TMM - The NZ Mortgage Mag Issue 4 2015

Issue

04

2015

lendresponsibly how the new code works

JOSH BARTETT

BROKER TO REAL ESTATE AGENTS

INTEREST RATES OCR OF 2% PREDICTED

PAUL WATKINS

YOUR MARKETING TOOLKIT

CONTENTS

14

UPFRONT 04 EDITORIAL

It’s all about movement, or lack of it at the moment. Loan applications are slow to move through underwriting, at the moment and then (unrelated) there’ve been some interesting people moves.

lendresponsibly

06 NEWS

Three Billion in a row; one designation for all advisers; ASB rules out trails; the on-going case for reasonable fees and more …

10 PEOPLE ON THE MOVE

TMM finds out how the new Responsible Lending Code is working

The latest appointments and people news.

24 Josh Bartlett

FEATURES

COLUMNS

12 HOUSING COMMENTARY

20 PAA NEWS

28 RESTRAINT OF TRADE

22 SALES AND MARKETING

A swathe of recent data suggests Auckland house price growth maybe stalling.

A former Mike Pero adviser has been banned from work for potentially breaching a restraint of trade agreement.

24 MY BUSINESS: JOSH BARLETT Australian-mortgage broker Josh Barlett has some great ways to work with real estate agents.

34 BANK FIGURES

TMM takes a look at the extent to which mortgage loans dominate banks’ loan books.

Investors should consider a number of points to allow greater flexibility in current regulations.

Your marketing toolkit.

26 INTEREST RATES

Westpac outlines its views on inflation and interest rates.

27 MORTGAGE RATES

Is a home loan rate starting with a three possible?

30 INSURANCE

Steve Wright says think of your family when contemplating disability insurance.

32 LEGAL

TMM’s resident legal expert Jonathan Flaws explains conveyancing insurance.

EDITOR’S LETTER Issue

04

2015

The times they are a-changing

lendresponsibly how the new code works

JOSH BARTETT

BROKER TO REAL ESTATE AGENTS

Not so Kiwi Normally we profile a New Zealand mortgage adviser, but in this issue we talk to an Australian mortgage broker about how he runs his business. Josh Bartlett was in New Zealand earlier this year presenting to the NZFSG miniconferences. Bartlett is a true Young Gun across the Tasman and has some a useful story to tell.

He is also interesting as his approach is solely to be a broker to real estate agents.

Ch-ch-changes

I

f there is one common thread coming through in the market at the moment it’s the on-going frustration over the length of time it takes for banks to process loan applications.

Reports of applications taking more than two weeks to be approved are not uncommon.

It seems this is an across the board problem with all the banks at the moment. The problem seems to be exacerbated by mortgage advisers taking a shotgun approach and taking their applications to a number of lenders.

This is one area where advisers and lenders have to work together to improve service levels. Slow turn around times reflect poorly on the service advisers give their customers.

The irony is that if a customer came via a branch or a mobile mortgage manager they, in all likelihood, wouldn’t be subject to such long waits.

In this issue we look at the Responsible Lending Code and how it is working.

One thing which we found is that bank’s are being much more cautious around applications and asking more questions.

This appears to exacerbate the turnaround time issue.

Because advisers aren’t clear if their deal will be banked it ends up being shopped around.

04

And to finish off I have to note three significant leadership changes in within the banks. ANZ has appointed a new boss for its third party distribution channels. Currently ANZ has been the dominant writer in the mortgage adviser space and it will be interesting to watch what, if any changes take place here.

Meanwhile new-comer, BNZ, has lost the head of its broker business in a restructure with Mel Cadman leaving the bank.

Arguably a bigger change is at Westpac.

The bank has gone through a major shake up which has seen many changes. One is that that Director of Third Party banking, which Kylie Kneale held, has been disestablished. The new role will see the person looking after the bank’s mortgage mortgage managers as well as advisers.

Kneale has led a massive change at the bank with many initiatives, including the reintroduction of trail commissions.

One of her buzzwords is Westpac wanted to treat advisers as partners.

Let’s hope her good work is continued with whoever takes over the role.

Philip Macalister Publisher

INTEREST RATES OCR OF 2% PREDICTED

PAUL WATKINS

YOUR MARKETING TOOLKIT

PUBLISHER: Philip Macalister SENIOR WRITERS: Susan Edmunds, Miriam Bell SUB EDITOR: Phil Campbell CONTRIBUTORS: Paul Watkins Steve Wright Jonathan Flaws Dominick Stephens GRAPHIC DESIGN: Jonathan Harding ADVERTISING SALES: Freephone: 0800 345 675 sales@tarawera.co.nz SUBSCRIPTIONS: Dianne Gordon Phone 0800 345 675 HEAD OFFICE: 1448A Hinemoa St, Rotorua PO Box 2011, Rotorua Phone: 07-349 1920 Fax: 07-349 1926 tmm_editor@tarawera.co.nz

The NZ Mortgage Mag is published

by Tarawera Publishing Ltd (TPL) in conjunction with the Professional Advisers Association. TPL also publishes online money management magazine Good Returns www.goodreturns.co.nz and ASSET magazine. All contents of The NZ Mortgage Mag are copyright Tarawera Publishing Ltd. Any reproduction without prior written permission is strictly prohibited.

The NZ Mortgage Mag welcomes opinions from all readers on its editorial. If you would like to comment on articles, columns, or regularly appearing pieces in The NZ Mortgage Mag, or on other issues, please send your comments to: tmm_editor@tarawera.co.nz

NEWS

One designation for all advisers

M

oves to a single designation for all financial advisers would unfairly penalise mortgage brokers, it has been claimed.

The idea of getting rid of the three adviser designations has come up in submissions on the Financial Advisers Act review issues paper.

Many, including the Professional Advisers Association and Institute of Financial Advisers, argued that the registered financial adviser (RFA), authorised financial adviser (AFA) and qualifying financial entity (QFE) designations should be dropped and replaced with one category of adviser bound by a Code of Conduct.

The industry’s current Code of Conduct, which only applies to AFAs, requires much higher levels of record-keeping, disclosure, continuing professional development and management of conflicts of interest.

PAA compliance expert Angus Dale-Jones

said such a move would be a benefit to all advisers.

He said it would strengthen the system and the Code Committee could then be given the discretion to tailor the standards to different advice situations.

But mortgage adviser David Windler, of the Mortgage Supply Co, said it would seriously affect high-volume advisers. He said most clients would not see the benefit in a change to the standards required of their advisers.

He said most just wanted to know their lending would be done under the right terms, and quickly.

“Every day we work to timelines across multiple clients. An AFA-style process would mean we miss finance dates and settlement dates trying to meet compliance standards. It’s not like insurance or investment, we just don’t have time to build this into our business and meet client expectations.”

But Dale-Jones said a recent survey of members showed support for the idea.

Two-thirds of PAA's RFA members supported a single competence standard across the industry.

More than 70% liked the idea of a single conduct standard.

Dale-Jones said the way changes were implemented would be important. "It has to be dealt with carefully. If you're trying to boost the reputation of advisers and advice and promote the value that advisers add, there is a give and a take."

He said RFAs were exposed under the current legislation because no one had defined what was expected by the requirement that they act with care, diligence and skill.

A code that laid out a set of standards would give RFAs comfort that they were doing what they were required to do. "It's more a clarification of standards rather than raising them," Dale-Jones said. ✚

05

NEWS

NZFSG does it again

T

he country’s largest adviser group, NZ Financial Services Group, has cracked the $1 billion mark for the third consecutive month.

In August it settled $1.041 billion which is slight down on the $1.057 billion and $1.075 billion settled in the previous two months.

that Westpac has been consistently building its volumes. ANZ, as expected, gets the lion's share of business accounting for around 52% of all business written in August. .NZFSG director Bruce Patten describes the results as “unbelievable” and puts it down to a number of factors.

He says the market conditions play a part, but also the group’s software is a big driver of growth.

“Our software is a big draw card for a lot of advisers.”

Patten expects volumes to come off a little bit as new lending rules are brought into play on October 1.

NZFSG, which includes Loan Market, has doubled its membership in the past three years. ✚

Broker banned under restraint of trade

However the figures don’t include loans settled with BNZ, DBR and Liberty.

BNZ is continuing to be secretive about its level of activity, however all reports are that it is getting a good level of business from NZFSG. Other interesting trends in the data NZFSG releases to members and other parties show

F

ormer Mike Pero mortgage adviser James Heath has failed to overturn his restraint of trade agreement and set up a new business.

Christchurch-based Heath chose not to renew his Mike Pero franchise agreement when it expired on June 30 this year and attempted to then set up a new business, even though he knew about the restraint of trade clauses in his agreement.

Those clauses stopped him from being a mortgage adviser within New Zealand for six months and within Christchurch and Canterbury for two years after the agreement was terminated.

Mike Pero sought, in June, an urgent injunction in the Auckland High Court to restrain Heath and his de facto partner Gina Smith from setting up a new business after it discovered the pair had been planning to start a new firm, James Heath Mortgages Ltd. Justice Simon Moore had little hesitation in granting Mike Pero interim relief before the case goes to a full hearing.

The full hearing includes other former Mike Pero franchisees who are trying to overturn their restraints of trade clauses.

Turn to page 28 to read the full story. ✚

06

Don’t expect trails from ASB

M

ortgage advisers can rule out ASB introducing trail commissions anytime soon, according to comments from chief executive Barbara Chapman.

TMM asked Chapman whether the bank had any plans to introduce trail commissions along the lines of what Westpac and BNZ pay advisers.

She said there are "no plans."

"I haven’t had any discussions about that," she said. "I’d imagine if the team were going to do something like that it would come across my desk and I haven’t seen anything."

In the past ASB have said if mortgage advisers want to earn trail commission then they can use the Sovereign products, which are pretty much identical to what ASB offers.

Chapman acknowledged that the bank’s market share in home lending had decreased and that ASB hadn’t been growing its lending book at the same rate a market growth.

This slower growth rate was “deliberate” she said.

“We’ve been keeping an eye on some of those deals in the market and it has been such a competitive period that there’s been deals and pricing that we’re not prepared to match.

“While we have been prepared to look after our customers there have been deals we’ve been prepared to walk away from,” she said.

“We’re very consciously looking at what is a fair return on a home loan and there are just some deal we won’t do.”

In its forecasts the bank is predicting a slow-

Barbara Chapman down in credit growth. While it is forecast to be 5.6% in 2015, the numbers fall to between 3.5% and % in 2016 and between 2.5% and 4.5% the following year.

Slower credit growth combined with borrowers moving from floating rates to lower margin fixed rate home loans will put pressure on bank profitability.

Chapman says that has been “forecasted into our plans” and ASB will look to offset this trend by focussing on other product classes such as corporate, commercial and rural banking.

“It’s not unexpected that margins will go down in this part of the cycle,” she says.

“We’re diversifying to keep the result coming through.” ✚

Fewer OCR reviews

T

he official cash rate will be reviewed less often in coming years, the Reserve Bank has revealed in its release schedule for 2016 and 2017.

Instead of reviewing the OCR eight times a year, it has signalled it will review it just seven.

The OCR is a major factor in the interest rates banks offer their customers, particularly shortterm rates.

A full monetary policy statement will be released on the second Thursday in February, May, August and November, including a review of the OCR.

The bank will also release three OCR decisions, with no accompanying forecasts, on the fourth Thursday of March, June, and September.

Bank spokesman Mike Hannah said: “The new schedule ensures that the Bank will capture the latest key economic data available for its policy decisions,” he said. “It also gives the financial markets clarity over a longer timeframe to enable more efficient risk management and pricing of financial instruments.” ✚

07

NEWS

The case of unreasonable fees drags on

T

he test court case on how lenders charge fees is going back before the courts again.

The case, between the Commerce Commision and Motor Trade Finance (MTF) has already been through the courts several time and now the Supreme Court has granted MTF leave to appeal part of the Court of Appeal’s earlier decision.

MTF will appeal the Court of Appeal’s finding that the fees charged by MTF were unreasonable under section 41 of the Credit Contracts and Consumer Finance Act 2003.

Commerce Commission chairman Mark Berry has described the case as its most significant in terms of establishing rules on what fees lenders can charge.

Berry told the commission's recent annual conference that consumer credit remains a priority area.

The commission plans to use the courts to clarify the boundaries after recent changes to the Credit Contracts and Consumer Finance Act 2003.

He said the MTF case is important for this because it sets the rules on what can be charged for various fees under the legislation.

It is part of the commission’s role to bring test cases to get clarity on principles and legislation, he said.

The Court of Appeal upheld the findings of lower courts in the decision and found that lender credit fees should only cover costs closely related to the particular loan transaction.

With the Supreme Court due to hear the

08

Jonathan Flaws

“Costs associated with general business are to be recovered out of interest and, as Justice Toogood states, there is no limit on interest – other than the normal commercial considerations.”

– Jonathan Flaws

case in November, interest in the case has been triggered once again.

Credit lawyer Alan Liddell as saying that if court judgments against MTF are upheld, a wide range of fees charged by other finance companies could be deemed unreasonable.

However, Sanderson Weir director Jonathan Flaws told TMM that the case’s central issue is a test of purpose as to what the purpose of a fee is and what the purpose of interest is.

He said that, in the case of fees, the purpose tracks back to the fundamental requirement of section 41 which is that a credit fee or a default

fee must not be unreasonable.

“But that requirement begs another question – unreasonable in relation to what?”

In the High Court decision, which was upheld by the Court of Appeal, Justice Toogood said “unreasonable” is tested against the purpose for which the fee is charged and that each fee has its purpose.

When it comes to fees, the purpose is to recompense the lender for the costs incurred or the loss sustained in relation to the activity or “matter giving rise to the fee”.

Flaws said that fees need to be aligned with the transaction for which they are charged and a matter giving rise to the fee is a matter that is connected with the transaction.

“Costs associated with general business are to be recovered out of interest and, as Justice Toogood states, there is no limit on interest – other than the normal commercial considerations.”

This means the purpose of fees is to recover costs relating to the transaction for which the fee is charged. The purpose of interest is to provide the lender with recovery of general overhead and group costs plus profit.

Flaws said that, under the Credit Contracts and Consumer Finance Act 2003 model, fees which recompense direct costs or losses are deducted from revenue. Interest is then left to recoup general operating overhead plus profit.

“Regulating the purposes of fees and interests means that if fees are limited to recovery of costs and losses that have a close relationship to a transaction, then a consumer need only compare interest rates comparing the product offerings of lenders.

“This should result in a fair and competitive market in which consumers can confidently compare products from one lender with the products of another.”

In Flaws' view, the Supreme Court will not be able to do much more than tinker around the edges of the existing MTF judgements – which will achieve nothing.

“Having the certainty of applying the methodology outlined by Justice Toogood is more constructive than trying to tweak the methodology to get an arguably better result for lenders in some areas only to find a worse result in others.”

Meanwhile, a Commerce Commission spokesperson said they were not able to comment on the case while it's before the courts. ✚

New code killing good deals

T

here is growing concern among mortgage advisers that the new Responsible Lending Code is making it harder to bank deals which should easily be approved.

Under the code the lender has to take steps to ensure that the borrower can repay the loan at maturity. Because of this lenders have been changing their serviceability calculations.

New Zealand Property Finance director Geoff Bawden says in the past it was clear what criteria a customer needed to meet to get a loan approved and with his lending

Geoff Bawden

knowledge he could pretty assure clients that the application would succeed.

“I don’t have any confidence at all to say I could bank a deal,” he says.

Now there is far more inconsistency from the lenders and he finds it much harder to know if a deal will get banked.

One example he uses is of a proposal where the client put $250,000 into the deal and the loan had an LVR of 60%. He thought this should have been approved.

In another example the client had a $6000 surplus each month, but the application was turned down as the client “didn’t meet servicing guidelines.”

He says lenders are telling clients “they can’t afford something when they can.”

Bawden said in some cases he has to turn to second tier lenders for finance, but feels the deals should be banked by prime lenders.

His response to the situation has been to go out and “fight” for his clients. ✚ See lead story on page 014

PEOPLE

PEOPLE ON THE MOVE

Got a new appointment you would like to tell advisers about? Email details and a pic to tmm_editor@tarawera.co.nz

Changing of the guard at Westpac...

Kylie Kneale Westpac has gone through a major restructuring which sees third party distribution report to Sharon Thompson, whis is the new Head of Market Segments and Third Party Channels.

Also, TMM understands that the third party distribution role, currently held by Kylie Kneale, will now include looking after the bank’s mobile mortgage manager channel.

Westpac’s Lower North Island business development manager, Heather Black has finished up and moved to a new, role within the bank.

Its Central North Island business development manager Geoff Hampton is moving on to take time out and travel. He leaves on September 11.

“Both Heather and Geoff have been valuable additions to our team and established some great relationships,” Head of Third Party Distribution Kylie Kneale says.

...And at ANZ

Penny Burgess Penny Burgess is the Head of Specialist Distribution at ANZ, and is responsible for the broker and mobile channels as well as staff banking and ANZ@Work Packages.

Before this she was ANZ's Retail Regional Manager for the Auckland East area which is one of ANZ’s largest regions in both staff and funds under management.

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Burgess has more than 15 years’ experience in banking, having worked across multiple areas including credit and operational risk, operations and sales.

She has been involved with a number of industry task forces such as the NZ Bankers Association where she chaired the compliance committee and was involved with the initial Credit Contracts and Consumer Finance Act changes.

Burgess is a keen property investor with a number of properties in Auckland, Wellington and Thames.

Mike Pero adds new franchisees as others walk

Sheikhil Khan Mike Pero has added the following new franchisees into the fold in Auckland.

Sheikhil Khan is a new Mike Pero adviser in Auckland and brings considerable business acumen and financial nous. His passion for property and the strong brand is what brought him to the Mike Pero team. He is a golfer, follows the Black Caps and is active in his community serving as a treasurer for local charities.

Stuart Anderson, too, is new. He used a Mike Pero adviser to purchase a property and he loved the experience so much he bought a franchise.

He brings 25 years of experience in management and service plus a strong desire to do things right first time.

Sherilyn Fretton is another new Mike Pero adviser in Auckland. She is an experienced mortgage adviser and a finalist in PAA Insurance Adviser of the Year. Fretton is looking forward to building a strong business in South Auckland where she already has an experienced loan writer on board.

James Kingscote joins as a Mike Pero Adviser in Queenstown. He has been part of the community for 11 years and as well as being a qualified mortgage and insurance adviser.

Matt Campbell is the newest member of

the Mike Pero team in Christchurch. He joins the group following a 15 year career with BNZ and brings a wealth of lending experience and a passion for customer service.

Trevor Slater leaves FSCL

Trevor Slater The Financial Services Complaints Ltd (FSCL) original general manager Trevor Slater is leaving the company.

Slater was instrumental in setting the foundations for the success that FSCL now is.

With the company well established as a specialist financial dispute resolution scheme, the time has now come for Slater and FSCL to go their separate ways.

Slater will not be disappearing from the financial services sector and is looking forward to his next challenge and wherever that may take him.

FSCL chairman Kenneth Johnston said Slater had earned the respect of many scheme participants, in particular for his work in educating participants on the benefits of having robust internal complaints processes and how external dispute resolution works.

“Trevor’s highly developed skills as a mediator, conciliator, educator and mentor of staff will be missed.”

NZ Home Loans gets new CEO

Julian Travaglia Mark Collins has stepped down from his role as chief executive of Kiwibank-owned NZ Home Loans.

Julian Travaglia is the company's new

chief executive. He has experience in sales and third-party distribution and is currently head of client and broker engagement at AIG. Before AIG, he had senior management positions at OPI NZ, Activa Health and AMP. NZHL chairman Neil Richardson says the calibre of applicants for the CEO role was very high, but Travaglia’s breadth of experience and expertise was a perfect match for the role. “We were very pleased with the quality of applicants for the position of CEO and are delighted to have appointed Julian as we enter into a new phase of growth and development in our business.”

New Zealand Home Loans has achieved ongoing positive growth since its launch in 1996.

The growth has continued throughout the change of ownership from three shareholders to Kiwibank in 2012. Two of the original three shareholders remain involved with the business; Neil Richardson (chairman) and Phil Harris (chief operating officer).

Over the past four years the company has grown from a loan book of $3.6 billion to $5.1 billion (42% increase), clients from 15,600 to 19,000 (22% increase) and outlet numbers from 57 to 81 (42% increase).

Richardson said the next phase of growth would involve NZHL transforming its offering.

Weston for the next two years and is currently planning some exciting new opportunities with Sovereign in the life insurance market.

“Having started in the life insurance industry in 1975 in his hometown of Hamilton, David has risen up through the ranks of the life insurance industry and has been at the forefront of its evolution in New Zealand.

There are very few individuals that have earned the level of respect in any industry that David has over the past 35 years. The impact he has had across the business is undeniable and it has been a pleasure to work with someone of his expertise and experience. I look forward to continuing our great relationship in coming years,” BrewisWeston says.

Sovereign is currently in the process of recruiting a replacement to run distribution.

Mortgage Express keeps adding

to profitability.

Recently appointed Chairperson of the Board for the World Buskers Festival, McIntyre is a firm believer in people owning your own home, and says her primary role as mortgage adviser is supporting her clients and helping them achieve their home ownership goals.

Louise Collis is a new mortgage adviser and has more than 20 years’ experience in the banking and finance industry, including mortgage adviser and construction lending experience, She has an in-depth understanding of the complicated and intricate processes involved in construction lending.

Based in East Auckland, Collis provides advice on home loans, investment loans and construction lending. Through her own experience in small business lending, investment lending, family-backed housing deposits and family trusts, she helps her clients get around stumbling blocks.

“Louise’s experience as a credit manager means she understands how banks work and what it is they’re looking for in an application,” Mortgage Express general manager Sarah Johnston says. ✚

Sovereign’s Haak moves to new role

The long-serving head of distribution at Sovereign is stepping down from the position to take up a new role within the company.

Sovereign has announced that David Haak stepping down as Chief Distribution Officer.

Haak has more than 35 years as a leader in the insurance industry, 19 of which as an executive at Sovereign Assurance. He will be stepping down from his current role at the end of October.

Haak will continue in an advisory capacity to Sovereign chief executive Symon Brewis-

Helena McIntyre Helena McIntyre joins Mortgage Express’s Canterbury Team as a mortgage and insurance adviser.

McIntyre’s background in tourism and event management includes extensive experience in senior management roles, with a strong emphasis on strategic planning and business development. She has successfully grown two Australian businesses from start-up

NEW APPOINTMENT? Got a new appointment you would like to tell advisers about?

Email details and a pic to tmm_editor@tarawera.co.nz

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HOUSING COMMENTARY

By Miriam Bell

Has the tide turned for

AUCKLAND A swathe of recent data suggests Auckland price growth might be stalling while prices in other regions are creeping up. Miriam Bell reports.

W

hile Auckland’s prices remain undoubtedly high, the latest data seems to suggest that the phenomenal price growth of recent months might be starting to stall.

For the first time, commentators appear to be looking at a slowdown as an imminent possibility. Even Finance Minister Bill English recently said that, given house price drops in other major cities around the world, Auckland’s prices are likely to fall.

According to the latest Real Estate Institute of New Zealand (REINZ) data, Auckland’s median price fell by $20,000 (-2.6%) from June’s median of $755,000 to hit $735,000 in July. This was a slight decline, but the median price is still up by $125,000 (20.5%) from $610,000 this time last year.

NOT CONSISTENT Further, the Auckland region’s overall median price fall was not consistent throughout the region. Central Auckland and North Shore median prices fell by 9.8% and 0.2% respectively, but median prices in most other areas rose.

Trade Me Property’s July data provided a similar result. It indicated that Auckland’s surging market was showing the first signs of easing in 18 months, with asking prices down 2.2% in the

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three months to July.

Head of Trade Me Property Nigel Jeffries said that, while the dip could foreshadow a market correction, it could also be a midwinter speed bump before the long-term rising trend continues.

“While a single month doesn’t confirm a trend, the asking price is a lead indicator of the market,” Jeffries said. “This blip could mean a change in direction for the market or may just be a temporary stall. We’ll be watching the coming months with interest.”

Relevant data from Barfoot & Thompson, Harcourts and Realestate.co.nz also all indicated that Auckland’s prices might be starting to slow down.

PRICES STABILISING Barfoot & Thompson July data showed that Auckland’s average sales price is at $827,359, which was much the same as it has been for the past couple of months.

Managing director Peter Thompson said July’s average sales price was within $1000 of that average for June and only $5000 ahead of that for May. “A stable average price over a threemonth period is a trend we have not witnessed for some time,” Thompson said.

At the same time, Auckland house sales activity was at its highest in more than 15 years

during July. Thompson said the combination of high turnover and stable price pointed to buyer confidence in the strength of the market at current prices. It is also recognition that property is fully priced.

The last three months of trading demonstrated that high sales numbers could be sustained without prices increasing.

“The first signs that price increases were slowing could be seen in last month’s sales figures, and this month’s results confirm that prices are no longer racing ahead.”

SUPPLY SHORTAGE REMAINS Only the Quotable Values (QV) data went against the month’s grain.

The latest QV House Price Index showed that Auckland values went up by 5.7% in the last three months, 18.8% year-on-year, and 55.6% since the last market peak in 2007. When adjusted for inflation, they are up by 18.5% yearon-year and are 33.7% over the 2007 peak.

According to the QV figures, this leaves the average residential property value in the Auckland area at $855,672 – and values have increased across all areas of the market. This means that “affordable” suburbs like Mt Roskill, Massey, Te Atatu and New Lynn and Papakura are now particularly sought after.

QV’s Northern operations manager Jan

❝ While a single

month doesn’t confirm a trend, the asking price is a lead indicator of the market.

– Nigel Jeffries ❞

O’Donoghue said there wasn’t enough existing stock, or new homes being built, to accommodate the demand. “High numbers of apartments have also been selling off the plan in central Auckland as demand for more affordable homes reaches a crescendo,” O’Donoghue says.

INTERESTING TWIST Westpac chief economist Dominick Stephens’ said that Auckland’s headline-hogging house price saga has taken a “very interesting” twist.

But he isn’t convinced that Auckland house prices fell in July.

In his view, it was necessary to be careful when analysing price data, because it could be skewed by a change in the composition of house sales. “For example, if a bunch of lowprice properties happened to sell in a given month, median selling prices will be lower even if house prices were actually unchanged on an apples-for-apples basis,” Stephens said.

His tentative conclusion was that as there had been a surge in sales of low-price properties in Auckland lower priced properties were disproportionately owned by investors.

“So it would be no stretch to propose there has been a flurry of sales to investors in Auckland,” he said. “This isn’t particularly surprising, when one considers that both the tax regime and access to finance is about to change for property investors, but not for owner occupiers in Auckland.”

Lower interest rates might provide some support for the market, but it was likely the rate of increase in Auckland house prices had slowed, he said.

EARLY DAYS YET ANZ chief economist Cameron Bagrie’s ears pricked up at the Barfoot & Thompson data showing that Auckland prices have remained stable for three months. He also noted that QV’s data lags behind the REINZ data.

He said, however, it was still too early to tell if Auckland’s market was cooling, especially as the SuperCity’s inventory was sitting at the tightest level on record. It was also possible investors were rushing to buy ahead of the October changes, which was supporting demand.

“There are some tentative signs that things are beginning to cool a touch,” Bagrie said. “With prices in Auckland increasingly stretched relative to both incomes and rents, a modest pullback now would help avert a bigger crunch further down the line.”

NATIONAL PICK UP Meanwhile, around the rest of the country, housing markets appear to be picking up.

The REINZ data showed that the national median price rose by $15,000 (3.3%) from $450,000 in June to $465,000 in July. This was an increase of $49,000 (11.8%) on the July 2014 median price of $416,000.

Trade Me Property had asking prices on the rise nationally, while QV’s data recorded that nationwide values increased by 4.1% over the past three months and by 10.1% over the last year. This was the fastest annual increase since 2007 and left the average nationwide value at $527,760.

REINZ chief executive Colleen Milne said the volume of sales across New Zealand was exceptionally strong for the middle of winter, with particularly strong year-on-year sales growth in the top half of the North Island and Central Otago Lakes.

Backing this was strong anecdotal evidence of Aucklanders buying in these regions as owner occupiers and investment properties, she said.

“Also, there is an emerging problem of available properties in Northland and Waikato/Bay of Plenty, with a 50% fall in inventory for Northland over the past 12 months and a fall of 60% in Waikato / Bay of Plenty,” Milne said.

SUPERCITY IMPACT Many commentators agreed with Milne’s view that a number of non-Auckland markets are starting to display the effects of an influx of Auckland buyers.

QV national spokesperson Andrea Rush said market activity in the upper North Island was definitely on the upswing.

This was especially evident in Hamilton, but also in Tauranga, Whangarei, and the Franklin, Hauraki and Waikato districts. But valuers in Wellington and Dunedin have also been reporting increased interest and activity from Auckland investors, she continued.

“Net migration remains at record highs and there are now incentives for new migrants to move to areas outside of Auckland,” Rush said.

“So this coupled with record low interest rates is likely to see continued upward pressure on home values as we move towards spring.”

Stephens’ said that, with the ongoing exception of Wellington, prices rose in most regions. This was notable in the “other North Island” group where prices have shown real strength in recent months, leaving them up 9% on a year ago.

“This fits with the growing number of anecdotes that housing demand from Auckland, for both owner-occupied and investor properties, is now radiating out to other centres such as Hamilton and Tauranga.”

He felt, however, that New Zealand’s changing economic situation was likely to have a cooling impact on housing markets around the country. “On balance, we forecast national house price inflation of 4.5% next year, compared to 10% this year.” ✚

REINZ SALES: UP

Sales volumes were up nationwide in July..

INTEREST RATES: DOWN

Banks continue to offer lower rates following the Reserve Bank’s latest OCR cut..

OCR: DOWN

The Reserve Bank cut the OCR from 3.25% to 3.0% in July.

IMMIGRATION: UP

Migration levels continue to hit record highs, according to Statistics NZ..

BUILDING CONSENTS: UP

Auckland’s ongoing rise in consents has led the way – and there is now a slight increase in the nationwide trend.

MORTGAGE APPROVALS: UP

Bank lending data remains strong.

RENTS: NEUTRAL

Auckland rents continue their slow rise, although not at pace with house prices.

But rents are static around the rest of New Zealand.

Cracking the lendrespon how the

014

code sibly

The new Responsible Lending Code has forced change on everyone, creating headaches and opportunities. TMM finds out how the code is working.

new code works T

he Responsible Lending Code was introduced primarily to put a dampener on dodgy loan sharks and unscrupulous payday lenders, but its impacts have been widely felt in the property market.

Lenders, including banks, have changed their systems and approaches to assessing loan applications, and advisers are having to do more work when putting deals together.

Lenders, including banks, have changed their systems and approaches to assessing loan applications, and advisers are having to do more work when putting deals together.

The code, which is part of the CCCF Act, and its requirements are quite complicated, however underlying the whole process is the need to be able to demonstrate that a borrower can repay the loan.

General Finance executive director James Lockie said that, while the code was aimed at disreputable loan shark and pay day lenders, it has had a big impact on the lending industry as a whole.

This is because lenders need to ask for, and ensure they get, much more information – about income and expenses – from potential borrowers.

“We have to make sure more that we do the right thing by the borrower in terms of serviceability. We have got to make sure that they really can afford the payments on their loan without undue hardship.”

Some might argue that the borrower should ascertain for themselves whether they are making a sensible commitment with a loan, but the onus has been put on the lender to do so, Lockie said.

“If a lender doesn’t do that and the borrower ends up defaulting, the lender will be punished for making a bad loan. Not only will they have a dud transaction, but they could be investigated and penalised by the Commerce Commission.”

❝ We have got to make sure that the borrower really can afford the payments on their loan without undue hardship. ❞ – James Lockie 015

lendresponsibly

Responsible lending code: the run-down New Zealand entered a new era of responsible lending earlier this year – when The Credit Contracts and Consumer Finance Amendment Act and its accompanying code of practice came into force on June 6.

All lenders now have to meet the responsible lending obligations outlined in the CCCFA and the Responsible Lending Code.

Also, all consumers must now be provided with access to better information to help them make better borrowing choices.

This is a first for New Zealand and puts the country in line with international best practice.

The Responsible Lending Code provides guidance on the new lender responsibility principles in the the CCCFA. Lenders include banks, non-bank lenders and financial service providers – who must be registered on the Financial Services Providers Register.

Under the code, key lender responsibilities are:

➊ Lenders must make reasonable enquiries before entering into a loan or taking a guarantee to ensure that a) the credit provided meets the borrower’s needs and b) the borrower can make payments or comply with the guarantee.

➋ Lenders must help borrowers and guarantors to make an informed decision.

➌ Lenders must treat borrower and guarantors reasonably

As a result, significantly more due diligence and work is required for every lending request – and more requests are turned down.

Lockie said responsible lenders will all be doing their best to comply with the code and that, as everybody gets used to it, compliance will become easier.

However, he is concerned at the existing level of misunderstanding about what the code requires in terms of information.

“This means some lenders might not be asking the right questions. Or, alternatively, some lenders might be taking too conservative a stance and going too far in their information collection.”

First Mortgage Trust chief executive Tony Kinzett agreed.

He said understanding, or even awareness, of the changes in the code is still not widespread and this has caused some difficulties regarding borrower expectations.

“Also, like any piece of new regulation it does not cover every situation, and so there are inevitably some grey areas that will need to be clarified over the next couple of years as they arise.”

Lenders have real concerns they will be heavily penalised for not asking the right questions early on in the process, for not dealing with new information reasonably and for making minor errors (which do not prejudice borrowers), Kinzett continued.

“The legislative changes have definitely changed the way that all lenders operate from the loan approval and offer process right through to drawdown for consumer credit contracts.”

Not only do the changes require lenders to think more critically and seek out more information about borrowers before offering a loan, but they have also necessitated staff education and legal advice.

However, the changes are generally considered necessary to cut some of the more unscrupulous lenders out of the industry, he said.

and ethically – including when breaches occurs, when unforeseen hardship is suffered, and during a repossession process.

➍ Lenders must make sure that loans are not oppressive

and that they don’t induce borrowers to enter into loans in an oppressive way.

➎ Lenders must make reasonable inquiries to be satisfied the credit-related insurance will meet the borrower’s requirements and the borrower will be able to make payments without undue hardship.

➏ Lenders must meet all other legal obligations – including under the Fair Trading Act and the Consumer Guarantees Act.

❝ Like any piece of new regulation it does not cover every situation, and so there are inevitably some grey areas that will need to be clarified over the next couple of years as they arise ❞ – Tony Kinzett

016

While the code itself is not binding, evidence of compliance with it is considered to be evidence of compliance with the CCCFA’s binding principles.

Commerce and Consumer Affairs Minister Paul Goldsmith said the code aims to offer better protection to vulnerable consumers when they borrow money and help ensure they can afford to repay what they are borrowing.

While most lenders already follow responsible lending practices with their customers, a percentage of lenders – like loan sharks and payday lenders – do not, the minister said.

As such, the code is meant to target these types of lenders who prey on vulnerable consumers.

“Our intention is not to impose unnecessary compliance costs on lenders who are already lending responsibly, but rather to provide additional protection from lenders who engage in predatory practices.”

Goldsmith said there are now harsher penalties, which are enforced by the Commerce Commission, for lenders who don’t follow the rules.

Banking and mortgage sector representatives have welcomed the code, although they have warned that regulators will need to be vigilant in enforcing it.

“We see the tightening of the rules for vulnerable consumers as a good thing but question whether there remains enough flexibility for non-vulnerable and more experienced consumers.”

Overall, the code has been welcomed by the industry as providing valuable direction on the lending principles outlined in the CCCFA and how these may be applied in any given situation, Kinzett added.

Cressida Capital director Nigel Staples described the code and act as “an interesting piece of legislation” which appeared to be a little “paternalistic.”

Cressida had decided to suspend any CCCFA lending while the act was in its early days.

“It’s watch this space thinking,” he said. “New legislation take a while to bed in.”

He also thinks the Commerce Commission will be watching this space carefully, and will probably initiate some court action if necessary to set some precedents for the new legislation. It has taken this approach with regards to fees in the Motor Trade Finance case.

Staples said one thing was interesting is that solicitors have to be involved in property lending, and that adds another layer of protection, compared to how consumer lending works.

❝ Our intention is not to impose unnecessary compliance costs on lenders who are already lending responsibly, but rather to provide additional protection from lenders who engage in predatory practices. ❞ – Paul Goldsmith

017

to be qualified to act as a broker. But the FMA is currently reviewing this. Some minimum standards for brokers should be mandatory,” he said.

Brokers’ View New Zealand Property Finance director Geoff Bawden says in the past it was clear what criteria a customer needed to meet to get a loan approved and with his lending knowledge he could pretty assure clients that the application would succeed.

“I don’t have any confidence at all to say I could bank a deal,” he says.

Now there is far more inconsistency from the lenders and he finds it much harder to know if a deal will get banked.

Loan Market adviser Bruce Patten has also found the code has made it difficult for some people to get loans, especially asset rich ones.

He cites some examples where clients have good assets, not a lot of income, but reasonable amounts of savings, being turned down at application time.

He feels sometimes the banks are hiding behind the code when assessing applications and it is hindering advisers’ ability to bank deals.

While he has had some troubles with how loans have been treated, Patten does see that it provides opportunities for advisers too.

Because it has become harder to get a loan approved borrowers are more likely to seek professional advice. iLender director Jeff Royle said the code is good for adviser businesses and puts qualified, reputable brokers in a good professional space.

Borrowers now have a greater need for good quality, independent advice, he said.

“A bank can tell a borrower ‘yes, you can borrow this much’ but they are less likely to provide a full spectrum of advice on such issues as how the individual should borrow, how they should structure what they borrow, and what the best vehicle is for them to use.”

Conversely, it is the job of a good broker to give borrowers the whole picture when it comes to information and advice.

On top of this, Royle said that banks have taken the code very seriously and are declining more potential borrowers than ever.

This combination of factors means that, if anything, the arrival of the code has led to more people seeking professional advice from brokers.

Royle said growing numbers of people are calling brokers to help them find solutions to their borrowing needs and problems.

“That solution might be a short-term solution – like going with a non-bank lender for the short-term until the borrower is in a position acceptable to a bank. That sort of arrangement is happening now more than ever.”

From a consumer perspective, Royle said some people will probably feel aggrieved that they can no longer borrow what they want when they want it.

018

A bank view

❝ If anything, the arrival of the code has led to more people seeking professional advice from brokers ❞ – Jeff Royle But he believes that most potential borrowers will not feel any impact from the code.

“The net effect of the code is fantastic as more and more people are seeking out sound advice from the broker community, which is thriving.”

However, Royle added this growing demand means that consumers should be careful to turn to an experienced and qualified broker for advice.

“In New Zealand, you don’t actually have

ASB programme manager Stuart Armstrong was responsible to implementing code changes at the bank.

Contrary to what advisers say, he says there were no changes made to calculators or servicing guidelines.

There were some areas where changes were made and a good example is how the bank treated guarantors. In the past the bank would just accept a guarantee without doing any enquiry on the person giving the guarantee.

Now it runs what it calls a “capacity test” although banks very rarely call on guarantors.

Another change was when families helped each other, especially when it comes to a child buying a first home. In these cases teh co-borrower is required to seek independent legal advice.

The Responsible Lending Code, he says “represents what should be good basic practice in the banking industry.”

“Basically it’s banking 101 and how banking should be done,” he said. “It’s about how you lend money properly.” ✚

PAA LEGAL

By Rod Severn

Protection and reputation – one code Investors should consider a number of points to allow greater flexibility in current regulation, argues Rod Severn.

Rod Severn 020

W

hile we are well into the FAA review, the process has a way to go and we encourage all advisers to play an active role. Later this year, MBIE will release a consultation paper – suggested approaches and changes to current regulation to which the industry will be asked to respond.

The FAA review is an opportunity to promote the value that advisers add to consumers and providers, emphasising ethical, conduct and competence standards; to streamline compliance and certainty and provide better clarity for consumers. Central to these objectives is the current AFA Code of Conduct.

A key element of the PAA’s initial submission to MBIE is the recommendation that the code apply to all advisers, not only AFAs. We believe that the code and how it is applied to advisers and advice scenarios is a key tool better applied to provide greater certainty and direction for advisers (reducing the compliance burden and barriers to advice for consumers) and provide greater consumer clarity of the value and role of advice.

REQUIREMENT Further, under the current legislation, RFAs are particularly exposed because of the lack of definition regarding what is expected by the requirement to act with care, diligence and skill.

This is a view that we have considered for some time and was supported by a survey conducted at the National Advisers Conference in June this year, in which more than 70 per cent (of RFAs) said that the AFA Code of Conduct should apply to RFAs. As with most things, how this proposed change is implemented is key. It is not a case of taking existing AFA requirements and applying those, wholesale, to RFA advisers.

One code would give the Code Committee the ability to tailor standards to different advice situations, allowing for much greater flexibility that the current regulation. Here’s a snapshot of our initial review submission relating to the code.

➊ One code for all advisers. Replace AFA/RFA/QFE distinction and create different conduct and competence standards to reflect the complexity of each advice situation.

❝ As with most

things, how this proposed change is implemented is key. It is not a case of taking existing AFA requirements and applying those, wholesale, to RFA advisers.

– Rod Severn ❞

➌ Class advice to be limited to publications and Robo-advice only and the code to set standards for class advice.

➍ The importance of ongoing advice, in addition to the traditional focus on point-in-time advice.

➎ Discrete issue advice specifically included.

➏ The code to mandate standards and restricted-advice warnings across the board, including for QFEs. Handled carefully, clarity for consumers and advisers will be greater served by simplicity, which one code with suitability standards applicable to different advice scenarios would achieve. With the overall aim being to boost the reputation of advisers and advice, what we can do to increase consumer awareness, understanding and trust in our profession must be central in our approach to regulatory review?

The process continues and more opportunities to have your say will present themselves this year. I encourage all advisers to weigh in on the debate and play a role in shaping the future of the industry.

Rod Severn, CEO, Professional Advisers Association

➋ Creation of Suitability Safe-Harbours in the code for less complex advice situations and advice on discrete issues.

021

SALES & MARKETING LEGAL

By Paul Watkins

A mortgage brokers marketing toolkiT

2015 STYLE

Online options are seriously challenging traditional media and online marketing cannot be ignored. By Paul Watkins

W

hat worked 10 years ago doesn’t seem to work today. That’s because the most successful marketing medium now is online activity. Such traditional media as press and radio are fast losing ground to online options.

This might be easy to say, but is not that easy to do – at least on the face of it. In the past, your marketing toolbox often consisted of the radio or press rep calling on you. They first of all brainstormed a promotion, then had it run up or recorded and returned for your approval.

Your job was to agree on the budget, approve the creative and write the cheque out. All quite simple, with the media rep being informed

enough to guide you through a mostly successful promotion.

That was then … now it’s a little different.

While press, radio and TV still offer successful options at times, the real action is online. But when was the last time a Facebook rep called on you? Or a Google Adwords rep? Twitter rep?

Instagram rep? Never! So how do you make these online options work for you?

HOMEWORK One option is to engage an advertising company with a strong online performance record. While they will clearly guide you in the right direction, they are not cheap. So the next option is to have an understanding yourself.

This is not as hard as you might think, but it does take a little homework on your part. And the best teacher – YouTube – is free.

The rest of this article will be devoted to the online ‘tools’ of which you should have a working understanding. All have excellent “how to” YouTube videos, so simply search in YouTube for the topics below, with, “How to run an advertising campaign using xxx”. Insert the topic where it says ‘xxx’. The good news is that while none is hard to do, it can be labour intensive.

The first tool is MailChimp and mail merge.

This is an effective way to send out mass emails to clients. MailChimp has excellent preprepared templates to make your email look flash, but the best bit is that you will know who opened them and when they opened them, among other outstanding reporting. As long as you don’t send more than 2,000 it’s free!

But even if you do, the pricing is modest and a great investment.

LITTLE RISK The next tool in your 2015 marketing toolbox should be Facebook marketing. I have mentioned this quite few times before and if you are not using it yet, you will be very surprised how incredibly easy it is to do. The trick is not the mechanics of it so much as the message. But as you only pay for each click, there is little risk to trying it.

Next is Google Adwords. These are the advertisements that appear at the top of your searches and down the right hand side. Take the

022

❝ The good news is that

while none is hard to do, it can be labour intensive ❞ time to watch a few YouTube videos about these. Again, the message or headline means the most to success.

And while you are searching for videos on the topic of Google, look up how Google ranks pages. Google has a habit of changing this now and again, but it can be frustrating to find your listing on page two or three or even 10 of the searches. This tool is very important as nearly everyone will now search for services online or at least find your web site to ‘check you out’ before committing. The ways to improve your rankings are not simple.

If this is important to you, you can enlist the aid of specialist Search Engine Optimisation companies (SEO) which will give you time for a small fee. They can explain a few things that you can do to improve your site and bring your rankings up. One of these is regular updated content to your site.

This is the next tool and a very easy one to do – a blog. This is simply a regular short article that you have written and posted on something relevant. It keeps your website fresh and adds new content and appears current to Google. This can help a lot with search rankings. A blog can be a comment on something in the news, your own thoughts on things like re-fixing, or perhaps introduce a new staff member. There are no rules, apart from keeping it short (say 300 words maximum) and having a great headline.

UNDERSTANDING There are many other online options, including Postr, Twitter and Instagram to name just a few. These require a little more time and understanding, but may be worth your time to at least get a basic understanding of them. They would rank well below the others I have mentioned, however, in terms of importance to your brokerage.

Very closely associated with each of these tools is design. This is a critical tool that gives the impression you want for our brand. Never try to design your own adverts. It will be glaringly obvious if you do, and sadly some of you do!

Come back to Facebook for a moment. As you scroll on your own page, do you ever stop on just text posts? Rarely I bet. The first thing you will stop at is the videos, which magically start all by themselves as you reach them. Video is king on Facebook, followed by well-designed images with the small allowable amount of text over them. The text can’t exceed 20% of the area of the image. This can be quite a challenge to achieve.

INTERESTING MESSAGE Now focus on video. This may appear on the face of it to be far too expensive to create, but it is not. We live in the “YouTube generation” and quality of footage is not a big consideration. Most cell phones are now powerful enough to take outstanding videos more than adequate for YouTube and Facebook posts. Strength of the message wins the day, whether humour, a quirky idea, a parody or any other interesting message. Find wild-thinking friends to brainstorm some ideas. The rule now is that brands cannot be boring!

This rate of change in marketing tools is accelerating, as is in every industry. But now, a little time in YouTube could do a lot to improve your client communication, your website rankings, the traffic to your website (by clicking through from Facebook adverts) and therefore your success as a broker.

You can’t ignore online marketing activity. I haven’t touched on websites themselves, most in this industry being deathly boring and unengaging. But understanding these new 2015 tools can help to overcome that to some extent, without having to make a new site. I say 2015, as when I write this article again in 2020, the tools will have changed. So call up YouTube and start searching for “How to run an advertising campaign using xxx”. ✚ Paul Watkins writes blog content and newsletters for financial advisers.

023

MY BUSINESS

By Phil Campbell

Driven Broker AMASSES ACCOLADES Josh Bartlett knows a good broker can’t afford to sit still.

M

elbournian Josh Bartlett describes himself as a young gun in a world where mortgage advisers who lack initiative can overnight become spud guns.

He’s a man on a mission and at 36 has already won awards and recognition expected of someone decades older.

Bartlett, a Loan Market broker, was in New Zealand earlier this year to tell his story at the NZ Financial Services Group’s series of mini conferences.

Bartlett, who operates from the Melbourne suburb of Cheltenham, had for 10 years owned a personal training studio and gymnasium before making the move to financial services.

Bartlett says the decision to sell the gyms was brought about by two things.

He has a love of real estate and he wanted to be involved in that industry somehow. He also wanted to build a business with a passive income. After tossing up being a real estate agent or a mortgage broker, he settled on the latter.

One of his reasons was that with trail commissions he could build a good passive income stream in his business. Part of the irony is that Bartlett is anything but passive and laid back. A key to his success is activity – and he generates a lot of that.

Prospecting, he says, has been a major point of success and he works the phones hard.

He talks about what he calls, “yesterday’s call list”. The goal is to make so many calls in a day that he can’t see yesterday’s calls on his phone.

024

❝ I’m show-

ing people how to buy. I don’t just talk about rate I talk about the transaction, I’m part of the whole buying solution. ❞ He reckons to do this requires 85 calls a day.

Success means wealth for Bartlett. In the last financial year Bartlett settled more than $115 million in residential home loans last year, with three personal best months in May ($14 million), June ($16 million) and July ($17.8 million) in settled loans.

He says the problem with his old job is that he could work, “hour by hour, day by day, year by year and my income wouldn’t change”.

But there are positives and negatives to being a broker.

“In the old job I would finish training someone and 10 minutes later don’t have to think – so

that was a positive and negative. Now you can do the filing but you don’t stop thinking and that’s a positive; you don’t stop moving.”

His industry’s always about thinking.

“There’s a true skill in putting a deal together up against someone else,” he says. “It continues to make you think. You can’t switch off.”

Bartlett says there are two sides to his business. One is mortgage broking and the financial side and the other is being a buyer’s advocate and helping clients through the process.

“I’m showing people how to buy. I don’t just talk about rate I talk about the transaction,” he says. “I’m part of the whole buying solution.”

Often that will mean the client ends up paying less for a house than they expected, thus reducing his income.

He says the other area where he tries to differentiate himself is that he is a broker for real estate agents. All he referrals come from real estate agents.

While he has had up to 70 agents on his book in the past he now thinks that the ideal number is somewhere between 25 and 30 agents - that way he can give them good service.

er

“It’s better to have fewer and have them active.”

He works extremely closely with the agents and has developed a software system called e-broker which keeps his agents up-to-date with information about what is happening with clients. The system provides the agents with text messages, emails and weekly reports on activity.

While he runs competitions for agents to supply leads and pays a referral fee the big kicker in his model is that he runs a good database and works with the clients with the aim of bringing back a new listing to his real estate agents further down the line.

Bartlett sums up his relationship real estate agents like this: “I love them they send me names and numbers and I write business from it.”

But if there is one thing he would like to change, it is that agents need to understand more about what brokers do and brokers need to better understand the real estate transaction process.

While Bartlett’s top advice to brokers is about generating activity, he also recommends that if you are a more technically-minded broker then it is worth hiring someone else to build the business.

“Get someone to do parts of your business you don’t like,” he says.

Bartlett says he always “wanted to be the seagull stealing the chip”. He was trying to create a lead so that his company was feeding the chips. “We want the agents trying to get into our office,” he says.

His office has expanded to cope with growth. The installation of telephone booths in the ground floor is designed to the agents. The company is also running monthly first-home/landlord seminars. “I want real estate agents to come to us to be part of our team to see what we do for their profession as well,” Bartlett said. He was an “enduring” business. And he cites long hours to underscore that.

“You can’t afford to be average,” he says. ✚

» Loan Market Rookie of the Year 2011 » Best New Broker 2011 » Australian Mortgage Awards – Quality » Young Gun of the Year 2012 » International Rookie of the year 2012 » Finalist for the Australian Broking Awards 2012 » Finalist for the Australian Broking Awards – Best Customer Service 2012 » Number One Broker in Network 2012 » Most Improved Broker 2012 » Number One Broker in Volume of Approved Loans 2012 » Newcomer of the Year at the 2013 » Australian Mortgage Awards – Broker of the Year – Franchise 2014

025

INTEREST RATES Dominick Stephens

Westpac picks 2% OCR Westpac chief economist Dominc Stephens outlines his views on the inflation outlook and where the OCR is heading.

I

nflation is set to rebound over

the coming quarters as earlier declines in import prices reverse. However, this pick-up will be only a temporary reprieve.

With growth expected to slow over the coming year, the economy is going to need a significant shot in the arm in the form of lower interest rates to keep inflation near the RBNZ’s target over the medium term.

Inflation fell to its lowest level in over a decade in early 2015, but we expect it will pop higher to 1.8% in early 2016. This is because two of the key factors that had dampened inflation over the past year – falls in petrol prices and strength in the NZD – have now reversed.

But this amounts to no more than a temporary fillip for inflation. The underlying issue is stubbornly low domestic inflation.

Non-tradables inflation fell to 2% in June, its lowest level since 2001. And this wasn’t just because of a few rogue prices.

The Reserve Bank’s sectoral inflation model estimates that the underlying trend in inflation has steadily dropped away in recent years, and now stands at just 1.3%. With the economy entering a marked downturn at present and the waning Canterbury rebuild set to create a further headwind from late 2016 onwards, the Reserve Bank will have to work hard to prevent inflation from remaining too low.

The Reserve Bank recognises this, and has already reduced the OCR from 3.5% to 3.0%. Its most recent communications indicate that the RBNZ expects to reduce the OCR only once or twice more. By contrast, we expect the OCR will have to fall to a record low of 2.0% over the coming year.

Some of this difference of opinion stems from differing reads on the economy – the RBNZ does not envisage as much of a near-

026

Fig 1 - Westpac Inflation Forecast

term slowdown as we do. But we also have differing views on the role of the exchange rate. The RBNZ argues that the falling exchange rate will boost inflation, but we doubt it can do so on asustained basis.

If export commodity prices recover next year as we are forecasting, the exchange rate will recover somewhat. This would cause import prices to stabilise, and inflation would threaten to drop back to its underlying trend.

Alternatively, if export commodity prices fail to recover, the exchange rate would keep falling, but the weak economy would hammer domestic inflation.

Either way, further reductions in the OCR will be required.

Our forecast for a 2.0% OCR does imply

interest rates that are below the levels reached in the aftermath of the Global Financial Crisis (GFC). We would appeal here to the precedent set by Australia in recent years.

When Australia’s terms of trade and construction booms faded, the cash rate was reduced to 2.0% – much lower than the 3.0% cash rate low reached during the GFC. We struggle to see why New Zealand will differ materially as its own terms of trade and construction booms fade.

The second point to consider here is that inflation and inflation expectations are much lower now than they were in 2009. An OCR of 2.0% today actually equates to higher real (inflation adjusted) interest rates than we experienced in 2009.

Is 3.99% possible

B

anks’ annual spring

the economy is in a very bad way and we might be very unhappy."

mortgage war has started and advertised fixed rates are dropping as they compete for borrowers’ business.

But the big question now is whether 2015 will be the year borrowers see advertised home loan rates below 4% for the first time.

But others say no…

Some say yes…

Some commentators, such as David Windler, of mortgage advice firm the Mortgage Supply Co, says it seems inevitable.

He said the BNZ one-year special of 4.35%, a market record when it was announced recently, was most of the way there.

“Someone is going to go to 3.99% from here.”

He said he had already heard anecdotal evidence that a bank had offered a 3.99% one-year rate to a customer.

“The only debate is whether we see the banks advertise that rate or just see it behind the scenes but it is getting closer and closer.”

Another broker, Glen McLeod, of Edge Mortgages, agreed a sub-3% rate was probable, particularly if the recent rebound in dairy prices was not sustained and there was little inflation.

"I would like to see [rates] with a '3' in front of them, 3.99 per cent would be magical to get to," he said.

David Tripe, of Massey University, said that was not impossible. “It depends on what happens with the global economy and various other things.”

But he said very low interest would indicate a seriously struggling economy, which was not desirable. "Be careful what you wish for.

If we had very low rates it will be because

Nick Tuffley

"On the basis the cash rate holds at 2.5%, it would be hard for a fixed-term rate to push much lower than they already have. You’d need a considerable catalyst to get markets shifting their view.”

- Nick Tuffley

John Bolton, of Squirrel, said he could see little room for rates to drop much further.

He said brokers would have to work with their clients to counsel against the assumption that fierce discounting in the market indicated a longer-term trend of dropping rates.

“They need to be careful that it could be perceived as a signal that rates are heading lower when it is really just an aggressive special.”

Bolton said it seemed that interest rates were getting to the lowest point they were going to reach and it might make sense to lock in a rate now for a period such as three years.

Nick Tuffley, ASB’s chief economist, said it would take an OCR of 2% to get mortgage interest rates below 4%. He said the market had already fully priced in an OCR of 2.5%.

Tuffley said it would take a substantial reduction in the expectation of the future track of the official cash rate for banks to offer much less than they currently were.

He gave a 25% chance of an OCR below 2.5%.

“On the basis the cash rate holds at 2.5%, it would be hard for a fixed-term rate to push much lower than they already have. You’d need a considerable catalyst to get markets shifting their view.”

Tripe said the Reserve Bank forecast for export price recovery next year would seem to indicate that current five-year fixed terms, of as low as 5.35 per cent, were as cheap as they were going to get.

"That doesn't mean to say the shorter rates won't move.” ✚

027

PRACTICE MANAGEMENT

By Philip Macalister

Court frowns on adviser for

deliberate breach of contract The status of restraint of trade agreements against advisers is being tested in the High Court.

F

ormer Mike Pero mortgage adviser James Heath has been banned by a High Court judge from setting up a new business because of a restraint of trade clause in his franchise agreement.

Heath, and a number of other advisers, decided earlier this year not to renew their franchise agreement with Mike Pero and have applied to the courts to rule the restraint of trade clauses in their contracts are unenforceable.

The case is yet to be heard by the High Court.

However Mike Pero sought, and was granted, orders stopping Christchurch-based James Heath from setting up a new business.

Pero’s sought an urgent injunction from the court as Heath and his de facto partner Gina Smith were clearly setting up a new business to compete with Mike Pero.

Heath chose not to renew his Mike Pero franchise agreement when it expired on June 30 this year and attempted to then set up a new business, even though he knew about the restraint of trade clauses in his agreement.

Those clauses stopped him from being a mortgage adviser within New Zealand for six months and within Christchurch and

028

Canterbury for two years after the agreement was terminated.

WHAT WENT WRONG? It appears Heath chose not to renew his franchise agreement as he believed the Mike Pero model was not working. In evidence he said that since June 2010 only a relatively small proportion of his business was through Mike Pero referrals. For the past five years his business was entirely self-generated from personal referrals and networking initiatives. He also alleged that Pero’s customer management systems were unreliable and embarrassingly unprofessional.

Heath also said a review in 2013 showed that the Mike Pero brand was no longer competitive within the mortgage broking market. The company challenged that evidence.

Evidence presented to court showed that once Heath got his business going it was earning good levels of commission.

In his first year of trading (May 2000 until June 2001) Heath earned $50,249 in net commissions.

In his second year this sum more than doubled to $106,625.

In the third year the net commissions received totalled $180,490 and for the next five

years (from June 2003 to June 2008) the net commissions ranged between $187,000 and $244,000.

Following this, trading declined, apparently as a result of the Christchurch earthquake, but by 2012 revenue had increased again to $339,289 and to over $350,000 in 2013 and 2014.

THE BIG DECISION One of the key decisions for Justice Simon Moore was what would happen if he granted the injunction, but Mike Pero lost the full court case and the opposite scenario that Heath was allowed to start a new business and Mike Pero won the substantive hearing.

Heath’s counsel, Paul Sills, argued that little damage would be done if Heath and Smith established a new business. He noted Mike Pero had eight other franchises in the area.

However, Mike Pero’s counsel, Bruce Stewart QC, argued the damage to the group’s goodwill would be substantial.

He said that franchisees who are complying with their obligations to Mike Pero deserve to be protected from competition by departing franchisees who have made the decision to resile from their contractual obligations.

In the end Justice Moore was “easily satisfied”

❝ It is inconceiv-

able he did not contemplate the consequences. ❞

that the injunction should be granted. He took the following six factors into consideration in making this decision: ▶ Mike Pero has a strongly arguable claim. It has enforceable contractual provisions which restrain the defendants from commencing or continuing any business in competition with Mike Pero. ▶ Damages will not be inadequate to remedy if Mike Pero ultimately succeeds. The damage to Mike Pero's goodwill is likely to be substantial and the harm is not adequately able to be compensated by damages if the injunctions are not granted. ▶ Heath and the other respondents have only limited means by which to meet an award of damages. ▶ Heath was well aware of the restraint covenants from the beginning of his business relationship with Mike Pero. He took the step of electing not to renew the agreement with the intention of establishing a business which would compete with Mike Pero's with the benefit of legal advice. He did so in the full knowledge of the risk he would be restraint from competing. ▶ The respondents expect a large number of clients from Mile Pero would possibly transfer to the new business.

▶ The only means to assess the extent, nature and ownership of the goodwill can only be assessed when evidence is adduced, including expert evidence, and tested by crossexamination at trial.

EVIDENCE OF COMPETITION Judge Moore had “no doubt“ Heath and Smith intend to compete with Mike Pero.

He says that is demonstrated by Smith applying to join the NZ Financial Services Group as a broker; the fact that a new website went live, allegedly accidentally; the fact that Heath had established a new company and this company was incorporated the day after Heath and other franchisees started court action to overturn their restraint of trade agreements and that the new business would be in the same building as Heath operated his Mike Pero franchise from.

IMPACT OF RESTRAINT OF TRADE One of the concerns raised by other advisers is that the court was stopping Heath from earning a living.

This was brought into sharp relief when Justice Moore accepted that Heath and Smith may have to sell their house.

“An inevitable consequence of granting

interim relief will result in hardship to Mr Heath and Ms Smith I am far from satisfied it would be of the catastrophic levels which are frequently encountered in applications of this sort.”

However, the judge was clear that Heath and Smith had options to earn a living. He said, in his written judgment, that the restraint was not a blanket ban on Heath working in the finance industry.

“The protective restrictions are limited to the provision of mortgage broking and related services.”

He noted that Heath could provide nonrelated services to customers of the business where they are contracted to Mike Pero and not in competition to the firm.

“It is plain that Mr Heath is an astute businessman with a range of skills, including management in the customer service field.”

Likewise Smith has skills as a personal assistant and has worked as a real estate agent.

Judge Moore was critical of Heath and Smith for not preparing for the inevitable reaction of Mike Pero to the restraint of trade clauses.

“Heath must have known that Mike Pero would respond in the way it has when confronted with the prospect of a former franchisee setting up business in direct competition contrary to its contractual obligations.

“It is inconceivable he did not contemplate the consequences and the need for him to take steps to secure alternative employment which would not breach the terms of the restraint. I am satisfied that any harm to the respondents is capable of being adequately protected by damages and note that in this regard Mike Pero has provided an undertaking as to damages.”

He also said “Heath has brought these consequences upon himself through his own actions”, particularly by not putting in place any plan for protecting his income.

Smith escapes Heath’s fate Mike Pero was unsuccessful in securing orders against Smith has she wasn’t bound by the franchise agreement like Heath.

Smith could set up a mortgage advisory business but cannot use the name James Heath Mortgages, nor can Heath assist her.

"The injunction already granted prevents Mr Heath from being involved in a mortgage broking business in any way whatsoever. He cannot assist Ms Smith if she elects to start such a business. Any restriction that goes beyond this would be both punitive and unwarranted."

Mike Pero was also unsuccessful in getting orders to inspect and take copies of documents and computer files.

As its application to the court for an injunction was successful Mike Pero was awarded costs. ✚

029

INSURANCE

By Steve Wright

Disability Insurance

– HOW MUCH IS ENOUGH? Stop and think of your family when contemplating disability insurance, Steve Wright urges.

N

umerous surveys seem to tell us that many Kiwis have no insurance and even those that do are often underinsured.

“Underinsured” means they have insurance but not enough. So how much will a client need if they suffer a serious disability?

The disability of a family member, especially if it is serious and long term, will have a massive financial impact on the family, potentially forever leaving the family in financial strife, unable to have the lifestyle they were hoping for: there is every chance the family will disintegrate.

Is this what clients want? Is this what their families deserve? This is where you become very important! As an adviser, clients rely on you for advice about the financial consequences of death, disability and illhealth, so how much cover should you be recommending for disability?

FINANCIAL IMPACT Incidentally, it is not just income earners whose disability will have a financial impact on the family, seriously disabled stay-at-home mums/ dads and children must also be considered – but we’ll deal with them in the next edition of the Mortgage Mag.

030

Replacing lost income is a first fundamental when it comes to disability insurance. Income cover (with a suitably long payment term) does a reasonable job of protecting income lost, as long as the client is fully insured to the maximum allowed, typically 75% for indemnity style products or 62.5% of income for agreed value.

Incidentally, while it is true most disabilities are relatively short-term, some unfortunate clients are disabled forever and forever is a long time. This is why my first choice of payment term is “to age 65” at least. A short term of two or even five years will not suitably look after a client who has many years left to retirement and who becomes disabled permanently: they are underinsured!

But even if the client is properly insured for lost income, this is not yet enough. Research by the Disability Resource Centre Auckland, INC, in collaboration with the University of Auckland, uncovers some particularly sobering facts about the additional costs someone who is severely disabled may face, simply to live an “ordinary” (not luxurious) lifestyle. Insurance to cover these additional costs will be required in addition to income cover as the income cover is likely to be fully utilised for the

living expenses of the family.

MULTIPLE SUPPORT A particularly big expense for people with high needs in disability, people who are blind, intellectually or physically impaired for example, is the hourly cost of support associated with performing activities of daily living, shopping, meal preparation and housework. In many cases, depending on the support required, multiple support people, each with different skills, are needed. Often alterations to the home and specialised equipment is necessary. The report concludes, for example, that (in 2006 NZD terms) the weekly cost to someone with a high degree of needs for physical impairment is in excess of $2,000 per week and more than $2,500 per week for someone with high needs as a result of intellectual impairment!

This is over $130,000 per year! Even those with moderate needs in physical impairment are assessed as needing more than $600 per week or $31,000 per annum. Where will clients get the money to pay for these extra costs if the unthinkable happens?

The Government, in the form of benefits or grants may provide some assistance, but

❝ I think advisers

are duty bound to give their client the full scary truth and recommend cover levels accordingly ❞ to which they may be entitled.

Fortunately the incidence of very severe disability is relatively low. The fact that the incidence of risk is low does not mean we can ignore it, though, because the potential cost is catastrophic. Proper risk management requires mitigation of big ticket items even if they are relatively unlikely to eventuate. Fortunately this low incidence is taken into account in relatively low insurance premiums for products like TPD, allowing clients to afford the very high levels of cover they need.

SIGNIFICANT COST Building the large sums insured required to cover this risk into your clients’ protection plans as efficiently as possible is your challenge. Big premium savings can often be made by selecting such products as income cover, mortgage repayment cover or trauma cover which include TPD benefits as a feature or option.

As long as the definition of what it means to be totally and permanently disabled is acceptable (“own occupation” preferably but “any” occupation at least) these TPD benefits in other products can often ensure significant cost efficiencies can be gained without loss of cover, leaving a need for a much smaller top-up of separate TPD cover.

whatever assistance is available may differ.

Assistance is different depending on whether disability is caused by illness or accident and the involvement of different government agencies like ACC. Even if received, government assistance it may not be enough!

INCOME TESTED Whatever the case, clients reliant on government help have limited choice and are beholden to government officials’ decisions

about what assistance they can get. In many cases Government assistance is asset or income tested anyway.

Many clients may not qualify for benefits or may not meet the required criteria and so may not effectively be able to access government assistance when they believe they need it.

Insurance can provide clients with sufficient cash to be able to fund and make their own decisions, about the care they need or how they supplement any government assistance

BIGGEST CAUSES Cost is always an issue and probably one of the biggest causes of underinsurance (along with adviser underestimation of the likely cost) but concern about the client’s ability to pay for it should not drive your recommendation. I think advisers are duty bound to give their client the full scary truth and recommend cover levels accordingly. If the client baulks at the premium then strategies to reduce premium with the minimum loss of cover will be needed but the client should be under no illusion that they will likely be underinsured. ✚ Steve Wright is general manager product at Partners Life.

031

LEGAL

By Jonathan Flaws

Remove risk by heeding due diligence What you don’t (and do) know about insurance won’t hurt; it may solve the risk of due diligence, writes Jonathan Flaws.

T

hings have been hotting up in the Auckland market for some time.

Prices are climbing making it increasingly harder to buy at and receive a reasonable return. The lack of stock is not helped by (if you can believe the politicians) competition from overseas buyers.

Which just means more properties are being offered by way of auction.

A potential bidder simply cannot afford to pay for the costs of a full due diligence on every home they might like to bid for. But not knowing all there is to know about the property can prove costly after settlement.

On June 10 the Auckland Council issued a media release with the opening lines: “Aucklanders buying new homes with unconsented decks or other additions should not assume that they won’t have to remove it.”

Ian McCormick, the general manager of Auckland Council’s building control department, added: “Anything unconsented will need to have a Certificate of Acceptance to meet the current NZ Building Code, not the code at the time of construction.”

DUE DILIGENCE WARNINGS On 7 August the New Zealand Herald published an article entitled “Warning: hidden property dangers of no due diligence” and wrote “Real Estate Institute chief executive Colleen Milne said due diligence – an information-gathering step for buyer's protection – could save buying a house with defects or that didn't meet expectations.”

The ASB Bank head of home lender, Vince

032

Clark, commented: “It is therefore extremely important for customers to conduct proper due diligence by using the appropriate professional advisers to identify any issues before committing to a contract."

Legal or commercial issue?

Due diligence breaks down into two quite distinct parts. ▶ Building and construction defects. ▶ Legal issues – for example, compliance with building code, building permits, rights of access, encroachments, services connections, cross lease issues, etc.

The commercial solution to the first is to find a properly qualified builder or property surveyor to undertake a proper inspection and provide a full report.

The ADLS agreement for sale and purchase has a condition allowing for this. But this doesn’t apply if you are buying at auction. In any event you wouldn’t want to spend the money on a full and proper inspection if there was no certainty you would be successful in buying the property.

The legal solution to the second is to involve your lawyer early. Most auction open homes will have a copy of the LIM report handy and a copy of the title.

But a LIM report only tells you what the council knows, not what it doesn’t know. Even if you give the LIM report to your lawyer, the lawyer will not go and look at the property so how can the lawyer know that the garage out the back lacks a building permit or the addition of the extra toilet needed consent but does not have it?

Recently, I helped my niece to bid at an

auction. Immediately before the auction the auctioneer disclosed that the sale was without warranty for the garage sleep-out conversion and the extra toilet because both of those were unpermitted.

Anyone buying was therefore committed to taking the property subject to these potential defects. The neighbours were also present at the auction and so became aware of the issue.

If they turn into neighbours from hell and want to really annoy the new owners they could happily now put the council on to them.

The commercial solution to the building defects is therefore probably unworkable unless you have really deep pockets.

The legal solution to legal and compliance issues is also probably unworkable unless you have deeper pockets and even then there is no guarantee that your lawyer will be able to find all potential issues.

COMMERCIAL SOLUTION But don’t despair, as a new commercial product will go a long way to providing a solution to the legal issues and possibly some of the building issues.

The solution is an old one. It has been around ever since entrepreneurs in London sat around in Lloyd’s coffee house and decided to establish an insurance market and accept other people’s risk.

It’s called conveyancing insurance and it comes in the form of a policy issued by a UK based insurance syndicate of the modern day Lloyd’s.

You need to tell your clients to “talk to your lawyer about conveyancing insurance” and find out what it can do to offer a degree of commercial protection against the legal risks

❝ Most unknown

issues are likely to be cleared up for under $100,000. ❞

of buying a property. Their lawyer can find out about it very easily by going on to the Auckland District law Society Inc website and clicking on the button that directs them to the insurance broker who has introduced this insurance into New Zealand.

Conveyancing insurance pilot The insurance and its benefits are real.

Last year my firm undertook a pilot to test the relevance and robustness of the scheme. So I can talk about it first hand. (a) Capped conveyancing insurance We have now introduced a firm policy that every residential purchaser for whom we act is given a capped policy that provides $100,000 worth of cover against all of the risks mentioned in the policy. This means that if something happens after settlement requiring the purchaser to spend money to fix up, instead of accusing my firm of not doing a proper job, the client will come back to us and ask us to arrange for a claim to be made and for the issue to be sorted out.

Conveyancing insurance is a no fault policy.

The client doesn’t have to prove negligence.

So instead of trying to find a way to blame us (which may be hard and costly to do – if we couldn’t have identified the issue we cannot be at fault) we are likely to be paid by the insurance company to help fix up the issues for our client.

We both win.

Most unknown issues are likely to be able to be fixed up for less than $100,000. Given that previously your clients would have had to find this from their own pockets, even this capped amount is so much better than they have ever had.

RISK ANXIETY

WHAT IS COVERED?

And if the client is really anxious about risk they can take out a full all risks policy for the purchase price – which increases over time by inflation to 200% of the purchase price.

Strangely enough none of our clients have objected to being given a capped policy, not surprising since we pay the premium and build it into our fee. Our fee for a standard purchase is still currently under $1,000, so even with the premium we are below market.

A full policy is still a modest premium compared with the purchase price.

And the premium is paid once only and the policy lasts for as long as the client owns the property. (b) Specific risk My niece purchased the property at auction despite the lack of warranties.

I arranged for her to take out an all risks policy for the full purchase price and add to it a “special risk” cover for the unpermitted work. The whole policy cost her $500 including GST. So if the neighbours turn into neighbours from hell and the council asks her to get a certificate of acceptance for the extra toilet and the garage conversion, the insurer will cover the cost of doing this – or if it can’t be done and it has to be removed, compensate for any loss.

Unlike the capped cover for unknown risks, a “special risk” policy is perpetual and runs with the property. So when my niece comes to sell, the agent won’t be disclosing the defect when it’s too late, just before the auction, but will have a copy of the policy available for inspection at the open homes. Effectively insuring over the defect.

Conveyancing insurance can cover a lot of issues: ▶ Any adverse matter not revealed or identified by searches and enquiries (including fraud). ▶ Prior non-compliance with registered covenants/encumbrances. ▶ Lack of building consent or unauthorised additions. ▶ Boundary disputes. ▶ Seller misrepresentation. ▶ Unknown rights over the property. ▶ Lack of access – or access over property not owned by you.

A classic special risk is the flats plan that does not correctly reflect the actual footprint of the flat. Perhaps because a deck or conservatory has been added and the plan wasn’t altered to reflect this.

It’s not why but why not?

This type of insurance has been around overseas for many years. In the United Kingdom, a large proportion of properties sell with the vendor or purchaser taking out a legal indemnity policy to cover a known risk.

Conveyancing insurance is real and now readily available. Check it out at www.adls.org If you are buying a house the question is not why would you take it, but why would you not.

If your client’s lawyer doesn’t offer the capped policy as a matter of course, suggest that you client ask the lawyer why not. ✚ Jonathan Flaws is a partner at legal firm Sanderson Weir.

033

Intelligence Lending book details

In this issue of TMM we look at lending figures to work out who is borrowing all the money and how are advisers doing.

MORTGAGE ADVISERS GRAB MARKET SHARE

INVESTORS RESTRAINED

Mortgage advisers appear to be getting a greater market share when we compare NZ Financial Services Group’s results against total borrowing figures released by the Reserve Bank. Based on this data NZFSG advisers account for about 18% of all loans written in July.

Property investors have been incredibly restrained. This graph shows their lending volumes have been remarkably consistent over the past year. The red line (left hand axis) shows that the large majority of lending has been below an 80% LVR. In fact in July just 3% of lending to investors had an LVR of 80% or more.

$7,000

$1,150

$6,500 $6,000

$1,050

$7,000

$250

$6,000

$200

$950

$5,500 $5,000 $4,500

$850

$4,000 $3,500

$650

$3,000 $2,500

$450

$750

$550

$2,000

$350 Jan 2015 Feb 2015

Mar 2015 Apr 2015

Total Borrowing

May 2015 Jun 2015 Jul 2015

NZFSG

$5,000 $150

$4,000 $3,000

$100

$2,000 $50

$1,000 0

Source: RBNZ and NZFSG

0 1

2

3

4

5

6

Lending above 80% (RHS)

IT’S THE FIRST HOME BUYERS First home buyer

Other owner occupier

8

9

10

11

Lending below 80% LVR (LHS)

12

Source: RBNZ

MOVE TO FIXED

Most reports blame property investors for the growth in house prices and lending volumes. However, Reserve Bank figures show that the greatest growth in lending this year has come from First Home Buyers while investors have remained reasonably static.

$1,200

7

Investor

Reflecting the relatively low fixed mortgage rates the proportion of home loans on floating rates fell to 26% in July, down from a peak of more than 60% in April 2012. Over the past year, the two-year fixed rate has been the most popular, as this has ben the lowest available mortgage interest rate.

Floating

Business purposes 70

$1,000 $800

Fixed < 2 year

Fixed > 2 year

%

% 70

60

60

50

50

$600

40

40

$400

30

30

20

20

10

10

$200 0

0

Source: RBNZ

034

2005

2007

2009

2011

2013

Source: RBNZ

0