37 minute read
HOUSING COMMENTARY
Roller-coaster ride
Sally Lindsay covers the ups and downs of the housing market, as sales plummet but prices defy expectations.
The 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 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 alltime-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
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 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.”
Image: Kelvin Davidson
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. ✚
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
Kate Chivers
The 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.
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 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. Image: Kate Chivers
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.
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.
Formal documentation essential
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.”
New family members problematic
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 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
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.”
The sibling rivalry factor
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 $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. ✚
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
Mortgage 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.
More TLC required
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. 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.
“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
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 ‘Mortgage advisers years. “I remember sitting with are increasingly forced to act as counsellors for unhappy people a client and being nearly in tears as well, listening to what she had been going through.”
– no longer simply hard-boiled The cost for ordinary money merchants counting people
the change’ Glen McLeod cites an example of how costly all this Eric Frykberg 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.
‘I’ remember sitting with a client and being nearly in tears as well, listening to what she had been going through’ Elyce Peters
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 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. ✚
Glen McLeod
KiwiSaver and creating clients for life
Rupert Carlyon, Founder and Managing Director, koura
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 well- enough 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).
Nearing Retirement
Building Wealth
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.
KiwiSaver
Divorce / Separation
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.
Starting out
Starting a business
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.
First home
Scenario: Getting home loan ready > Deposit preparation. 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.
Marriage/partnership
Scenario: Starting a life with someone > Estate Planning 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).
Starting a family
Scenario: First child on the way > KiwiSaver considerations
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
Scenario: Ongoing > KiwiSaver check in 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.
Elevation
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.
kōura Wealth Facilitator Model For mortgage and insurance advisers
How it works
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.
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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 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
Debt consolidation
• 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)
• 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
