages overall are growing in scale and popularity. According to figures from the Reserve Bank (RBNZ), the value of reverse mortgages has grown by 16% in the past two years.

However, the quantum of loans still remains low: reverse mortgages account for just 0.14% of total bank lending.

And figures from Heartland indicate that borrowers are still dipping their toes into the HER-water, rather than plunging in.

According to the latest report, the average loan taken out is just 10% of the value of a property, and people don't take this on until quite late in life: aged 78 on average.

This dovetails with research released by the Financial Services Council (FSC), which found that even careful pensioners often use up their savings or investments within 10 years of retirement, and end up surviving only on NZ Superannuation.

But research by Massey University shows NZ Super is not nearly enough.

It can cost almost $800 a week on top of a pension for a couple to live an active life in a big city.

The pension will not sustain even a minimal rural lifestyle – sometimes referred to as a diet of baked beans in Eketahuna.

Faced with these risks, older people often try to manage their pensions carefully to cover food and bills, only to be knocked sideways by fixed costs like repairs, rates and insurance.

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TMM 02 • 2022

According to Statistics NZ, the average cost of home insurance increased 217 % in the decade to 2021. Local authority rates increased by 63% over that time, while ordinary inflation as measured by the CPI (consumer price index) rose just 18%.

Paying for rates and insurance, along with the annualised cost of repairs and maintenance of a house, can easily eat up $10,000 to $15,000 a year, and that sort of money simply cannot be found by many pensioners.

It is this fact which makes homeequity-release professionals quietly confident. They help out people who are asset rich but cash poor, like the fallen gentry in English novels.

Their often modest homes can be worth $1 million or more, yet they struggle to pay the bills. So the reverse mortgage offers some hope.

Horror stories abound historically Reverse mortgages used to have a very low reputation.

Horror stories went viral on the internet, including one about 15,000 older people in danger of losing their homes in Florida: either they could not afford to pay the insurance premiums or their debt grew too large relative to the value of their homes.

The stories were often heart-rending.

But HER companies in the United States argue many of the accounts were misleading.

Maurice Mehlhopt has happy stories to counter the horror stories. He cites one

‘Their often modest homes can be worth $1 million or more, yet they struggle to pay the bills. So the reverse mortgage offers some hope.’

Eric Frykberg case of a woman who endured a difficult divorce late in life. She was finding it hard to pay the bills, but had plenty of equity in her home.

“I was able to get her some money and there was silence on the other end of the phone. I asked, 'Are you ok?' and she said, 'I am just having a wee cry'.”

Other clients have similar stories.

“You’re talking about people in their mid-70s who expected to be dead but are not, and they’re saying, 'Damn it, I can't even afford to go and buy a feed of bloody oysters! Bugger it, don't I deserve better?’ And that's a typical customer.”

Home-equity-release companies in New Zealand are well aware of the tradition of horror stories and set out to avoid exposure to this danger in advance.

Heartland has a Loan to Value Radio (LVR) set at a maximum of 30% for a person aged 70, but “hardly ever” lends at that level.

SBS Bank is the second largest player in the market. Chief executive Mark McLean says his company is also getting good results despite the property downturn.

“Our last publicly disclosed figure put our reverse mortgages at around $76 million, and we are still getting good growth.

“In the next 12 to 18 months we are expecting the $76 million to be worth around $125 million.”

Figures from the latest SBS financial report show their impairment costs include $0.8 million from reverse mortgages, out of $4.03 billion in total loans.

Heartland says it has one reverse mortgage whose LVR has grown past 75%.

For New Zealand companies, American-style eviction stories are not on the cards. Their rationale is that an eviction would be a huge reputational risk, and would require a lot of money in enforcement costs.

A sensible company just wouldn't go there. Far better to lend money carefully in the first place – meaning low LVRs and careful actuarial analysis are the keys.

The bank of the children Despite the push for reverse mortgages, some people are finding other ways to fund unpayable bills for the elderly.

A retired Bay of Plenty estate lawyer, Jenny McDonnell, describes one which avoids any need for a reverse mortgage.

She suggests that adult children can pay some of the bills for their elderly parents and set off the money against their parents' estate.

It might cost $15,000 a year, but the capital gain on the home will often be far more than that - and the ultimate value of an inheritable property will be preserved at a far higher level.

McDonnell says these kinds of payments can make sense even during a property correction, since they can preserve the capital gain which was usually made earlier.

In addition, elderly parents can stay longer in a home where they feel happy.

However, McDonnell says it is important that the adult children work out such an arrangement very carefully.

“If you've got three children and they can each contribute $5000 a year, that’s not a problem. But in some cases, one family might be quite wealthy and the other is struggling and cannot afford the $5000.

“So you have to work out a formula for the initial contributions, and this has to be linked in to the CPI, so that when the house is eventually sold, the people who paid more will get an increased portion.”

McDonnell adds that is also important these payments are listed as a debt.

Not just for the elderly Home equity release may not just be for the elderly. The economist for the New Zealand Initiative, Eric Crampton, has developed an ingenious idea to bring a kind of reverse mortgage to the young, or at least the early-middle-aged.

The concept would allow them to monetise the growing value of the house they live in, without having to wait till they retire.

Under this scheme, a home-owner or home buyer simply sells a share of the house – say, a quarter – to a passive investor. If the house doubles in value in ten years, the passive investor's share doubles as well.

Crampton says buying into another person's residential home would allow investors to benefit from capital gain without the burdens of being a landlord: repairs, maintenance or difficult tenants.

He concedes the idea needs more work, and could fall foul of the bright-line test, but is worth looking at in principle. ✚

Your dream retirement is right where you are Since 2004, Heartland Reverse Mortgages has helped over 20,000 Kiwis free up equity, age in place and fund their dream retirement.

You continue to own your home

Flexible drawdown options

No regular payments required

No negative equity guarantee

For more information visit heartland.co.nz or call our friendly dedicated team today on 0800 488 740.

Heartland Bank’s responsible lending criteria, fees and charges apply.

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021

KiwiSaver

Closing the KiwiSaver Gap Rupert Carlyon from koura Wealth explores the KiwiSaver gap and opportunities for mortgage & insurance advisers.

The thing about problems, is you need to know about them to solve them.

Mortgage and insurance advisers see this every day in the conversations they have with clients – spotting gaps and helping Kiwis understand options and issues, that until that advice conversation, just haven’t been on their radar.

KiwiSaver is arguably one of the biggest gaps that advisers can play a crucial role in addressing. The gap between the savings needed in addition to Super at retirement – a little over $800,000 for a lifestyle with some choices1 – and how Kiwis are currently saving for their post-work life isn’t going to close without some active intervention.

The recent report from Te Ara Ahunga Ora Retirement Commission on KiwiSaver balances really paints that picture: As at 31 December 2021, the average KiwiSaver balance was $29,022.

And by age group (for example): $26,138 (36 to 40); $40,335 (46 to 50) and $53,579 (61 to 65).2 Of course, KiwiSaver is only 14 years old, balances are growing, and it is not the only retirement savings vehicle used by

Kiwis. But assuming that those facts on their own will close the gap is, to put it plainly, wishful thinking.

What we see every day in our conversations with Kiwis is a belief that just having KiwiSaver means their retirement savings are sorted. Set and forget. Contribute at 3% and I’m going to be fine. For many, how they are tracking with their KiwiSaver is a problem that’s just not on the radar. But it needs to be.

Action against apathy The perception that KiwiSaver is a “setand-forget and I’m sorted” financial tool is something that advisers tell us they encounter on an all-too frequent basis.

Fund type and provider are details that many can’t easily recall. And in a recent wananga (Q&A) we ran with Hidden Figures, many respondents thought the only option for their KiwiSaver plan was through their bank.

Advisers are – and excuse the oversimplification – all about facilitating financial awareness for better financial decision-making. And in the KiwiSaver space, there is an obvious need for experts to get those conversations underway: in the first, to simply help clients understand that they can, and need, to act.

Reinforcing relationship value Imagine for a moment, sitting down with a client and talking through two example figures: $86 and $324. In a nutshell, two numbers that illustrate the difference between starting early and leaving KiwiSaver at the bottom of the to-do list until later in life. Save $86 a week from age 25, or $324 a week from age 50.

And that’s for a no-frills lifestyle.3 Can you see the light going on? It’s these simple types of conversations that advisers tell us are game-changers for their clients’ approach to their KiwiSaver.

And another important thing happens to the client-adviser dynamic: Like with risk, estate planning and other professional services that mortgage advisers introduce, simply taking the time to start the KiwiSaver conversation, expands clients’ understanding of the value their adviser has to offer – not only for the mortgage needs currently on the table, but as a trusted professional for the long term.

After all, if clients can’t have a KiwiSaver conversation with their trusted adviser who has just helped them into their home, then who can they have it with?

The KiwiSaver opportunity for mortgage & insurance advisers.

Play an important role in creating a better financial future for clients.

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TMM 02 • 2022

Grow as KiwiSaver balances grow: KiwiSaver is a sustainable platform with ongoing recurring income.

Relationship reinforcement: Be the trusted adviser for the long term, not transactional needs; the professional sought as the first point of contact.

Evidence comprehensive understanding of clients’ circumstances and goals, and address gaps either through advice or referral (Code Standard 4).

KiwiSaver advice and the new regime 31 March 2023 (the end of the FSLAA transitional period) is less than a year away, which will mark the end of class KiwiSaver advice (for those Mortgage Advisers who had been offering it prior to 31 March 2021). So, under the rules, what are the options?

You might choose to become an Investment Adviser, which at a minimum entails:

• Completing the Investment Strand of the NZ Certificate in Financial Services (Level 5) • Having a FAP licence accredited for investments

• Undertaking and evidencing the sixstep advice process for each client.

Or, a new option now available for Mortgage and Insurance Advisers, is the koura Wealth Facilitator model.

• Professional Indemnity Insurance to cover you for investment advice • Implementing a compliance assurance programme that will review your investment advice

kōura Wealth Facilitator Model for Advisers koura Wealth have developed a new way of delivering KiwiSaver advice: any mortgage adviser can act as a facilitator, allowing them to help their clients with their KiwiSaver without needing to be a Level 5 Investment Adviser.

All advice is delivered by the koura digital advice tool Clients can — either with you or in their own time — answer a few questions about risk and objectives, and in five minutes or less, the koura digital advice tool will: 1 Provide a recommendation on the portfolio of koura funds that is best for them.

2 Provide advice on what their koura KiwiSaver will give them and compare their current KiwiSaver fund with their existing fund.

The advice is delivered by the koura digital advice tool and all responsibility and compliance associated with the advice is borne by koura*.

The role of the facilitator Your role as facilitator is relatively simple, yet very important. Your role is to:

Reduces risk and costs for advisers, and makes KiwiSaver advice more accessible All financial advisers can engage with their clients on KiwiSaver without having to build a compliance model, or gain a licence, for Investment advice.

Supports adviser-client relationship, and ensures ongoing client care Your client is your client, period. You own the relationship, with the support of koura for ongoing KiwiSaver client care: ensuring all advice is compliant on an ongoing basis; prompting clients to review their KiwiSaver (with an invitation for an in-person review with their facilitator), and more.

To take a closer look at the koura KiwiSaver Facilitator model for Mortgage and Insurance Advisers, scan the QR code here.

• Introduce the client to the digital advice tool and ensure that the client understands the advice that is presented to them.

• Be an ongoing point of contact for your clients’ KiwiSaver.

• Follow up annually with the client to ensure that they remain on track for the retirement they expect and deserve.

The Retirement Expenditure Guidelines 2021, Massey University of New Zealand Page 9 | Table 4: Two-person household, Choices - Metro, Lump Sum Required: $809,000 Melville Jessup Weaver (MJW) KiwiSaver Demographic Report, commissioned by Te Ara Ahunga Ora Retirement Commission. See page five.

3 The Retirement Expenditure Guidelines 2021, Massey University of New Zealand Page 9 | Table 4: One-person household, No Frills - Metro, Weekly Savings from age 50, $324; Weekly Savings from age 25, $86. * So long as the process has been followed in line with the training provided.

koura Wealth Facilitator Model for Advisers Reduces risks and costs • Advisers do not need to build a compliance programme or get Professional Indemnity Insurance.

• Advice around KiwiSaver recommendations and risks is borne by koura.

Significant time saving • Level 5 Investment is a significant time commitment, both in getting the qualification and then delivering the advice. Under the koura Wealth Facilitator Model, mortgage advisers do not need to be a level 5 Investment Adviser.

• Rather than consistently researching investment options and models (as required if you are delivering advice to clients), all of this work is completed by koura and available using the digital advice tools.

Supports long term client relationships • Including KiwiSaver in your service proposition provides an additional check in point and way to show that you are continually adding value to your clients. Your objective is to create lifetime relationships and this allows you to do that.

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023

FEATURES • SPONSORED CONTENT

Pepper Money: delivering effortless loan options for customers across all walks of life In a shifting market, financial advisers know speed and access to flexible finance matters more than ever – and removing effort delivers a much better customer experience.

Pepper Money National Sales Manager, Michelle Sargeant explains the Pepper Money tools and features that underpin its market leading services.

How are you helping financial advisers meet the needs of Kiwi borrowers?

We’re passionate about helping people succeed and we want to help everyday Kiwis achieve their homeownership dreams.

With this in mind, we developed a range of home loan products, aimed at helping financial advisers deliver loan options for customers across all walks 024

TMM 02 • 2022

of life – including the growing number who don’t fit the traditional lender boxes.

Our home loan options range from Prime through to Specialist, with full doc and alt doc options, and our team works to understand each individual situation when assessing an application.

Following the events of the past two years, our real life, human approach to lending is needed now more than ever, with customers looking for someone

that can provide them with a workable solution. Some of the borrowers we help include customers who are ready to achieve their goals but for some reason don’t meet traditional lending criteria.

For example, customers who have different types of income sources or employment types, or customers who have gone through a life event such as a relationship breakdown or job loss that has impacted their credit history.

How are you working with financial advisers to meet their needs?

Making life and the loan application process easier for financial advisers is an important part of what sets Pepper Money apart. We’re dedicated to streamlining our solutions through easyto-understand products, fast technology, and reliable service.

We understand the emotional journey that many borrowers face while seeking finance, so we do our best to make things as simple as possible with policies and processes that are easy for financial advisers to work with. This includes our one-application model, where we assess a client’s application under the Prime product first, and then automatically reassess across our Near Prime and Specialist options if it does not fit Prime criteria. Where we can, we will provide a solution for a customer, saving advisers the time and effort of reapplying.

A key part of our technology offering is the Pepper Product Selector – an online tool, that lets financial advisers assess a customer’s borrowing ability quickly and easily. Within five minutes, the tool does a comprehensive credit check, borrowing power calculation, and puts all the information through an algorithm decision engine to identify a Pepper Money home loan product, interest rate, and fees. This solution also comes in the form of an indicative offer which can be submitted with the application, shared with the customer, and used as the adviser’s record of the customer’s requirements. This can assist in removing some common roadblocks and provide the financial adviser and their customer with more certainty and confidence of knowing exactly where they stand.

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We provide support throughout the whole process – including our on-road BDMs and deskbound Relationship Managers that are dedicated to educating and supporting financial advisers with scenarios and business opportunities; as well as the direct access to our credit team that allows advisers to discuss a customer’s situation directly with the assessor.

• A real-life approach to lending and ability to look at a customer’s situation holistically, • Clear and easy-to-understand products, • Industry leading technology and digital processes, • Market-leading turnaround times; and • Direct access to dedicated BDMs and an experienced credit team.

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Catering to a wide range of customer needs requires flexibility, innovative products and experience in understanding an applicant’s individual circumstances - which is why we continually evolve our solutions and service based on invaluable adviser and customer feedback.

What’s next on the cards for Pepper Money?

We want to continue delivering great outcomes for our customers, our advisers, and our partners, so we’re persistently investing in our products and digital capabilities to keep up with the needs of the New Zealand market.

Over the next 12 months, we’ll be improving our service proposition by enhancing existing tools like Pepper Product Selector, building more collaborative relationships with aggregators to provide seamless solutions via their platforms, and broadening our security locations so we can help more Kiwi borrowers succeed. ✚ Michelle Sargeant, Pepper Money National Sales Manager

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COLUMNS • LEGAL

By the book: a broker’s bread and butter Lee Kerr looks at the impact of the new CCCFA regulations on broker fees and how to help borrowers make an informed decision about the best way to pay them.

H

ow much do you make?

Nearly everyone you meet is interested in how much you earn - although they probably won’t ask directly - and how you earn it.

Your neighbour is interested, along with all the new friends you made at last night’s BBQ; future boyfriends or girlfriends are certainly curious; even Great-Aunt Zelda. And now the regulators have an interest.

The new Credit Contracts and Consumer Finance Act (CCCFA) regulations concern all fees financed under a consumer loan agreement.

This gives the Commerce Commission an interest in these fees, including all broker fees funded by the borrower.

Brokers have a unique, piggy-in-themiddle relationship with clients and lenders. On the one hand they are the borrower’s agents, acting in the borrower’s best interests to explore his or her finance needs and to obtain the best loan offer available in order to meet these needs.

On the other hand, brokers have close relationships with banks and finance companies, and will often derive their income direct from the lender - both through initial success fees or commissions on settlement of a loan and trail commissions throughout the life of the loan.

Fees paid in numerous ways Brokers’ initial success fees or commissions are paid in numerous ways. They can be paid direct by the borrower - this practice is largely limited to commercial borrowers so would be outside the scope of the CCCFA regulations.

Or they can be paid by the lender: either out of their own pockets or indirectly via the borrower’s loan as part of the disbursements on settlement.

Banks and some finance companies commonly pay settlement and trail commissions directly to the broker, pursuant to their broker mandates and agreements.

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TMM 02 • 2022

BY LEE KERR This arrangement is between the lender and the broker, not funded by the borrower’s loan. It does not fall within the scope of the CCCFA regulations discussed here, but is required to be disclosed to the borrower in the broker’s disclosure statements, pursuant to the Financial Services Provider regulations.

The other common arrangement, particularly with non-bank lenders, is that the broker’s success fee or commission is paid on settlement of the loan, financed by the borrower, in accordance with the loan agreement.

As the fee is part of the initial loan principal, the borrower will be paying interest on that fee throughout the life of the loan.

While this is the lender’s responsibility, and lenders remain responsible for meeting these obligations, they will often require the broker to assist the borrower to make an informed decision, ensuring the borrower is aware of the implications of entering the agreement.

This means that the broker will be required to highlight to the borrower all of the key features of the loan agreement, in a way which draws the borrower’s attention to that information.

In order for the borrower to make an informed decision, this information should be provided as early as possible in the process, rather than at the time of settlement when the borrower is under pressure to make decisions.

Helping the borrower make an informed decision

When broker fees are capitalised

Where this is a consumer credit contract, regulation 4AA(2)(e) applies - requiring the lender to make extra inquiries on the borrower.

This regulation states that if the consumer agreement will provide for any fees or charges to be financed under the agreement, and those fees or charges could be paid for separately (eg, broker fees), a lender must inquire into whether the borrower wants that outcome and accepts the additional costs of the fees being financed.

This is part of the lender’s obligation to assist the borrower to make an informed decision as to whether to enter into the agreement and to be reasonably aware of the full implications of doing so.

It means asking whether the borrower agrees to pay the fee by financing it under the loan agreement, and checking he or she accepts the additional costs of capitalising the fees - in other words, the interest costs.

Lenders are not required to calculate or disclose the actual dollar cost of capitalising the fee. However, this may be helpful information for a borrower and could be prudent advice from a financial advice provider.

When a broker’s fees are likely to be capitalised into the consumer loan agreement, the broker should highlight the following points: • that the fee is being capitalised into the loan agreement but that the borrower has the option to pay the fee direct and not have it financed by the loan agreement; • that if the borrower chooses to finance the fee in the loan agreement it will incur additional interest costs over the life of the loan; • that the total amount the borrower will pay to the lender will ultimately be larger than if the fee is paid separately. outside of the loan; The broker should assist the borrower to make an informed decision: whether to finance the broker’s fee or pay it separately, and then document that decision. ✚ Lee Kerr is a Senior Solicitor at Sanderson Weir based in Auckland, working in the areas of property law, commercial law and finance.

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WWW.TMMONLINE.NZ 027

COLUMNS • MY BUSINESS

‘This is the biggest thing for me: the satisfaction of holding the clients' hands and helping them through the process.’

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TMM 02 • 2022

A man who loves the mortgage industry Marchy Pang rose up the ranks and bought the company owned by his mentor – and is often still at his desk, by choice, at 9pm.

BY ERIC FRYKBERG

M

archy Pang is a 38-year-old who can't get enough of the mortgage business. He loves it, finds it satisfying and wouldn't choose another job if he had his life over again.

After studying finance at university, and years selling mortgages for ASB and ANZ, he joined Auckland firm SuperCity Mortgage and Insurance in 2016.

He later bought the company from the owner, Joel Oliver, who was also his mentor.

He has three other people working for the company and another on the way.

How did you get into this business?

I started as a teller at the ASB in 2008.

I jumped ship to ANZ as a mobile mortgage manager in 2013, and worked my way through to a senior manager role in a year.

From there, most of my team-mates joined SuperCity Mortgages, and I naturally followed suit and started my broker career there.

What is it about broking that you love?

It is definitely about helping the client. It’s not just a transaction, it’s a relationship: you walk them through the whole process to help them buy their first home.

Or sometimes they have a life-event, like a marital split, where they really need some help.

We are here to take away the stress of dealing with all the paperwork. This is the biggest thing for me: the satisfaction of holding the clients' hands and helping them through the process.

Did you have a mentor or did you teach yourself the trade?

We started in banks and had basic training in lending money.

From a business point of view, Joel Oliver has been a great mentor for me; I observed how he did things.

He has now left the industry and I took over, but I still do the same things in the same style in terms of the way we run the business.

We are carrying on the Super City culture, which is to look after our customers and create a relationship for life. That is one of our philosophies.

What is the worst thing about your business?

The worst thing is when you are not able to satisfy all the clients. They come to you with their passion to buy a house, they’ve got everything “ready”, and then they find they’re in fact not ready yet.

Sometimes giving them this news can be hard. But we work it through, with a plan to make sure that they do what they need to do to get to their goals.

That process can be very satisfactory.

Much better than just to say, “No, see you later, bye”.

What is the best thing about your business?

The best thing is a lifestyle balance. We love what we do, but we still have a life.

We want to work the way that we want, rather than working for a bank, nine to five. The best thing is to have a good lifestyle yourself, so you are able to help other people.

What is the best move in business that you have made?

The best move was getting our full licence. We are a Class Two full-FAP now, so that means we are able to do a lot more things under our own control, and we can partner with people we like to engage with, for things like outsourcing.

We have more flexibility now, rather than being under an AB (authorised body).

And what is the worst business move you have made?

I have been a new business owner for only a month or two. But even as a contractor adviser or broker, I have not made any bad moves - so nothing to regret so far.

What is the biggest challenge?

The biggest challenge from a business point of view is to attract talent. There is a real shortage of advisers.

People are scared to get into the industry, but, if you want to grow the business, you want to attract talent.

Personally, the biggest challenge is working with all the compliance [required], as well as the turnaround time with banks. That’s always going to be an ongoing challenge.

What is your working day like?

I start a little bit late so I can walk my dog in the morning and do my gym session.

But I would easily work till 9pm, that’s never a surprise.

What is your biggest long term business goal?

I guess the long-term goal is to really establish a sustainable business, providing advice that clients can trust.

We’ve seen a lot of start-up businesses convert into property coaching and that sort of stuff, but I think we really want to stick to our bread and butter, which at the moment is providing mortgage advice.

We probably still have to work to do in that direction. There is fine tuning, new technology, automation and all that, but in the long run we just want a smoother system, so we do what we can in a better way.

If you had your life all over again, would you do this job?

Absolutely. No regrets. ✚ www.tmmonline.nz

029

COLUMNS • SALES & MARKETING

Paul Watkins

Forming and filling a funnel How to design a system where most of your callers have already pre-qualified themselves.

T

he phone rings at your brokerage… and you get ten leads that week.

Two are simply tyre-kickers seeking information, three haven’t got a hope of getting a mortgage due to their circumstances, and three were marginal and so are declined once you go through the process of applying for them. That leaves just two clients which get their mortgages, for which you can then be paid.

I might be being a bit unfair to you with the ratios, but, whatever they are, the key is this: how do you improve the odds of success?

More critically, how do you not waste time on the phone or going through the meetings-paperwork-declined process?

It’s by getting back to basics: using the tried and well-proven method of having a systematic ‘funnel’ (sometimes called a pipeline).

Why so few use funnels You will probably have heard of these, and understand the concept, but my observation is that few put such systems into practice.

STEP ONE: DEFINE THE PROBLEM 1 Write down your two or three preferred types of clients. These may be mature re-mortgage clients, firsthome buyers, investors or whatever type you want to have more of.

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TMM 02 • 2022

Why? First, and no offence intended, many brokers live for the next deal and will talk to anyone, rather than targeting the ‘right’ prospects.

The second reason is that its takes time to set up the funnel, requiring expertise outside a broker’s own. And yes, it will cost a bit to set up and maintain. But not a lot.

The goal here is to get to the point where most of your callers have prequalified themselves and are able to complete.

This means that you save a lot of time and make more money. Nice outcomes!

How to create a funnel I’ll now outline the steps of the funnel creation, starting with how people buy wheelbarrows. Yes, you read that right.

Let’s say I’m after a sturdy, tradiestandard, long-lasting wheelbarrow to use for concrete, so I google “tradie wheelbarrow”.

I look at the options and click on the various websites. I see one with the headline, “Indestructible 72L PE plastic

Don’t go beyond three, as you cannot possibly look after every type of client; trying to do so severely dilutes your brand and marketing message.

2 List the key questions, fears or concerns each one has. These are the questions they ask you when you

‘The goal here is to get to the point where most of your callers have pre-qualified themselves and are able to complete’ tray with galvanised frame for decades of rust-free service – with an innovative concrete-pourer and puncture-proof wheel”.

After a quick check of the price, which I know won’t be cheap, I search no further and head off to buy it. (This is a real example – I really did need just such a wheelbarrow.)

Why did I choose this wheelbarrow?

Because the headline on the web page perfectly answered the questions I had in my mind while searching.

Which brings me to how this applies to mortgages: what are the questions your ideal clients want answered?

meet with them. They will generally be a consistent set of queries.

3 Now you need to think about how your service can provide solutions.

Come up with three to five ways in which your service solves these problems or answers these questions.

STEP TWO: CREATE THE ‘LEAD MAGNET’ You have now created what is referred to as a ‘lead magnet’ which can take the form of a nicely-designed and wellwritten document turned into a PDF, or a short video of yourself speaking to the issues.

Give it a compelling headline. By way of example, say you are targeting firsthome buyers: the title of the video or PDF would be something like, “Six BIG mistakes first-home buyers make when applying for a mortgage”.

Yes, it sounds clichéd and spammy, but it really does work.

It’s important to understand that

a good lead-generation system focuses on educating and nurturing your prospective clients, not selling to them.

I find this a difficult concept for many brokers to accept, but think of it this way: prospects want to be able to trust you to do the job for them, and trust comes only from knowing that you know what you are doing. Prove your expertise to them.

STEP THREE: THE LANDING PAGE So, people search for answers to their questions or see your ad on social media, LinkedIn or on Google search results.

Then, when they click on it, they are taken to a dedicated page on your website called a ‘landing page’. This explains a bit more and asks for their name and email in exchange – creating a warm lead for you - so you can send them the lead-magnet document or link to the video.

A key point here is to have a page dedicated to each target group on your website and have it configured specifically to that group; for example, one page for first-home buyers, one for investors, and so on.

This way, when they click on your ad, they are immediately taken to relevant, engaging information.

STEP FOUR: AUTOMATED NURTURING Set up an automated nurturing sequence, which allows your leads to self-qualify themselves.

The goal is that by the end of the process, you will get calls only from people who are engaged with what you have to say and are interested in taking things further. Your initial lead has now moved from cold and unknown to hot.

At the bottom of each email are your contact details, along with the legally required “unsubscribe” button.

Then, after three such value-adding emails (they have now received four in total), they get the sales email.

This could be a ‘call us now’, an online call-booking form, or simply a “yes, please, call us”.

By then, the emails have cumulatively built a good level of trust, and, if they unsubscribe, they probably realised that they didn’t qualify, so you saved yourself time.

World famous marketer Gary Vaynerchuk calls this the “Jab, Jab, Jab, Right Hook” approach.

The first email they receive is a thank you email which has the link to the downloadable PDF or video.

This offers them immediate value.

Trust starts to build.

Over the following days, at one or two-day intervals, they receive additional information. These can be a paragraph or two of valuable information, relevant to the target group.

For example, “Hey, a quick note about applying for your first home loan… we find that our successful clients also do…”

STEP FIVE: THE FINAL STEP TEST AND TWEAK It will never be perfect on Day One, so constantly review.

This whole process can be easily and very inexpensively set up and run in an automated manner: a powerful, silent, pre-qualifying salesperson that runs all by itself 24/7. Static, non-specific, targeted websites simply don’t do it anymore. Try it! ✚ Paul Watkins is a marketing adviser to the financial services industry. www.tmmonline.nz

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COLUMNS • INSURANCE

Unambiguously Committed to Independent Advisers

‘Every person could benefit from having medical insurance, yet I often see confused thinking about whether it is necessary for children and retirees’

Steve Wright

What is the purpose of medical insurance in New Zealand Clients are increasingly looking at how to lower their living costs, but keeping private medical insurance should remain a priority. Steve Wright explains.

W

e are very fortunate that New Zealand has a pretty good public health system: good facilities and good medical professionals, providing free medical treatment to most people.

It is, however, not perfect, and there are good reasons why people may choose to have medical insurance to fund private medical treatment.

Accessing treatment through the public health system can very often, maybe even usually, involve unacceptable delays, as well as limits on where and by whom treatment is provided.

In some cases, treatments may not be available, or not funded by the public health system at all; good examples are the drugs not funded by PHARMAC, and treatments publicly provided but not for your specific circumstances.

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TMM 02 • 2022

A stark choice For medical treatment which is not funded publicly, there is a stark choice: go without the best treatment or find the cash to pay for private treatment (which could be very expensive). Of course, the best result is having an insurance company pay for private medical treatment.

Private medical treatment fills many public health treatment gaps and medical insurance provides the necessary funding with some degree of certainty. This makes it possible to access and fund medical treatment relatively quickly and on our own terms.

However, medical insurance does not cover all treatment costs. Understanding the purpose of medical insurance in New Zealand is essential for providing suitable advice; clients need to know what their premiums cover.

I think it is important to recognise and accept a couple of things: 1 Medical insurance in this country is not intended to provide every medical treatment available. Unlike the position in some countries, where medical insurance replaces public treatment, New Zealand has a twotier health system.

It is unavoidable that public health services may be required in some cases, and may be more appropriate, simply because some treatments cannot be efficiently funded privately, even with insurance (the premiums would be unaffordable).

This means that even if we have the ‘best’ medical insurance available, it will not cover all our treatment needs.

All of us may need to access medical treatment from the public health system for certain conditions.

2 It can be argued that having medical insurance, and using private health services where possible, serves a civic function because it relieves the public health system from having to provide all treatment to all Kiwis.

Best provided by the public system

Private medical treatment makes up a large proportion of medical treatment in New Zealand, in particular diagnostic tests and surgery. This takes pressure off the public health system and allows it to perform its part better.

• Accidents (which are covered

by ACC) • Acute, emergency, life-saving treatment • Chronic conditions - those which usually cannot be cured and require long-term maintenance • End-of life and palliative care • Geriatric, senility and dementia treatments • Treatments for psychiatric and mental health, behavioral or developmental conditions • Normal costs relating to pregnancy care and childbirth • Screening/preventative medicine • Long term and ‘everyday’ prescriptions • Costs which are almost guaranteed to occur, such as dental treatment and reading glasses or contact lens costs • Contraception and infertility treatments

What would happen if significant numbers of the roughly 1.4 million Kiwis who have private health insurance gave it up and relied solely on the public health system?

Wouldn’t our public health system be completely overwhelmed, even without Covid-19, for many years at the very least?

What kind of access to public treatment would be available if this happened? Giving up medical insurance might mean we effectively can’t get treatment in the public health system, due to capacity and resource constraints, forcing us towards private treatment which, without medical insurance, we must now fund with our own money – somehow!

As advisers, with obligations to explain our advice, it is useful to help clients understand this ‘two tier’ system.

It’s also important to explain the role private medical insurance plays, what private insurance will pay for and what it typically won’t pay for (and for which public health services will be required).

So, what type of treatment cost is best provided by the public health system - and typically not covered by medical insurance? The list below is by no means exhaustive:

In my view, every person could benefit from having medical insurance, yet I often see confused thinking about whether it is necessary for children and retirees. My thoughts are that both groups should have it.

Private medical insurance premiums are not very expensive for children, and getting the best medical treatment as quickly as possible for a very sick child would be worth the premium for me.

Older people, in turn, need it the most, since illness is much more prevalent in the later years.

I was disappointed to read an article recently which seemed to suggest that retirees could reduce their living costs, if they lived a healthy lifestyle, by stopping medical insurance. This is an appalling suggestion.

At the risk of stating the obvious, most people are healthy before they get sick.

And even people who live a healthy lifestyle get sick - sometimes seriously so.

How to reduce premiums If medical insurance premiums are too expensive in retirement, a better suggestion would be to get advice and to possibly consider a higher excess. This can dramatically reduce premiums.

A high excess really just means a shift towards accessing more public health services - but with the choice and comfort of knowing that if something very serious (and expensive) occurs, you still have the choice to go private and pay the excess, which would typically only be a small fraction of the treatment cost.

It is worth noting that even the very wealthy will find value in medical insurance – it simply becomes more about asset protection, because they don’t have to spend their own money.

Sadly, however, many people can’t afford medical insurance, even at its lowest cost (with a high excess), but that does not mean you shouldn’t discuss it with them.

Giving clients options allows for better informed decisions and an understanding that without medical insurance they will be forced to rely solely on what the public health system can provide. ✚ General manager product at Partners Life, Steve Wright has qualifications in law, economics, tax and financial planning. www.tmmonline.nz

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The TOP 10 stories on www.tmmonline.nz A lot has happened in the market since the last edition of the magazine.

Here are the most-read industry stories from tmmonline.

01 HEARTLAND BANK ENTERS BROKER MARKET Heartland Bank has begun a lending scheme in conjunction with the largest mortgage broker group in the country, New Zealand Financial Services Group (NZFSG).

02 A WIN FOR BORROWERS; CCCFA CHANGES WON

ASB chief executive Vittoria Shortt details how the CCCFA laws should be changed.

03 BOLTON STEPS BACK; BANK BOSS STEPS IN Squirrel boss John Bolton has decided to step back to allow a former bank chief executive take over running the business.

04 MORTGAGE ADVISERS MAKE NZ BORROWERS BETTER OFF – SURVEY New Zealanders who get help from a mortgage adviser are better off than those who don't.

05 SOLID BORROWERS, NOT THE VULNERABLE, HURT MOST BY CCCFA – REPORT New data shows the Credit Contracts and Consumer Finance Act (CCCFA) has actually harmed financially sound borrowers the most.

TMM 02 • 2022

The government has approved Terms of Reference for an enquiry into the Credit Contracts and Consumer Finance Act (CCCFA), after earlier suggesting they would not be necessary.

07 BANK CHIEF LAYS OUT CCCFA CHANGES THAT ARE NEEDED

Cabinet agrees to CCCFA reform.

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06 CCCFA TERMS RELEASED; BANK BOSSES SUMMONED TO BEEHIVE

08 CCCFA REFORM INCHES FORWARD; CABINET PAPER ADMITS TO FLAWS Mortgage advisers look like having to comply with the current state of the Credit Contracts and Consumer Finance Act (CCCFA) until June.

09 OCR UP: WHAT THE RBNZ SAID

The Reserve Bank says more tightening is needed as it increases the official cash rate to 1%.

10 MORTGAGE ADVISERS WELCOME CCCFA REFORM, BUT MORE DETAIL NEEDED Brokers are welcoming changes just announced to the Credit Contracts and Consumer Finance Act (CCCFA).

To keep up with all the news make sure you check www.tmmonline.nz regularly.

Or you can get the news and rates update sent to you each day by signing up to the TMM email newsletter.

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