TMM 03 | 2022 | www.tmmonline.nz
Cracking the Bank of Mum and Dad What you need to know
Keep a box of tissues for your clients
Pensioner adviser helps his peers
How to stand out from the crowd
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PAGE 28
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Nearly 40% of kiwis turned down for a home loan don’t know there’s an alternative. 1
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Money (2019). Taking the local pulse: Understanding New Zealand home loan applicants. A research report. String Theory Research. New Zealand. 2019. Important Information: All applications are subject to Pepper Money credit assessment and suitability criteria. Terms, conditions, fees and charges apply. Credit provided by Pepper New Zealand Limited (NZBN 9429031065153), trading as Pepper Money.
Contents 16
Cracking the Bank of Mum and Dad
Up front 04
EDITORIAL
06
NEWS
09
PEOPLE
10
PROPERTY NEWS
12
REGULATION
It’s natural for parents to want to help their children onto the housing ladder, especially in tough times, but the “Bank of Mum and Dad” can be a minefield – with the potential for family explosion even decades down the track.
20
High time lenders gave mortgage advisers a payrise.
TAP gets the answers with Q.
Avanti’s long-serving head ‘takes a break’ before deciding next move; Pepper, Mortgage Express, Loan Market and NZHL all announce key new appointments.
New Zealand is now the riskiest housing market, but investors are digging their toes in.
As COFI beds in, advisers may find financial institutions such as banks peering over their shoulders.
Features 14
HOUSING COMMENTARY
The number of houses being sold across Auckland has fallen to levels not seen since 2010, but the median price has risen.
Columns 28
MY BUSINESS
30
SALES AND MARKETING
32
INSURANCE
Pass the tissues As the dream of buying a house floats further out of reach, mortgage advisers are increasingly needing to act as counsellors for desperate clients.
75-year-old Maurice Melhopt is still working, helping fellow pensioners through reverse mortgages.
How to stand out from crowd by running an online educational event.
How life insurance works differently to general insurance – and why.
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03
UP FRONT | EDITORIAL
Time for a payrise
I
reckon it’s time lenders, particularly banks, gave mortgage advisers a payrise. Yes, it is time to increase commissions. There are many valid reasons for this. The cost of running an advice business has increased significantly over the years and much of that has been brought on by banks and regulators. We regularly hear stories about other industries passing on cost increases. Think airlines. Air Chathams recently implemented a 20% surcharge to cover fuel price rises. Air New Zealand’s pricing certainly seems to change with the changing costs it faces. Distribution companies are another industry which has increased prices. Mortgage advisers have faced significant cost increases, some from regulation and moving into a new licensing regime. These new regulations have flow-on effects. A great example is professional indemnity insurance. The insurers have come up with a new model to reflect the changes to Financial Advice Providers, consequently premium rates have ballooned. Banks have massively increased burdens on advisers. What’s worse is when they can wind things back, they do not make changes. One example many advisers have given to TMM is that when the new CCCFA changes came in, banks reacted and made things much harder to submit a successful application. The Government has, belatedly, acknowledged the CCCFA regulations went too far, and is now winding them back. Have banks wound back their requirements? From everything we hear, no. While the Financial Markets Authority has a strong dislike for commissions, it needs to suck it up on this one.
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Someone has to pay for advice and, in New Zealand, it is not the consumers. It seems the regulator likes the idea that consumers have choice when it comes to buying a financial services product or service. Frankly, the only way to get advice is to have a strong, vibrant and thriving third-party distribution market. Going to a bank and being offered just one brand is not consumer choice. Consumers have clearly shown they want to use advisers, and that is why loan originations at all the banks is now well over 50%. New Zealand is following Australia and other countries, and I predict that advisers will be writing two-thirds of bank home loans in a couple more years. While that number is changing it’s been a long, long time since we saw any significant changes to commission rates. This is all at a time when there is a cost of living crisis, and Statistics NZ reported annual wage inflation for the 12 months to March 31 came in just under 5%. If there is one sector in New Zealand which can afford to adequately reward key stakeholders, then it is banks.
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TMM 03 | 2022
ISSN 1176-2063 (Print) ISSN 2537-799X (Online)
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The Suburban Aspirer
“We have good savings and a high household income, but the housing market is extremely competitive and the banks won’t lend us enough for the type of home we deserve."
The Self-employed
“I run a successful business and have navigated all the recent challenges. I’ve come out stronger and now there are lots of opportunities I want to capitalise on.”
The International
“I’m just as at home in Australia as I am in New Zealand. Whilst I live and work in Australia, I want to buy in New Zealand and take advantage of all the benefits that has to offer.”
The Credit Impaired
“I’m on the road to recovery after some life events that set me back. I know I’m a good candidate for finance and I want to go with a reputable lender, but the banks won’t consider me.”
The Residential Property Investor
“I know the real value of an asset and I know a good investment opportunity when I see it. I’m not deterred by all the restrictions being imposed on me.”
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tmmonline.nz/news
UP FRONT | NEWS
TAP GETS THE ANSWERS WITH Q
S
mall aggregator Q Group is looking to grow by forming a joint venture with The Adviser Platform (TAP). Q Group is headed by mortgage veteran Geoff Bawden and the group has around 25 advisers. TAP is run by Ryan Edwards and has primarily been providing software and support to risk advisers. Its core proposition is that advisers can run their own FAP (Financial Advice Provider) under the new licensing regulations. Bawden says the two groups have been working together for some time but have formalised their relationship into more of a joint venture as they are both highly aligned in their thinking. Edwards says some advisers have the impression that running their own FAP is either achievable or unobtainable.
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“We take a different view. We think you can and should be running your own FAP, but you may need to invest a little bit in some services to help you achieve that.” As of mid-June, only half of all mortgage advisers had filed applications to complete the FAP programme, despite a looming deadline of next March. Edwards is worried about this as it is just three months from the cut-off date the Financial Markets Authority has suggested for advisers to get licensed by the March 2023 deadline. Q Group will have two offerings for advisers. One is for people in the group and the other will be for advisers who join via TAP. Edwards says adding mortgage aggregation to the TAP offering means the group can now service advisers on one platform working in mortgage,
life insurance, KiwiSaver and “lite” investments. He says some advisers in the bigger groups are “being pushed to the edges” and are looking for alternatives. Bawden says the offering is to help advisers. “Aggregation is not just a numbers game. It’s about adding value to an adviser’s business.” He says this offering would help sole practitioners comply with new licensing requirements. The new system will cost advisers around $200 a month.
Image: Ryan Edwards
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UP FRONT | NEWS
“We are very grateful for the continued support of Basecorp’s funding programme by investors.” Moody says his company focuses on consistency, good relationships and price competitiveness. The new funding, coupled with the competitive note pricing received across all tranches, will allow the company to offer a compelling proposition to advisers for the rest of the year. Moody says the adviser channel has been a key part of Basecorp’s growth, with a book value now above $1 billion following significant momentum in the last few years.
BASECORP PUTS MORE MONEY IN THE TILL Waikato loans firm Basecorp Finance has been busy with more capital raising this year. It raised $300 million in the latest of a series of deals, bringing the total sum in three successive capital-raising deals to $800 million.
“The support from the adviser channel has been really pleasing,” he says. The money came from Basecorp's Residential Mortgage Backed Securities (RMBS) programme. Basecorp chief financial officer John Moody says the transaction positions Basecorp strongly for continued growth through 2022, despite a slowing property market, as non-bank system growth continues to remain significantly above bank system growth. “The team is proud of this transaction, concluded during a backdrop of rising economic and geopolitical concerns.
“Advisers are an integral part of our success, and we are delighted to secure this funding to continue to support the channel.” The issuance was $300 million and notes were rated AAA to BBB across six note classes by Fitch, with the transaction arranged by Westpac and lead managed by Westpac and BNZ. Basecorp is a 25-year-old firm which started out doing vehicle financing and short-term financial advances but grew to become a major mortgage provider. ✚
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UP FRONT • PEOPLE
PEPPER GETS NEW NZ BOSS Pepper Money has appointed a new country head for New Zealand, with Michelle Sargeant heading back to Australia. Campbell Smith steps into the role. Previously he was director and country manager at LeasePlan, prior to which he worked at organisations including Turners Automotive, Westpac, and Deloitte. He has been an executive committee member of the Financial Services Federation – New Zealand’s non-bank industry body and lobby group. Pepper Money chief executive Mario Rehayem said the new appointment marked an exciting new chapter.
MASSEY MOVES FORWARD FROM AVANTI Avanti's long-serving head of distribution has decided to leave the firm. But at the age of 50, Stephen Massey says he wants to “take a break” for a month before looking round for his next challenge. Massey says he is leaving the company in good heart.
“I look forward to working with Campbell to ensure we continue to grow our presence and extend our reach in the New Zealand market.” Current national sales manage Michelle Sargeant will relocate to the Australian market following a successful four years based in Auckland. She established Pepper Money in New Zealand and returns to the Australian market to take up the role of Head of Sales Operations.
“Avanti's loan portfolio has just crossed the $2 billion dollar mark,” he said. An Avanti spokesperson said Massey was well-loved and had done a great job for the company. “He just wants to re-evaluate what he is doing with his life after 19 years, as a lot of us do.” There are also three new appointments to the Avanti property group: Michael Harrison, Julia Winterbottom and Tammy Stitt.
MORTGAGE EXPRESS GETS A NEW BUT FAMILIAR BOSS Mortgage Express has appointed a new chief executive, Sarah Johnston, following the departure of David Gopperth. Mortgage Express operates under an FAP licence held by Astute Financial. It is owned by real estate firm Harcourts.
LOAN MARKET CEO MOVES ON Loan Market chief executive Amanda Savill taken on a new role. She has been appointed chief executive of PIC Insurance Brokers, following the death of the group's founder, Mike Garner, in March this year. PIC Insurance Brokers is one of the largest New Zealand-owned insurance brokerages in the country. Having grown from a team of two at its foundation more than 30 years ago, PIC has an 80-strong team with expertise across all lines of insurance and offices nationwide.
“Sarah Johnston is the perfect choice for our Mortgage Express leadership role,” said a senior Harcourts executive, Jo Clifford. Johnston earlier worked for 18 years at Mortgage Express, and continues in her role as Astute CEO. “My role at Astute hasn’t changed. If anything, it complements the role I’ll be taking on at Mortgage Express,” said Johnston.
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FORMER WESTPAC EXEC TO HEAD UP NZHL Kiwi Group Holdings-owned NZ Home Loans has appointed a former Westpac executive as its new chief executive. Kip Hanna replaces Aaron Skilton, who left to head up Liberty and Mike Pero. Hanna has returned to New Zealand after serving as the chief executive of Westpac Fiji. Acting NZHL chair Monique Cairns says Hanna will add strength, leadership and future focus to the helm of an already high-performing leadership team. “We believe he can successfully take NZHL and its unique network of 70 locally owned businesses, servicing more than 20,000 clients right across New Zealand, into its next phase.” Hanna says he is looking forward to getting out across the country in the coming months, to meet the company’s network of business owners and teams - “as well as many clients as I can on the way around.”
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09
UP FRONT | PROPERTY NEWS
NEW ZEALAND RATED RISKIEST HOUSING MARKET New Zealand is at the top of Bloomberg’s list of riskiest housing markets – those which are vulnerable to a price crash.
“Falling house prices will erode household wealth, dent consumer confidence and potentially curb future development.
The country experienced extreme price growth over the pandemic, driving house valuations to absurd levels when looking at price-to-rent and price-to-income ratios.
“Animal spirits are typically tamed when people are faced with higher repayment costs on an asset that is losing value.
Bloomberg has spelt out the impacts of a severe house price correction:
CONSTRUCTION TO START FALLING SOON Residential construction is close to topping out – if it hasn’t already – in this housing cycle. ANZ’s latest Property Focus says there simply isn’t enough economic resource available for residential construction to grow much more, and any light at the end of the migration-and-buildingmaterials tunnel seems months away. By then, demand will likely feel different. ANZ chief economist Sharon Zollner says while the bank’s forecast is for the overall level of residential construction to remain high by historical standards, a period of contraction is on the cards. “We have pencilled in about a 6% contraction in residential investment activity over next year. Relative to previous cycles, this can be thought of as a soft landing. “However, while benign, this is a significantly weaker forecast than the
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“There are going to be house buyers who have entered the market in the past year or so who started off with
RBNZ’s May Monetary Policy Statement (MPS), and one of the reasons why the OCR will top out at just 3.5% - as opposed to the near 4% signalled by the RBNZ and the over 4% peak currently priced in by the market.” The RBNZ is looking to dampen the inflation fire down before it truly gets out of hand, and the housing market and residential construction sector will be big factors in how that’s achieved. Zollner says the bank suspects it’ll happen a bit quicker than the RBNZ expects, but it remains a question of timing. “The RBNZ will keep going until house prices fall more and construction cools significantly, as it’s a key part of getting on top of the broader inflation problem. It’s a question of when, not if.” Residential construction accounted for about 6.5% of real expenditure GDP in the year to March, and a little less than that in the production measure of GDP. Factor in sky-high building-cost inflation, and residential investment has
a mortgage rate of 2.5% and all of a sudden they are rolling off on to a mortgage rate closer to 6%. “There is going to be some pain for sure.” The country’s median dwelling price has already plunged 9.2% from the November 2021 peak with the stock of unsold homes also ballooning.
shot up to almost 9% of the economy. Residential investment is an area of the economy which tends to experience relatively outsized swings through the business cycle. When residential investment gets going, it really gets going. says Zollner. And when it stops, it can be just as dramatic. “Swings in residential construction, and the housing cycle more broadly, tend to also be associated with swings in prices.”
• The role of property as a hedge against inflation, the still-low debtservicing costs for many on fixed terms • A comfortable ability to subsidise negative cash flows with employment income in a strong labour market • Falling share prices • Negative real returns on fixed interest assets like bank deposits Meanwhile, a shift is underway in terms of those looking to buy an existing property over a new build.
INVESTORS DIGGING THEIR TOES IN Investors are in for the long haul and don’t radically change their plans, according to the latest Investment Insight survey. Turns out the popular image of property investment driven strongly by a desire to ride the price cycle, or buy and flick, is not currently backed up by investors’ expressed aims. About 65% of survey respondents say they are in property long-term.
Created by independent economist Tony Alexander and property management company Crockers, the investor survey has been running since June last year. In the latest results, investors’ buying intentions are not trending anywhere in particular; neither are their plans for selling. Although the percentage of respondents planning to sell has lifted to 24% from 20% in April and March, there is no true drift up or down. The continuing reluctance to sell is due to a number of factors, including: • The continuing upward movement in rents
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A record 56% of those looking to buy say they will opt for an existing dwelling - up from a low of 44% in November. Tony Alexander says there is also a rise in demand for existing apartments. “Maybe this is being driven by expectations of returning tourists and students – at least for Auckland’s CBD.” Alexander says the decline in property investors interested in undertaking their own developments is also clear. “Franky, in light of the worsening availability of key building materials such as plasterboard, rising costs, and labour issues, it is perhaps surprising 17% of investors still show a preference for doing their own projects.” ✚
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011
UP FRONT | REGULATION
Advisers dance the regulation tango As new pieces of legislation jostle up against each other, advisers may find the banks peering over their shoulders. BY ERIC FRYKBERG
A
dvisers watching one law in partial retreat are seeing another one steadily advance. The retreating law is the Credit Contracts and Consumer Finance Act (CCCFA), which has had two extreme elements removed and awaits further reform. The advancing law is the Financial Markets (Conduct of Institutions) Amendment Bill (COFI), which passed its third reading in Parliament in June, three years after it was introduced. This law requires banks, insurers and non-bank deposit takers to be licensed by the Financial Markets Authority (FMA) in relation to their general conduct. The extent that this affects advisers is unclear. Initially, the COFI law would have treated advisers as though they were virtual employees, not intermediaries, of financial institutions. This would have blurred the distinction
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between employees and contractors, and could have expensively replicated the Financial Services Legislation Amendment Act (FSLAA) which set up the FAP licensing programme. The dangers of an obvious legislative double-up were averted when part of the COFI bill was dropped, following an outcry, and a softer version emerged to make the final reading in parliament. But in the end, FSLAA and COFI experienced a separation rather than a divorce, leaving financial institutions still with some responsibility for intermediaries. The unanswered question is: how much?
Banks looking over your shoulder The answer seems to be that advisers will not have to take much direct control, but they will still have to put up with a lot of indirect control. In the words of
one insider, financial institutions such as banks will be “looking over the shoulder” of intermediaries such as advisers. There is already a mass of ethical control on advisers, from the FAP regime, to the CCCFA, to advisers' own ethical and professional principles. But the banks want more. Since they must comply with COFI, they want to make sure people who advance their products for them do the same. Just how to achieve that is the problem. “As usual, the devil will be in the detail,” says the chief executive of the Bankers Association, Roger Beaumont. The association stands by its view that there was no evidence of systemic abuse in the banking industry before the law was even considered. But it accepts the reality that the COFI law is now on the statute books, and that regulations will be developed to put it into effect. “We look forward to working with the FMA and the Ministry of Business Innovation and Employment (MBIE) on the new regulations and processes,” says Beaumont. “Banks take compliance with regulatory obligations very seriously, and will want to help make the new requirements as workable as possible. “Getting it right is in the best interests of everyone involved, as we’ve seen recently with the new consumer-lending rules.”
Time to get the details right There is plenty of time to get this right. Even though the COFI law dates back to 2019, applications for a good-conduct licence will not open until next year and the whole scheme will not be in operation until 2025. But the chief executive of Financial Advice New Zealand, Katrina Shanks, says talks to sort out the details with other stakeholders and state agencies have already begun. “We have got one meeting a week for the next so many weeks.” Shanks says there’s a strong sense of relief that the worst of COFI has been Image: Samantha Barrass
averted for advisers. The job now is to make the amended-but-still-forceful law work as well as possible for everyone. “I think it is a matter of working with the product providers, through the FMA guidance workshops, to understand the roles and responsibilities under the new regime,” Shanks says. “Areas that get talked about all the time are areas like, ‘Who should be communicating with the client - the product provider or the adviser?’ “These things aren't black and white in the world we live in.”
Fraught relationship dynamics Shanks is also having to deal with the relationship between FSLAA and COFI, who might be separated but still live in close proximity. Further insight into managing this fraught relationship was provided to the Financial Services Council (FSC) by the FMA's director of banking and insurance, Clare Bolingford. While praising the economic importance of intermediaries like advisers, she called attention to deficiencies in the way the system worked. In a speech, she said the “market dynamic” did not always “facilitate fair treatment.” There had to be a “shared responsibility” by both groups to ensure customers were treated fairly. However, that should not compromise the independence of the two parties involved: advisers and providers. Bolingford, who made clear she is a big fan of COFI, admitted there was a great need for clarity on what the law would require. She “absolutely” wanted to avoid “unintended and unnecessary consequences, especially if they add cost and burden to the industry without obvious benefit to the customer”. Discussion across the industry would be undertaken to avoid that.
Bouquets and brickbats Shanks is also having to deal with the relationship between FSLAA and COFI, who might be separated but still live in close proximity. Further insight into managing this fraught relationship was provided to the Financial Services Council (FSC) by the FMA's director of banking and insurance, Clare Bolingford. While praising the economic importance of intermediaries like advisers, she called attention to deficiencies in the way the system worked. In a speech, she said the “market dynamic” did not always “facilitate fair treatment.” There had to be a “shared responsibility” by both groups to ensure customers were treated fairly. However, that should not compromise the independence of the two parties involved: advisers and providers. Bolingford, who made clear she is a big fan of COFI, admitted there was a great need for clarity on what the law would require. She “absolutely” wanted to avoid “unintended and unnecessary consequences, especially if they add cost and burden to the industry without obvious benefit to the customer”. Discussion across the industry would be undertaken to avoid that. Bouquets and brickbats When the COFI law was passed, it was praised by its driving minister, David Clark. The new legislation would make sure that financial institutions put customers before profits, said Clark, who is the Minister of Commerce and Consumer Affairs. “This work comes at an important time, as the Government supports Kiwis through the current cost-of-living crisis,” he said. “It will help to ensure they’re not unknowingly paying for services they do not need, or taking on debt they cannot afford.”
‘The intention is that this law will drive positive industry behaviour-change, to ensure the fair treatment of consumers.’ Samantha Barrass
But the National Party declared COFI a solution looking for a problem. There had been no systemic conduct which needed fixing, MPs said, and isolated cases of it were easily able to be dealt with by existing law on fraud. Nevertheless, the law passed with support from Labour, the Greens and Te Pati Maori. The FMA is meanwhile getting on with the job of sorting out a law it likes and wants to make work. FMA chief executive Samantha Barrass points to what she says are positive aspects of the law. “The new conduct regime is outcomesfocused, with requirements that are intended to be flexible and nonprescriptive. “It is not a rules-based regime that prescribes how outcomes must be achieved,” she says. “The intention is that this law will drive positive industry behaviour-change, to ensure the fair treatment of consumers.” Barrass argues the law is flexible and workable. “The new law applies to a range of financial institutions and needs to be workable across a diverse range of business models,” she says. “The FMA expects firms to avoid a tickbox compliance approach and to adopt good practice to achieve good conduct risk-management and fair consumer treatment and outcomes.” ✚
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013
FEATURES | HOUSING COMMENTARY
Roller-coaster ride Sally Lindsay covers the ups and downs of the housing market, as sales plummet but prices defy expectations.
T
he number of houses being sold across Auckland has fallen dramatically to levels not seen since 2010, when the country was technically in a recession after the global financial crisis. However, the median price defied expectations in June, increasing by 2% on prices for May, Barfoot & Thompson’s latest statistics show. Just 684 properties were sold last month, down 12.5% on May sales and 45% down on the same month last year. Sales of properties for the month were the lowest they have been in a June month since 2010. Barfoot & Thompson’s managing director, Peter Thompson, says the impact is being felt most in the number of sales being made – as in 2010. “Rather than accept the prices on offer, some homeowners are removing their homes from the market. This effect can be seen in the number of properties for sale at month end.” Although Barfoot & Thompson, Auckland’s biggest real estate agency, listed 1,255 new properties during June, more than double the number it sold, total listings at month end had fallen by 0.5% on the previous month to 4,676.
Median price-rise unexpected Thompson says nobody saw the modest increase in prices coming. The $1,147,500 median price stopped a three-month decline in the median price and was 3.5% higher than the median price in June last year. The average price, at $1,158,464, did drop on that for May, by 2.6%, but it also remained higher than the average price for June last year by 1.3%. Rather than seeing the median price increase as a low-water mark, it is more likely to be a statistical blip that can occur when comparing statistics on a month-by-month basis, says Thompson. “It was not caused by any significant shift in the numbers of homes being sold in various price brackets, with the sales numbers in the $2 million and $3 million price segments remaining constant with the lower priced categories. “It does signal house prices are not in full retreat, and are moving back 014
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gradually, as vendors recognise that if they want to sell, they need to have some flexibility as to price expectations.”
Rental supply spikes while demand dwindles A big turnaround has hit the previously buoyant residential-rental market. Across the country the number of properties listed for rent surged 12% to an all-time high year-on-year in May, according to Trade Me’s latest rental price index, but demand fell 8%. There were significant regional differences in the figures. Wellington’s listings lifted 45%, followed by Marlborough 24%, Auckland 16% and Manawatu/Whanganui 5%. However, listings in Northland, Waikato, Hawke's Bay, Taranaki, NelsonTasman, Otago and Southland dropped compared to a year ago, while there was no change in Canterbury. All regions apart from Canterbury and Southland had a drop in demand from prospective tenants, with the biggest declines in Nelson/Tasman, down 28%, Northland 19%, and Taranaki 15%. Southland, up 8% and Canterbury, up 21%, were the only regions to see demand for rentals climb when compared with May last year. The rental market is mirroring the property-for-sale market in May, with nationwide supply up 48% year-on-year, while buyer demand dropped by 9%.
Rents drop for the first time this year In May, the national-median-weekly rent fell by 1%, when compared with April, to $575. This marks the first month-on-month drop this year, and is $5 less than the all-
time-high national-median-weekly rent recorded in April. However, when compared to the same month last year, May’s median weekly rent marks a 7% rise. Waikato was the only spot to see a new all-time high median weekly rent in May, reaching $525. The biggest yearon-year rises were in Taranaki, up 16%, Northland, and Southland (both up 11%). Trade Me sales director Gavin Lloyd says if the pattern continues, rents may tumble as landlords scramble to fill their rentals in a less competitive market.
Building consents still high Despite the number of property-for-sale listings swelling and demand dwindling, the number of consents issued for new dwellings eased just 0.5% in May. Just over 51,000 new houses were consented in the 12 months to the end of May, Statistics New Zealand figures show. This was up 17.3% compared to the 12 months to the end of May last year. Most of the growth in building consents came from townhouses and units, with numbers up by 47.7% in the year to May while growth in stand-alone houses was at 2.1% for the year. The total value of all building work consented in the year to May was $31.4 billion, up 19.5% on the previous 12 months. Of that, new houses accounted for $20 billion, up 23.6%, structural alteration work to residential buildings another $2.5 billion, up 15.1%, and commercial and industrial building work another $8.9 billion, up 12.3%. Westpac senior economist Satish Ranchhod says while the number of new houses being consented has charged
‘Materials and labour are in short supply, and the costs for builders - including financing - have skyrocketed. That’s squeezing operating margins for many firms, especially for many smaller operators’ Satish Ranchhod
‘In dollar terms, the largest drop in the last three months has been in Auckland’s Point Chevalier, where the median value fell $104,400’ Kelvin Davidson
higher in recent years, actual building activity has risen more gradually. “That means residential construction activity is set to remain strong for some time yet. However, conditions in the construction sector are changing, and the peak in the cycle is coming into clearer focus,” he says. First of all, says Ranchhod, the issue of monthly consents has been running at about existing levels for about a year now. Next, net migration has plummeted, and is set to remain low for some time, as many young New Zealanders who delayed travel during the pandemic are now moving abroad. “The combination of a downturn in population growth at the same time as a surge in home-building means the shortages that developed in recent years are now being rapidly eroded. “Even allowing for a gradual lift in migration over the coming years, consent issuance is now running well ahead of what’s needed to keep up with population changes.” Finally, says Ranchhod, the economic incentives for developers are looking different. House prices are declining and the economic outlook has become more uncertain. “At the same time, materials and labour are in short supply, and the costs for builders - including financing - have skyrocketed. That’s squeezing operating margins for many firms, especially for many smaller operators.”
House prices fall in 486 suburbs but rise in 300 Despite the widespread fall in house prices across the country, some suburbs are bucking the trend and rising. The suburbs which still have rising prices of 5% or more tend to be in smaller areas, including parts of Waikato District, Far North, Southland District and Central Otago District, but also a handful in main centres: Berescourt
Image: Kelvin Davidson
and Baverstock in Hamilton, Wiri in Auckland, as well as Luggate in Queenstown Lakes District. CoreLogic’s interactive Mapping the Market tool, updated quarterly, shows just under 300 suburbs had values increase by at least 1% since March, with 23 having gains of more than 5%. However, the market downturn has become widespread, with 486 suburbs recording a fall in prices over the past three months, almost double the 246 suburbs that fell in value in the preceding three-month period. CoreLogic chief property economist Kelvin Davidson says the signs of weakness are clear: just over half (51%) of all suburbs have now entered a downswing. “In dollar terms, the largest drop in the last three months has been in Auckland’s Point Chevalier, where the median value fell $104,400, a 4.6% fall,” says Davidson. He says CoreLogic will have a clearer picture of which suburbs have been impacted the most in the coming months.
“What is clear is that value falls are now fairly broad-based, both geographically and by value band/tier.”
Further to fall Meanwhile, independent economist Tony Alexander says the country is about halfway through the market tanking, and prices could fall by about 15% below their November peak. He says prices might hit the bottom before the middle of next year, but the timing will vary from region to region. Alexander says vendors are increasingly willing to negotiate and accept contract conditions, so now is a good time to buy - unless purchasers let fear of over-paying (FOOP) muddle their thinking. The main winners in this market, he says, will be investors and cashed-up buyers. Many other purchasers will not be able to get finance because of rising interest rates and the tighter lending rules from the changes to the CCCFA changes. ✚ www.tmmonline.nz
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Cracking the Bank of Mum and Dad It’s natural for parents to want to help their children onto the housing ladder, especially in tough times, but the “Bank of Mum and Dad” can be a minefield – with potential for explosion even decades down the track. BY ERIC FRYKBERG
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‘When a purchaser says, “Mum and Dad have given me this money; the banks think it's a gift but it's actually a loan and we are not going to tell the bank”… I don’t go there’ Kate Chivers
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Parents paying billions The scale of assistance from Mum and Dad is huge. A Consumer NZ survey in April found parents had advanced $22.6 billion to help their children buy a house. The survey found 14% of parents, or around 210,000 people, had assisted their children, making an average contribution of $108,000. Consumer NZ noted that if these figures were analysed carefully, the Bank of Mum and Dad would be New Zealand's fifth biggest owner-occupier lender – coming in after ANZ, ASB, Westpac and BNZ, but ahead of Kiwibank and TSB. The money is usually made available because many young couples find the step from renting to home ownership too steep, and the only way to scrape over the mortgage threshold is to get help from parents. Social critics have long called such loans a failure of social justice, saying home ownership should be available
Image: Kate Chivers
he Bank of Mum and Dad has become increasingly indispensable for clients – and their advisers - trying to get a first-home loan over the threshold. One adviser says he does deals “every day” which need assistance from the parents of young, would-be home owners. Without that help, not enough money can be found to buy even a modest starter home. But getting Mum and Dad to help with housing for the kids is not a straightforward process. It can lead to disputes and litigation, and even an unexpected bill from Inland Revenue, and it requires advisers to act with the greatest care. to everyone - not just those with wealthy, or at least comfortable, parents. But like it or lump it, the Bank of Mum and Dad has become as essential as water in the desert. Edge Mortgages principal Glen McLeod says he puts together deals every day in which the parents “have had to step in in some way, shape or form.” The scale of this assistance is so great that Financial Advice NZ has offered its members some useful tips. The organisation hired a long-standing property lawyer, Kate Chivers of the Takapuna law firm Turner Hopkins, to speak to members via a webinar. Chivers warned advisers that using the Bank of Mum and Dad was risky and should be undertaken with care. To illustrate her point, she said the Bank of Mum and Dad had generated 180 court cases between 2000 and 2020. Perhaps 10 times that number involved unhappy parents or children holding meetings in lawyers' offices, leading to out-of-court settlements.
Gift or loan? Most Bank-of-Mum-and-Dad legal proceedings involved a dispute as to whether the money advanced was a gift or a loan. “The starting point for the law is the Principle of Advancement,” said Chivers. “That means that if the parent gives a child money, it's a gift - unless there is evidence to the contrary.” Chivers argued many parents were happy to help their children without precise legal documentation when they were still financially comfortable themselves. But years, or even decades later, when they were finding it hard to live on the NZ Superannuation, they often wanted the money back. At that point, the children, who might still be financially pressed themselves, maintained the money was given as a gift and did not need to be paid back. It was this argument which led to either parents, or children, or both, bringing in the lawyers. www.tmmonline.nz
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LEAD Chivers cited a well-reported case where a couple advanced their daughter $367,000 and went to court to get the money back after they were reduced to trying to scrape by on the pension. In the end, the parents won their case but at a cost of splintered family relationships. “They are a broken family because this loan was not documented right,” she said. In another case, parents lent their daughter $330,000 which she declined to repay, claiming the debt had been forgiven. The High Court rejected this argument, but again the family relationship was left in tatters.
two cents in, since at the end of the day it’s their inheritance they want to protect.” Factors like this could push a financial dispute between elderly parents and their children completely out of control.
Banks need clarity
The way to avoid trouble when using the Bank of Mum and Dad is to use formal documentation from the get-go – and to structure the arrangement with care. Glen McLeod says one way to avoid issues is to not advance the money as a gift, but to get a Deed of Acknowledgement of Debt. This is a special sort of loan which has many advantages. “There is no interest; there are no fixed repayment terms. It is done on the basis that the Deed of Acknowledgement of Debt is paid back if the property is sold in the future.” The money is also kept separate from the value of the family property, so is not subject to the Property Relationship Act. This means any funds advanced by parents will be preserved, not halved, in the event of divorce or separation – and the money remains in the family. According to Kate Chivers, the passage of time was one reason why well-meaning offers of help from parents could turn into a nightmare of twisted or even shattered family relationships. “Over a course of 20 years, people's situations change. People's memories change. People's recollections about what was agreed change,” she explained during the webinar. “Sometimes there are 20 to 30 years between the initial advance and the [parents’] attempt to recover the money, so documenting the original decision is vital.”
Chivers also raised another issue: the attitude of banks towards financial advancements from Mum and Dad. If the money from Mum and Dad were a loan, it could potentially complicate financial obligations later on, because it would add to the list of securities on a house. In practice, banks insist on having a first mortgage wherever possible, meaning all repayments to parents come later, after the bank’s own money is paid back. Chivers confirmed this, but also stressed the need for total clarity on the matter. “The banks generally want to see that if [money from Mum and Dad] is going to be a loan, then it’s a loan that is not repayable until the property is sold, with no rights of security on that Deed of Acknowledgement of Debt. “Of course, the banks would prefer the money to be a gift.” Chivers said the problem of competing securities sometimes led to what she openly termed “dodgy” dealings. She said there were cases where a family had agreed to do whatever the bank asked to get the money secured but this was then followed by a “secret handshake” behind the scenes, where the family privately agreed the money was definitely being provided as a loan. “The problem I have as a lawyer is that when I do documents for a purchase… I have an obligation to tell the banks of any dodgy dealings. “So when a purchaser says, ‘Mum and Dad have given me this money; the banks think it's a gift but it's actually a loan and we are not going to tell the bank’, I am totally in a position of conflict. “If I allow that to go ahead, and the bank finds out about it, then I am in breach, and if the banks make a loss, they could sue me. “So I don't go there.”
New family members problematic
The sibling rivalry factor
Newcomers could be problematic, said Chivers: new family members who were not around at the time of the original financial advancement. This could happen after divorce and remarriage, and might introduce not just new partners but new dependent children to the list of people with concerns or interests in a property. “You’ve sometimes got external family members, not part of the original agreement, who also want to get their
The need for inter-sibling equity was another reason for caution when dealing with – or operating as – the Bank of Mum and Dad, said Chivers. If parents were advancing the money to one child, there was a need to make sure all siblings were being treated equally and fairly. If not, there had to be a good explanation. “If little Johnny gets some money and Sarah and Tom don't know about it, and then I pop off the face of the earth, and Sarah and Tom find out that Johnny got
Formal documentation essential
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$200,000 and they’re now getting the family china – how is that fair? “That could then end up in court as a different case.” This would not affect just families, but also family trusts. Trusts were often intended to protect inter-generational wealth, but, if Johnny got some money through the Bank of Mum and Dad and the others didn't, fairness and trust could be diminished. Chivers said copying as many people as possible into any discussions about the loan and the purchases, throughout the negotiating period, minimised the risks of important information being “lost in translation”. “If we are all communicating together, we are able to mitigate risks from the outset.”
Tax woes If all this were not enough potential hassle for parents, children and their advisers, there’s always the ever-vigilant IRD looming in the background, alert and attentive. Glen McLeod says Inland Revenue can become a threat if ‘old school solicitors” insist that Mum and Dad put their name on the title deed for the property – something which can cause a whole series of issues. “If you come on the title because you put money into it, there’s an issue with the Bright Line Test. “That’s because if you are coming off the title and the children have to pay you out a portion (of the value), that is seen as an investment,” says McLeod. “I’ve got clients at the moment who have been given accounting advice to put money into their son's property and to put their names on the title document. “They were told that any change to the title of the property means that the property itself is now subject to the Bright Line Test, which affects the property of the son going forward. “You have to be very careful about what you do with titles, because it can cause a tax issue.” If that were not enough, having Mum and Dad's name on the title could make them jointly and severally liable for any debts on the property. None of these problems looks likely to disappear. While it’s true that house prices have fallen in the past few months, they remain historically high. And recent rises in interest rates look set to cancel out any gains from lower purchase prices. The Bank of Mum and Dad is therefore unlikely to disappear from the market any time soon, because son and daughter will remain renters without parental help. Doing things the right way, however, can mitigate the risks. ✚
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Pass the tissues As the dream of buying a house floats further out of reach, mortgage advisers are increasingly needing to act as counsellors for desperate clients. BY ERIC FRYKBERG
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Image: Elyce Peters
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ortgage advisers are finding they have to 'get out the hanky' for disappointed clients, far more often than in previous times. The tears are partly because advisers sometimes have to send would-be home owners back to the starting line after recalibrating their loan application to fit the Credit Contracts and Consumer Finance Act (CCCFA). But the new legislation comes on top of pre-existing problems, like years of runaway housing inflation outstripping the ability of young people to save for a deposit.
Advisers often first port of call The problem is becoming more apparent as increasing numbers of home buyers use brokers as their first port of call. One bank revealed late last year that 46% of its new business came from advisers, up from 42% the previous year and 40% the year before that. Banks are progressively shutting down their branches, believing rents, rates and insurance for actual buildings can cost more than paying a finder’s fee to a broker. The consequence? As the new frontline for would-be house buyers, mortgage advisers have to deal with disappointed people all the time. Glen McLeod, of Edge Mortgages, says he keeps a box of tissues in his office. “It is an emotional thing for my clients when they are trying to get a home loan. It is hard for them.” McLeod says giving care and attention towards a client has always been a requirement, but the problem has been intensified by the CCCFA. “In my job, I am more of a financial adviser, not a mortgage broker. I am there to assist people with getting into their first home, or following a dream.” The ‘dream’ aspect is part of the problem. Buying a home is not like buying the groceries; for many young people, it is an aspiration and a passion. “I want a home for my children,” one young woman lamented. “I’m like a bird wanting a nest for its chicks.” But a nest can be priced like a palace these days. And rents are so high that it is hard for many young people to save for a deposit.
‘I’ remember sitting with a client and being nearly in tears as well, listening to what she had been going through’
More TLC required Rupert Gough, from The Mortgage Lab, says loan applicants who come into his office are having to be nurtured far more than previously. Thanks to the CCCFA rules, only about 20% of applicants for a mortgage get approval within six months, compared with 50% to 60% previously - and advisers need to work hard on their behalf. “There is bad news being presented on a monthly basis. “But for us, the task is to provide loan applicants with a solution, rather than just telling them they can't do it. “We put them on a bit of an education programme so they can work towards getting a mortgage.” This means mortgage brokers can sometimes be forced to act as counsellors for unhappy people – not simply hard-boiled money merchants counting the change. Gough and McLeod are not the only brokers to experience increasing levels of customer emotion. Another is Elyce Peters, of Christchurch's all-women firm, The Mortgage Girls. “The number of times I have had clients in tears would be too many to count,” says Peters. “We’re dealing with people's hopes, dreams and fears.
Elyce Peters
it; we’re doing it for the benefit of the client. “We aren't the hard-boiled moneymen. We are there to help the client find a path; and sometimes, finding that path means we have to give out some hard truths.”
Personal problems add to the mix High house prices, limits on high LVR loans, and the Byzantine rules of the CCCFA are often further compounded by clients’ personal troubles. Elyce Peters says would-be home buyers are often not the authors of the problems which shatter their dreams, but still have to suffer as the goal of owning a home disappears over the horizon. And it’s not just first-time home buyers who are suffering, she says. In some cases, harsh lending rules could thwart efforts by a person who had lost a family member and wanted to buy out the other siblings. Other victims have included survivors of a hostile divorce, in the throes of life falling apart, who faced losing the home they’d lived in for years. “I remember sitting with a client and being nearly in tears as well, listening to what she had been going through.”
‘Mortgage advisers are increasingly forced to act as counsellors for unhappy people – no longer simply hard-boiled money merchants counting the change’ Eric Frykberg
“It's about giving them a few pep talks, helping them keep on track to achieve their dreams, and helping to support them when things aren't going right. Glen McLeod says “Sorry, you can’t do that” needs to be followed up with advice – a responsibility which falls increasingly on brokers’ shoulders, because banks themselves do not give advice. “We can't just say yes or no to a loan like the banks do. We are always giving advice. We have to. We can't opt out of
The cost for ordinary people
Glen McLeod cites an example of how costly all this can be to ordinary people. “I had a case a few months ago where I gained approval for a loan of just on $1 million. “We came to do the rollover after December 1, but because it hadn't been done under the CCCFA we had to make a new application and follow the CCCFA rules. “We then got an updated approval for $530,000. The people were completely crushed.” McLeod blames the halving of his client's loan on that old CCCFA bugbear: everyday consumer spending turning up as part of a client's outgoings.
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Another case appeared to defy logic. “I’ve just spoken to a client who wanted to buy a property at $1.2 million and had $800,000 of deposit, and I had to say, 'You can't buy at $1.2 million, you can only buy at $1 million'. “The affordability rules did not allow the client to do it at $1.2 million.” Problems like these led to a chorus of complaints which forced the Government to review the CCCFA when it was little more than a month old. A first tranche of changes was announced in March. The amendments included removing consumer spending, such as cups of coffee, from a list of would-be borrowers' pre-loan expenses, as long as robust financial data from other sources was available. Savings or investment payments would also be removed from a person's list of expenses. Soon after these changes were announced, the Ministry of Business, Innovation and Employment (MBIE) indicated the changes would be in place by June. Many brokers have said those proposed changes didn’t go far enough and were too slow in coming.
House-buying is hard work In the meantime, house-buying remains hard work for both customer and broker, according to another financial practitioner, Geoff Bawden of the Q Adviser Group. Bawden stops short of citing the same level of client emotion, but has plenty of objections to the current regime all the same, saying it imposes costs and difficulties on ordinary people who are simply trying to live their lives. “I’ve lost count of the number of times I have heard people in the compliance
‘We aren't the hardboiled money-men. We are there to help the client find a path’ Glen McLeod
arena tell me that the cost of compliance to the adviser is not their problem,” Bawden wrote on Linked In. “Well, wake up and smell the roses – it is. The New Zealand market is made up of a host of sole practitioners, the bulk of whom have always given very honest and sound advice to their clients. “You make it so expensive that it no longer becomes viable for them to operate and they will leave the industry. That is not in the consumer’s best interests!” Interviewed later, Bawden says he has issues with the practicality of some changes - particularly around the CCCFA, but not only so. “Every time there is a legislative change, the banks bring in a host of new forms and expectations. “And I have a huge issue around the fact that there has been a total disregard by everyone associated with the regulatory regime about the actual cost of what has been imposed. “Almost all advisers in New Zealand are sole practitioners. They might belong to a group but they are still selfemployed business people. They still have to absorb their own expenses, and those expenses continue to escalate, with no sign of backing off.”
Worse for clients than advisers Yet the problem is worse for clients than for their advisers. Bawden cites a practical example: “I spoke to an existing client of mine just the other day, financially very strong, with a secure employment position, and a huge amount of equity in the home. “This client was planning a self-build, and knew they were going to be put through the mill. But it got to the point where they said it was too hard.
‘We just won't do it.’” How does Bawden deal with the disappointment which crosses his path? “You've got to be transparent; you've got to tell them what's involved; you've got to tell them, ‘This is the process we will need to follow through to the end’. “Buying houses is an emotional decision. I’ve never had to have a box of tissues, but you do have to have a very honest and open communication with your client. “It is really hard when you are looking at an existing client who has had an exemplary history with the bank, who has had borrowings before and never missed a payment, and yet you know they are going to get absolutely grilled on everything they have spent.”
More pressure to come The full range of CCCFA reforms are still in a state of flux. Meanwhile, a five-year housing boom is levelling off and prices are set to fall in many places. While that will ease the pressure for some, it will be offset for many by higher interest rates, which could make life even harder for brokers and buyers than it is now. In the meantime, Elyce Peters says there is risk of the number of mortgagee sales increasing from its recent low level. She fears that could only add to the pressures associated with the traditional dream – owning the house you live in rather than paying rent – as it seems to drift even further out of reach. ✚
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KiwiSaver
KiwiSaver and creating clients for life Rupert Carlyon, Founder and Managing Director, koura
Nearing Retirement
So, the markets are not pretty right now. To date, 2022 has been a hotbed of volatility and dip after dip, driving concern – understandably – amongst the KiwiSaver member population. And just as in March 2020 when the markets skipped a beat and we saw that short-lived Covid dip, this round of market volatility has highlighted once again that Kiwis need someone to call on, to thrash out their KiwiSaver concerns. Kiwis (in the main) just aren’t wellenough informed about how KiwiSaver (and inv1esting) works. They’ve enrolled in KiwiSaver, often through the bank, and then tend to put it in the ‘set-and-forget file’. That is, until markets goes south. And I say that not at a dig at the banks – it’s a simple case of supply and demand. There are three million KiwiSaver members, and currently, not enough human- intervention to go around.
Shifting the needle While we’re a long way from claiming that we have a mature- KiwiSaver investor base in New Zealand, the past two and bit years is changing that. During the Covid dip and again this year, the “stay calm, don’t crystalise losses, it’s about the long term” message has been getting some good air time and getting through – at least in part. And of course, the markets in 2022 have done a swift job of putting a good- sized dent in KiwiSaver-apathy (for now). 024
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KiwiSaver
Building Wealth
Divorce / Separation Starting a family
So what does this mean for mortgage and insurance advisers? It might feel contrary to instincts given the current market upheaval, but now, while KiwiSaver has the public’s attention, is the time to get involved and explore how KiwiSaver can play a valuable role in creating clients for life, for your advice business. There are options for advisers who don’t carry an Investment licence or Level 5 Investment qualification, the koura digital advice and facilitator model is of course one. But I’ll leave you to explore those on your own time. Here I’d like to focus on the role of KiwiSaver in creating clients for life, and how it can reinforce an adviser’s position as the go-to finance professional.
Creating clients for life You’d be hard pressed to find another financial product that has relevance throughout an entire lifetime, and that three million Kiwis are currently enrolled in. Starting work, getting married, buying a home, starting a family, building wealth, getting divorced, losing a partner, starting a business, nearing retirement, living retirement...the list of life stages and events goes on. And for each and every one of them, there is a KiwiSaver conversation that’s needed, and an opportunity to deepen your client relationship, and identify and assist with new mortgage and/or insurance needs. Here's a quick summary of just some of the life stages and events where KiwiSaver can open the opportunity for conversation (and more). It’s is by no means exhaustive – but rather some food for thought about the potential of KiwiSaver in your client relationships, and for building your advice business.
kōura Wealth Facilitator Model For mortgage and insurance advisers
Starting out
Starting a business
Starting a family Scenario: First child on the way > KiwiSaver considerations
Starting out Scenario: Starting work for the first time > the first steps in the ‘financial life’ begin. KiwiSaver conversation and adviser opportunity: Create a trusted relationship for the financial needs that your client will have through life – their mortgage needs, and / or protection plan. Whether there is a need right now, or a little further down the track, KiwiSaver is your early opportunity to be the adviser of choice.
KiwiSaver conversation and adviser opportunity: A big life event with important KiwiSaver considerations, like: How will the couple approach contributions – if one partner takes time off work, is there a conversation needed about how that will impact retirement savings? Plus, the arguments for and against setting up KiwiSaver for the kids, and how to do it. Once again, KiwiSaver provides a timely opportunity to show your value as adviser, and to connect with clients about their needs and plans.
Building wealth First home Scenario: Getting home loan ready > Deposit preparation.
Scenario: Ongoing > KiwiSaver check in
Marriage/partnership
KiwiSaver conversation and adviser opportunity: Think of KiwiSaver as that additional, and important, reason to be in touch with clients, on an ongoing basis. In addition to the fixed rate, home health check and/or insurance review conversations, checking in with clients about their KiwiSaver plan reinforces your role as their go-to finance professional - the first person they call who either assists where scope of advice is relevant, or facilitates the introduction to the appropriate professional / service they need.
Scenario: Starting a life with someone > Estate Planning
Elevation
KiwiSaver conversation and adviser opportunity: Reinforce your position as the go-to finance professional. Has your client considered KiwiSaver in their Estate Planning? If they haven’t considered Estate Planning, period, who can you introduce them to? A conversation starter that becomes an opportunity to talk about future plans for the couple (and more).
So, in a nutshell, if you’re looking for ways to elevate your client relationships from ‘product’ (i.e., mortgage) focused, to a professional services relationship with clients-for-life, KiwiSaver is well worth exploring. And let’s face it, as the past two and a bit years has well and truly highlighted, Kiwis could definitely benefit from more advisers taking up the challenge.
KiwiSaver conversation and adviser opportunity: Use KiwiSaver to start the first- mortgage conversation early, to build your first-home-buyer funnel: Help clients check that their KiwiSaver settings are appropriate if they’re planning to use KiwiSaver for their home loan deposit.
How it works 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, and 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 (providing the process has been followed in line with the training provided).
The role of the Facilitator • 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 are planning for.
Like more information? Scan the code. ✚
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FEATURES | SPONSORED CONTENT
How to help customers succeed with alternative lending Pepper Money shares how financial advisers can help their customer after a real life event. Meet Jenny A single mum with two kids aged 12 and 13. The breakdown of Jenny’s marriage had led to financial difficulties and a history of defaults within the last 24 months. Having held a steady job as a manager at a bank, Jenny was able to maintain clean credit over the past year. Wanting to stay in the family home with the kids, Jenny needed a loan to buy her ex-husbands share of the home. Jenny had no previous mortgage or rental history. However, Jenny’s father had gifted them the equity when they first purchased it, so her ex agreed to sell her the house at 80% of the current value. With her family support benefit and her income, Jenny had sufficient income to afford the mortgage repayments. However, traditional lenders would not accept her child support and family tax benefit payments, which were needed to service the loan. Jenny approached a financial adviser for help, and after having her
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requirements assessed it became clear that a range of specialist lenders should be offered to Jenny. After the adviser presented her with a couple of options, Jenny chose to apply for a Pepper Money home loan.
Real life approach After reviewing Jenny’s situation, Pepper Money was able to offer her a Pepper Money Specialist loan. While she experienced a real life event that impacted her credit history, Jenny had turned her life around, held a steady job and maintained a clean credit record for over a year. Pepper Money was willing to accept her family support benefit as income - even though her kids were above the age of 11. Jenny also had enough money coming in to comfortably afford the loan she was after (an 80% LVR loan on the property, which was valued at $480,000). With her adviser’s help and the funds from Pepper Money, Jenny and the kids were able to stay in the family home.
Alternative options with Pepper Money In real life, an alternative home loan might be an option for your clients for a number of reasons: they may be recently self-employed, have a past bankruptcy, have non-traditional income, or be behind in bill repayments. However, these outcomes are just a part of their story - real life happening to everyday Kiwis who are capable of moving forward. That’s why at Pepper Money, we take a real life view of their situation. We look at a wide range of factors when assessing a home loan application and it’s a person who does the work. To help get a better understanding, a Pepper Money credit assessor will ask questions to get a more detailed and informed view, before they start making decisions. Common things we can assist with include:
General purpose
• LVRs up to 80% for loans up to $2,000,000) • Loan amounts up to $2.5m (Up to 65% LVR) • Unlimited cash out for business use or IRD debt payouts
Income from various sources
• Alternative income verification available within 6 months NZBN registration • Child Support Payments and Family payments such as Family Working Form payment
Missed repayments
• Overdue or overdrawn credit cards/unsecured debts • One missed repayment on mortgage facility
Adverse credit
• Up to six months non-mortgage arrears • Up to 1 month mortgage arrears (within last 6 months) • Unlimited defaults, judgements and writs >$1,000, registered > 12 months (paid or unpaid) • Discharged bankruptcy (1 day)
Debt consolidation
• Consolidate unlimited number of debts • Payout of IRD debt • Pay out private or solicitor debts
Introducing an alternative option to a client • Step one: Exploring the client’s financial needs Whether they have adverse credit history or non-standard income – Pepper Money knows real life happens, and sometimes a client's individual circumstance can impact their ability to get the loan they need to achieve their goals. The client interview is the ideal opportunity for you to uncover their full story, and better understand their needs and goals, now and in the future. • Step two: Finding a loan option Once you have addressed the key parts of your research, you can move on to finding potential loan solutions. With the client’s written consent, Pepper Product Selector can quickly and easily help you understand if a Pepper Money loan is a good fit. It follows Pepper Money’s Credit Cascading Model, which provides
three Pepper Money loan options (Prime, Near Prime, or Specialist) – removing many typical roadblocks experienced in standard submissions. Once you have accepted the T&Cs, Pepper Product Selector automatically requests a copy of the client’s credit record from the Bureau. This leaves an enquiry on the client’s credit file but will not adversely impact their credit score. It then combines this with some simple information about the client and returns an indicative Pepper Money home loan solution - including information on whether the client can afford the loan. • Step three: Presenting a Pepper Money home loan When you have confirmed that the scenario passes serviceability and are comfortable that the solution will provide a benefit to your client, you can present the Pepper Money home loan option. When positioning a non-bank loan option like Pepper Money, you may
need to educate your client about the options available to them and why they may not be eligible for a loan from a traditional lender that may have different lending criteria. This includes clearly outlining how the product meets their needs and what their financial obligations will be. It helps to put this information into context for the client by showing repayments based on their pay cycle and showing that they can afford the loan. Once you have shown them how this solution can help put them on the path to achieving their longterm goals, simply confirm whether they are happy to proceed with the proposed solution and submit an application when ready. ✚
If you have a client that you believe may need an alternative home loan solution, run your scenario through the Pepper Product Selector tool for an Indicative Offer within minutes. Alternatively, contact your Pepper Money BDM or our dedicated Scenarios Team today. To find out more visit: adviser.peppermoney.co.nz www.tmmonline.nz
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UPFRONT | MY BUSINESS
‘They look at the money they have, and they look at the value of their house, and they say, “Hell, the kids don't need all that”’ Maurice Melhopt 028
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Working for the love of it 75-year-old Maurice Melhopt works with fellow pensioners, helping them enjoy the twiglight years through reverse mortgages. BY ERIC FRYKBERG
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aurice Mehlhopt entered the mortgage business late - and stayed late. At 75, he is busy working with his own age cohort, helping them pay for a few luxuries with the proceeds of a reverse mortgage. He does this two-and-a-half days a week, leaving plenty of time for golf and other hobbies.
How did you get into this business? I thought I had finished my career in financial services. My partner was offered a role in Christchurch with The Press newspaper; we had a young son together, so I thought, “Fine, I will go down there and retire.” But then I ran into a guy I had known for years, who referred me to a someone with an “interesting proposition.” So I went to see him. Unbelievably, a month prior he had jumped onto a plane, flown to New York and fronted up to Lehman Brothers bank. They had a franchise for a reversemortgage product and were looking for partners all around the world. He said, “Reverse mortgages are going to be big. It’s all yours if you want it. Would you like to take it up and run with it?' And we did. We launched the product about 20 years ago.
Lehman Brothers filed for bankruptcy during the Global Financial Crisis, what happened then? We never heard from a receiver. We had been paying Lehman a piece of our sales commission for the franchise, and, of course, when the bank went up, the franchise fell over. But no-one ever approached us and said, “We gave you the rights” or what have you. So we just carried on.
What’s the part of your job you love? Helping people solve their problems. It’s amazing: you get clients who have been with a bank all their life; they have an overdraft facility and they retire and end up on the pension and they go to the bank and ask to extend their overdraft. The bank says to them, “No, you’ve got only your pension. We are not going to extend your overdraft; in fact, we’re going to take it away”. So people end up asset rich but cash poor.
So you help clients get some money from the value of their house. Why is this important to them? They often say to me, “Maurice, it's the money we don't spend that is important. It’s important to know it’s there.” At times like this, they’re thinking about their husband or wife. They say to me, 'If I drop dead tomorrow, I want to know the money is sitting there [for my partner]. I want to know they don't need to go to any more bank managers, they just need to ring Maurice or ring Heartland Bank and the money will be there.” So it’s peace of mind they’re buying. And to help people with that is just so rewarding. I love it.
What is the worst thing about your business? I am not sure there is one. But there is one situation I feel for, though it is not that common. It’s when a business is struggling and the bank won't give any more money and the proprietor is saying, “If I could just get another $100,000, I could make this business work”, and you can see Mum and Dad squirming a little bit, because they feel under pressure.
Mum and Dad don't have the money, but of course they have a house; they could take out a reverse mortgage and help their family. Well, I don't go anywhere near those cases. I just say, “I’m sorry, I won't go there,” and you can see the relief on the parents' faces. The whole elder-abuse thing is something you have to be aware of. Of course, that’s not elder abuse per se, but if the bank won't lend money, then Mum and Dad should not do so either.
What is the best thing about your business? I love helping people who get to their mid-seventies and they expected to be dead but are hale and hearty; they look at the money they have, and they look at the value of their house, and they say, “Hell, the kids don't need all that”. Fortunately, in 90 per cent of cases, the kids are saying, “Go for your life, Mum and Dad, go and enjoy it.” They love to see Mum and Dad doing stuff - and with a reverse mortgage they can do it. It is a very rewarding product to be involved with.
If you had your life all over again, would you do this job? Oh, gosh, yes. It's very rewarding and it’s only going to get bigger. We are only playing with it at this stage.
What is your working day or week like? It depends on the flow – the worst bit is all the bloody admin that goes with it – but overall, I work two to two-and-a-half days a week and that’s all I want to do. It’s lovely. I could be a lot busier but two or three days a week is plenty. It leaves me time to play a bit of golf. ✚ www.tmmonline.nz
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COLUMNS | SALES & MARKETING
How to run an online educational event It’s hard to stand out from the crowd with traditional forms of promotion. Paul Watkins argues that running a live, online event is the way to go – and explains exactly how to go about it.
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hat is your advertising message? “We search out the best rates”; “We have access to over 20 lenders”; “We take the hassle away from you”; “We do the hard yards”. These are all real headlines I have seen in adviser advertising. Do they work? Maybe, maybe not. One thing is certain: they do not set you apart from the rest. Prospects want to be educated on the challenges and opportunities around mortgages, particularly right now with the markets and interest rates not behaving very predictably. So what’s one of the best things you can do? Offer an interactive education event – online. These go by various names including webinars, online seminars, educasts, webcasts and webisodes.
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Whatever you call them, online events are booming right now, and the freely available technology makes them a piece of cake to run, as I will explain.
The how-to The basic idea is to advertise that you will be running one and they click your ad to register. They then attend at the nominated time, usually evenings, say at 7:30pm; and as these kinds of webinars are interactive, participants can ask questions by voice or in the chat. Typically, events like this would run for around 30 minutes. How do you run them? First pick your target group. These only work if you are very specific in who you want to attend. It could be first home buyers, aged 25 to 35. Or perhaps those wanting to
change houses in their 50s, or those about to enter retirement but who still have a mortgage. Then come up with a topic headline that is aimed directly at this group. For first home buyers it could be, ‘How the rules for first-home buyers have
‘Whatever you call them, online events are booming right now, and the freely available technology makes them a piece of cake to run’
changed and how to take advantage of them.’ For an older target group, it may be, ‘What if you find your perfect new home before you sell the old one? How does bridging finance work?’ Get the idea? A motivating headline to a very specific target group. If you have multiple target groups, then run multiple live online events.
Pick your platform Next, pick your platform. The technology is at your fingertips. Live, Facebook Live, Vimeo, Zoom, Microsoft Teams, Easy Webinar, WebinarGeek and Zoho are among the many on offer. Some cost a small amount, while others are free. Note that the free ones limit the features, so don’t let the cost dictate the platform you use. Pick an easy-to-use one which will do exactly what you want it to do. The sessions are recorded of course, and then edited into smaller specific topic video bites for your blog, Facebook and LinkedIn pages, or your own YouTube channel. The recordings can be hosted on YouTube or your preferred video host. Get your tech adviser or web developer to help you set it up initially so there are no glitches, otherwise you could look amateurish.
Advertise the event As well as obviously scripting your presentation and preparing graphs, slides or other supporting material for the event, spend time preparing the advertising for social and perhaps traditional media as well. For social media, it could be a 20-second teaser video explaining why this is a critical, live, online event to attend if you are _____ (refence your target group), asking them to click the link to register. You should also email an invitation to prospects who didn’t complete with you, or who were declined, or those you know might be looking to change houses. Pick the right group for the topic. To register, they give their first name and email address. Few have an issue with doing this, as it’s so common now. You then send a “registration confirmation” email to them, followed by a reminder email 24 hours out, and
again one hour out, and finally an “it’s starting now!” The event itself should be presented in a chatty manner, as if it were a oneon-one conversation, devoid of too much jargon. Make it visual, with slides of graphs, pictures, or basic calculations if appropriate. And end with a call to action, such as, “Call tomorrow”, or, “Click the link to make a time to see us”. Practise, practise, practise! If you are not comfortable on camera, live events may not be for you. Being recorded can be daunting for many. But you can set up and test the technology, as well as your presentation skills, with workmates or friends in a different room.
Follow up The event then runs. Shortly following its conclusion, you email the list thanking them for their attendance and advising that a link to the recording will follow as soon as you have processed it. You may want to edit out some of the irrelevant questions or shorten it first, so give yourself 24 hours to do so. This email would include a link to a downloadable, one-page PDF summary for them to keep. Some who registered will not be able to attend, possibly due to simply forgetting or because other things came up in their lives. Depending on the platform you used, you can identify this group. To them, you send an email saying, “Hey, we saw that you couldn’t make the event – don’t worry, here’s a link to the recording.” More emails then follow at regular intervals, or you can join them to your newsletter list. Each one should have the obligatory, easy-to-find ‘unsubscribe’ button, so they don’t see it as spam.
Each time you’ll learn more Don’t be discouraged if you only get a handful of people tune in for your first one. Just remember that anyone who did is a very warm prospect. I know of someone who used a webinar as a lead generator and had only six attendees the first time, yet two became clients. Each time you run one you will learn more.
‘In the overcrowded, homogeneous marketplace in which you trade, it’s very hard to stand out in any other way’ Analyse the results and see where they can be tweaked. A better ad, better email prompting, better presentation, better follow up and so on. The value - over and above the opportunity for immediate clients - is a greater awareness of you and your knowledge as the mortgage guru, generating a higher level of trust when it comes to picking a broker. Remember, don’t be too general with your messaging, like, “Everything you need to know about mortgages.” That’s meaningless. Be very, very specific in your target group and message. A short online event can be a highly effective lead generation tool, as it’s not asking any more of prospects than half an hour of their time. Participants will feel semi-anonymous, unpressured, and can attend from the comfort of their own homes. Critically, it means they can judge your apparent level of expertise and get a gauge on your personality, which is almost impossible through any other medium.
Prepare once, then play it again, Sam It obviously takes a bit of planning, some tech knowhow, practice, and researching who you want to watch it and what your key message will be. While the initial process can mean you may have to buy in some technology expertise, and spend time setting it up, that’s a onetime cost. It then becomes a ‘play it again, Sam’ for future similar live events. In the overcrowded homogeneous marketplace in which you trade, it’s very hard to stand out in any other way. And with confusion, anxiety, houseprice changes and rising interest rates abounding, 2022 is the perfect time to give this style of promotion a go. Try it! ✚ Paul Watkins is a marketing adviser to the financial services industry. www.tmmonline.nz
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COLUMNS | INSURANCE
Spot the difference Steve Wright explains how life insurance works differently to general insurance – and why.
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ll insurance is about protecting against unexpected events which cause significant financial loss. Insurance does not cover known or expected risk, for which other strategies are needed: typically avoidance or some form of pre-funding. Before delving into the differences between life insurance and general insurance, let’s look at some general principles.
How does insurance work? Insurance works by combining premiums paid – ‘pooling’ in insurance jargon - and paying claims out only to those unlucky enough to suffer the covered event. This is how relatively small premiums, paid over time, can allow sometimes very 032
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large claim payments: payments so large they could never be self-funded. Typically, insurance company assets are funded by policyholders; a claim against an insurance company is inevitably a claim against other policyholders. Sometimes a policyholder’s claim payments greatly exceed premiums paid, but more often they don’t. Fortunate clients will never need to claim on their insurance: they will pay premiums but make no claims. There is no refund if claims are not made. Again, this this is how insurance works, and must work, if it is to remain sustainable. Because insurance is voluntary in NZ (ACC aside), insurance must prevent people from buying after they become
aware that they are likely to make a claim. No insurance company could ever be viable if it paid claims certain to occur. This is why both life insurance and general insurance companies don’t pay claims for events that have already happened or are expected; they ‘underwrite’ insurance applicants to assess these events and exclude them by offering ‘special terms’ (or apply blanket exclusions for all pre-existing conditions or risks).
Key differences between Life and General Let’s now consider some differences between life insurance and general insurance – and my apologies in advance to the general insurance industry if my opinions are overly simplistic:
Unambiguously Committed to Independent Advisers
1. What each insurance protects
3. Impersonal vs personal factors
General insurance protects things (mostly): cars, houses, contents, for example. Life insurance protects people (and remember, life insurance is not limited to insurance which pays if someone dies; it includes, disability, trauma and health insurance).
General insurance underwriting mostly takes impersonal factors into account: type of asset, location, use, security features etc.
2. The duration of contracts
For life insurance, the more in-depth underwriting is, the more individualised the assessment of a client’s risk of claiming can be, allowing the best terms and lowest premium.
Life insurance contracts are long-term often for many decades, sometimes the entire lifetime of the life-insured. Failing serious non-disclosure or not paying their premiums, the contracts usually cannot be cancelled or changed by the life insurer. This guarantee of cover for the agreed duration is required precisely because the purpose of life insurance is to respond to unexpected health events, often caused by deteriorating health over a lifetime. Poor health risk is often not reversable. General insurance contracts are typically of one-year duration. General insurers effectively reunderwrite at each renewal date. This is why the small print on your renewal form is likely to require you to tell the general insurer about increases in your risk profile. Each year the general insurer can make a new decision on the benefits to be offered and the premium to be paid. If they don’t like your particular risk, they can choose not to renew your insurance. General insurers can minimise their claims risk by refusing renewal or altering the benefits offered in any given year, something life insurers cannot do. Life insurers can assess the risk they are accepting only once, at the date of application. The decisions the life insurer makes regarding coverage to be offered are then usually guaranteed to remain the same for the duration of the contract (or for as long as the client chooses to keep paying the premium). If life insurers don’t underwrite prudently, they cannot ‘put right’ their mistake the next year. As long as the life-insurance policyholder pays the premiums and does not cancel the policy, the insurer is obligated to pay the promised benefits. This is partly why life insurers - and the law, via the ‘utmost good faith’ principle - take full and accurate disclosure so seriously.
Life underwriting is very personal, considering the applicants health, recreational pastimes and, sometimes, occupation.
Many life insurers have fine-tuned their application forms, over many years, to ask very specific questions. Asking specific questions is more likely to elicit a full response from an applicant, and significantly reduces the risk of innocent non-disclosure. Calls for ‘quick and easy’ applications, or the removal of the right to underwrite properly, are likely to lead to far less generous insurance (poor benefits, blanket exclusions and high premiums) for almost all policyholders. Blanket pre-existing-condition exclusions inevitably result in all clients being ‘assessed’ as if they equally represent the worst risk. This does not seem like an optimum outcome. 4. Life insurance can’t afford ‘quick and easy’ The concept of the ‘utmost good faith’ in insurance underwriting is required because individual risk assessment cannot happen if the insurer is not made fully aware of the client’s health or other risk factors at application date. The client knows about their health and any risk concerns, in a way that an insurer cannot. This has been recognized for centuries. If applicants for insurance are not obligated to properly disclose their risk, all other policyholders will have to bear the cost, including the diligent ones who do properly disclose (the vast majority). The removal of obligations to make full and proper disclose is likely to result in many more clients withholding material information about their health, again leading to poor insurance outcomes, or, in a worst case, the simple disappearance of life insurance companies. For these reasons, I believe ‘quick and easy’ is not the best approach to life insurance. Taking time to make full and
‘If life insurers don’t underwrite prudently, they cannot “put right” their mistake the next year’
proper disclosure is in applicants’ best interests. After all, life underwriting often only needs to be done once if suitable products are recommended - products that are, among other matters, flexible enough to adapt to changing client needs over time. 5. One-off or ongoing financial impact The financial impacts of a general insurance claim are typically one-off in nature - the need to repair or replace the insured asset - and the financial impacts can often be easily quantified. Life insurance claims can be recurrent or ongoing, and are often very difficult to quantify. Quantifying the risk is an important skill that clients usually do not have and one important reason why insurance advisers are so valuable. 6. The ability to switch providers Life insurers insure human lives, or, more specifically, human health. As we age, health inevitably deteriorates for the vast majority of us. Deteriorating health (un-insurability) can occur at any time and typically becomes unavoidable with age. This is different from poor generalinsurance risk, which can often be reduced by driving with more care, moving to a neighbourhood with fewer natural hazards, or locking your front door. So, while life insurance risk gets poorer with age, general insurance risk often improves, making switching general insurers relatively simple. Switching life insurers may not be possible at all, due to poor health. ✚ Steve Wright is the general manager product at Partners Life. www.tmmonline.nz
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The TOP 10 stories A lot has happened in the market since the last edition of the magazine. Here are the most-read industry stories from tmmonline.
tmmonline.nz
01 CCCFA CHANGES FINALLY REVEALED Preliminary changes to the Credit Contracts and Consumer Finance Act (CCCFA) have been unveiled.
02 HOUSE PRICE CAPS OFF FIRST HOME LOANS The Government is to make it easier for more people to get into housing.
03 AUSTRALIAN ADVISERS TOLD CLAWBACKS ARE “UNNECESSARY” Australian mortgage advisers have been told there is no need for financial clawbacks to be imposed on them any more.
04 BASECORP SECURES MORE FUNDING Non-bank lender Basecorp has finalised its biggest funding raise to date.
05 BANKS SPLASH THE CASH TO GET CUSTOMERS A lolly scramble of sorts is developing in the battle for home loans.
To keep up with all the news make sure you check www.tmmonline.nz regularly. Or you can get the news and update sent to you each day. 034 TMMrates 03 | 2022
06 GOVT SOFTENS CONDUCT REQUIREMENTS FOR ADVISERS The Government has proposed winding back some tough controls it wanted to impose on financial advisers including mortgage advisers.
07 OCR UP 50PTS: HERE IS WHAT THE BANK SAID Why the RBNZ hiked the OCR 50 basis points.
08 ADVISERS CRACK A MAJOR MILESTONE Mortgage advisers have cracked a major milestone and originated more than half of ANZ's home loans in the six months to March 31.
09 BORROWERS IN DIFFICULTY NEED TO DEAL WITH IT EARLY FSCL expects increasing number of mortgage complaints.
10 PRESSURE ON INTEREST RATES TO EASE - POSSIBLY A fall in GDP numbers could slightly ease pressure on interest rates, Westpac says.
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