TMM - The NZ Mortgage Mag Issue 1 2021

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TMM 01 • 2021 • WWW.TMMONLINE.NZ

A return to normality?

The new regime awaits

From Air NZ to the adviser market

How to update your business

PAGE 12

PAGE 28

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TMM 01

Contents

Lead

Forward to March 15

The year ahead: what advisers expect from 2021.

Advisers are taking the new regime seriously.

PAGE 18

PAGE 12

Up front

Features

04

EDITORIAL

16

HOUSING COMMENTARY

06

NEWS

24

SBS SPONSORED CONTENT

10

PEOPLE

26

PEPPER SPONSORED CONTENT

14

PROPERTY NEWS

Columns

2021 has been quick off the blocks.

Advisers express concern over investor lending.

New ASB broker team, new business banking boss at ANZ.

Politicians struggle with soaring market.

Any sign of a slowing market?

Debunking reverse equity myths.

Your guide to referral marketing for alternative lending.

28

MY BUSINESS

30

SALES AND MARKETING

32

INSURANCE

Lilian Nguyen’s journey from Air NZ to the broker market.

Paul Watkins on preparing for 2021.

Steve Wright on how you can help clients struggling with premiums.

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03

UP FRONT • EDITORIAL

N Crazy start to the year; but what does the rest of 2021 look like?

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

Publisher

Philip Macalister

Subeditor

Dawn Adams

Contributors

Daniel Dunkley, Daniel Smith, Miriam Bell, Paul Watkins, Steve Wright

04

TMM 01 • 2021

ormally when we get back to work after our summer break it’s a slow and steady build up to the year ahead. 2021 already feels a lot different from normal.

It seems everyone in the market place is flat out writing business. With mortgage volumes increasing and house prices rising it’s a pretty good time to be a mortgage adviser.

How long will it last?

Who knows? There is growing talk from Government that they want to slow the housing market down and it seems they are hell-bent on stopping property investors going about their legitimate business. We have heard this hot air from politicians previously but there is a feeling that they mean business and don’t really care about property investors.

Clearly the big banks are towing the line by ramping up lending restrictions to investors.

The feeling in the market is that they are going down this line to keep in the good books with Government – especially as the new Code of Conduct bill is weaving its way through Parliament.

It does not seem that these restrictions have much to do with risk in lending to this sector.

Assuming the market heads in this direction first home buyers are likely to be an increasingly valuable market for advisers.

While it is another new year it seems one thing has not changed. Appalling bank turnaround times. The system is at breaking point and something needs to happen.

We hear one bank recently tried to limit applications from advisers to one, with a maximum LVR of 60%.

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Photography Credit

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With conduct regulations coming down the regulatory pipelines it would appear to be very hard for banks to argue they are working in their customers’ best interests when they give mortgage approvals from their networks priority over adviser-originated ones.

After all pretty much every bank says adviser business is driven by customer demand.

To add more complexity we understand many of the issues stem from banks running on antiquated IT systems.

In the past year the risks of poor IT have been demonstrated across some of New Zealand’s biggest financial organisations.

One of the themes we plan to explore this year is how mortgage advisers future proof their businesses and make them more resilient – especially if we have another lockdown. It’s going to be an interesting challenge and one we hope readers find useful. If you would like to contribute please email me (philip@tmmonline.nz).

At the end of last year we saw a flurry of activity amongst the dealer groups. NZ Financial Services Group’s acquisition of Kepa was one of the worst kept secrets in the industry, while SHARE’s acquisition of Newpark was a total surprise.

Over this year many of you will be wondering if you are in the group that best suits your needs. It will be interesting to see how this evolves over 2021 – again that is another area we plan to watch closely.

All the best for 2021.

Philip Macalister Publisher

TMM is published by Tarawera Publishing Ltd (TPL).

TPL also publishes online money management magazine Good Returns www.goodreturns.co.nz and ASSET magazine.

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

TMM welcomes opinions from all readers on its editorial.

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

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05

UP FRONT • TMMONLINE.NZ/NEWS

Tough year ahead for investors Advisers are predicting a tough year ahead for investors as new restrictions on lending loom.

The Reserve Bank of New Zealand has announced a new “60/5” rule, meaning banks will only be able to lend 5% of their book to investors above 60% LVR. In effect, it means most investors will need a 40% deposit from May. ASB, ANZ and BNZ have mandated new 40% deposit requirements for investors in recent weeks.

ANZ said it introduced the new rules as “escalating property prices are putting home ownership out of reach for many Kiwis”.

It said, “Current settings favour property investors particularly over first home buyers.”

In February, BNZ and ASB dropped a bombshell on advisers, halting new loan applications for investors unless they have a 40% deposit.

BNZ said its decision was due to “unprecedented demand”, adding it wanted to prioritise existing customers.

The decisions come as investors are

Warning on fee for service charges More clients are playing off mortgage advisers against their bank, leading to disputes over fee-for-service charges, says FSCL chief executive Susan Taylor.

In a red-hot mortgage market, a growing number of clients are using an adviser to source a low rate, and using that rate to negotiate better terms with their bank.

After ditching the adviser and sticking

06

TMM 01 • 2021

blamed for fuelling record house price growth in New Zealand.

Investors borrowed $2.24 billion in November, up on $1.8 billion in October, close to the record $2.4 billion borrowed in May 2016, according to RBNZ data.

Investor lending at high LVR levels, above 70%, rose to $844 million in November, up from $745 million the month before. Those levels have not been seen since 2014-2016.

Advisers fear their investor clients face a challenging year ahead.

David Green of adviceHQ said: “Landlords have certainly had a tough time over the past 12-18 months with different laws and regulations coming into place. There’s definitely a feeling that things are getting harder for investors.

“In terms of lending conditions for lenders, I can’t see it getting any easier,” Green added. “We will have to wait and see what the Reserve Bank does, and whether it returns to pre-Covid LVR settings, or the stricter prior settings in place years ago.

“Any decisions have ramifications on the wider economy. There’s still a lot at with their bank, some borrowers have been shocked to learn they are subject to “fee-for-service” charges, the Financial Services Complaints Limited boss says.

“More people are sourcing a loan through an adviser, deciding not to proceed, and staying with their existing banks. However, in these situations, advisers are perfectly entitled to charge for their time,” she adds.

“From time to time we see clients acting badly, and trading off advisers with their banks. We've seen some complaints about it as clients are unaware they could be charged a fee if they didn't proceed with the loans.”

play here, and another Covid outbreak could change everything.”

Geoff Bawden of Q Group said advisers have been “singled out” unfairly for the sharp increase in house prices.

“While they are partly responsible, in my opinion there are other contributing factors – such as shortage of good stock; Kiwis can't travel so they are looking to spend; first home buyers have been panicking, with low interest rates.”

Bawden added: “Banks have already tightened the noose for investors. They did that in November and from what I can see it hasn't really dampened enthusiasm. I don't see Reserve Bank policy change having much impact because the outcomes have already been acted upon.”

Bawden said responsible lending principles would make things harder for investors in the year ahead.

“Responsible lending will continue to drive outcomes and exclusions around what can be included as income, scaling of income and stress testing will continue to be the norm which makes it difficult for everyone, particularly investors,” he added.

With more clients playing off advisers against banks, Taylor warns advisers to make sure their agreements are clear and charges are outlined, leaving no room for ambiguity.

“Advisers are entitled to be paid for their time provided they are clear about it,” she says. “Point it out to the client at the start, and explain. The vast majority of people understand advisers need to be paid, provided they know about it.

Most people are perfectly comfortable with advisers earning a fee like any other professional, like a lawyer or accountant. Advisers don't need to be shy about letting people know fees will be payable.”

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07

UP FRONT • TMMONLINE.NZ/NEWS

OCR predictions change amid strong data Better-than-expected economic indicators prompted forecasters to change their predictions for the official cash rate.

Unemployment figures in February revealed joblessness fell below 5% in the three months to December.

Stats NZ data showed a drop in the seasonally adjusted unemployment rate from 5.3% to 4.9%.

The surprise figures were enough for ANZ chief economist Sharon Zollner to abandon her prediction of another OCR cut.

Zollner said: “We no longer expect the RBNZ to cut the OCR again this cycle.” She added: “We are inclined to take this at face value and conclude that conditions are unambiguously better than previously feared.”

The ANZ economist said the Reserve Bank could be more “patient” in its approach, and predicted an expansionary stance from the central bank.

“The RBNZ’s employment and inflation mandates are now looking more achievable, with the economy better

Turnaround time improvement?

improved their turnaround times in most instances, but not all”.

One Auckland-based respondent to the survey said: “Bank turnaround times have been good after the break; deals are now getting picked up and approved within a few days and [that] seems to be across all banks.”

Another Aucklander added: “Bank turnaround times have improved since the New Year with the exception of one bank, and this is providing better

Advisers have begun to note a slight improvement in bank turnaround times, according to economist Tony Alexander's latest survey of the market.

Alexander's monthly survey of the adviser market reveals “banks have

placed to weather headwinds than previously feared,” she added.

BNZ economists went one step further, and predicted the next move for interest rates would be up.

The bank made a bold prediction that rates would begin to rise again in May next year.

“There is still massive uncertainty as to when and by how much but, today, we are formally building in a first rate hike in May 2022,” the BNZ team added.

service levels to our clients.”

However, not everyone was in agreement. Three respondents to the survey described turnaround times as “appalling”.

One of them said: “The turnaround times once again from all banks are diabolical. The way in which a number of lenders speak to advisers is quite appalling. [It’s] evident the banks are not broker friendly at all, though they say they are.”

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TMM 01 • 2021

Be clear on clawbacks Mortgage advisers must clearly disclose clawback agreements with clients, industry leaders say, as disputes on the topic continue to emerge.

A recent complaint to dispute resolution service FSCL, in which a client complained about a $2,500 clawback fee, underlines the ongoing friction between advisers and clients on the topic.

A man received the $2,500 bill as he had refinanced his loan within 24 months, with the original lender clawing back its commission from the broker.

FSCL said the adviser in question was entitled to a fee, but sided with the complainant, as the broker's terms of engagement were deemed to be too vague.

While clawbacks are a vital tool to compensate advisers when clients change course, top advisers say the industry needs to be clear on the scope and size of potential fees.

Hamish Patel of Mortgages Online said, “Passing on some of the clawback to the client can be ok, as long as it is clearly disclosed to the client upfront.”

He said his business caps the cost at $2,000, and only if the company is charged a clawback.

He said: “It would be unfair to pass on the full amount of the clawbacks to most clients as, in a way, we are not paid for the time spent on that particular client, but rather the cost of running a business which is only paid on success of procurement.” ✚

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09

UP FRONT • PEOPLE

People

ASB broker team changes

ASB has announced a new look thirdparty banking team following the departure of long-serving Marc Oliver.

Oliver left the bank just before Christmas, and has been replaced by Amanda Young as head of third party banking.

In an announcement to advisers, Young confirmed the changes to the market.

Young has been in banking for more than 25 years, starting her career with

New business banking boss at ANZ Lorraine Mapu is to replace Mark Hiddleston as managing director of business banking at ANZ. Hiddleston is leaving ANZ at the end of March after five years on the bank’s senior leadership team. He has spent 15 years at the lender.

Mapu has held the role of ANZ NZ’s general manager for business since September 2020, and was previously general manager for commercial and agri business.

ANZ NZ chief executive Antonia Watson said:

BNZ. She moved to Cigna NZ in 2007, and then to ANZ, before moving to ASB in 2014.

At ASB, Young has held the role of regional manager for the midlands region, including Wellington.

Young recently held the role of general manager for branch banking, and became head of business development and youth in January last year.

Alongside Young, a new broker business development manager joins the big four bank in Auckland.

Anthony Sage, a Canterbury graduate, joined ASB in 2019, and is an accredited mortgage broker.

Young said Sage “is excited to bring his experience as a broker and a banker to this role to deliver great customer outcomes through third party banking”.

“Mark has been an outstanding executive and overseen the transformation of the commercial and agri businesses at ANZ NZ. Our strategy has been to help New Zealanders into homes and to start and grow their businesses and Mark has played a major role in that."

Watson added: “Lorraine is highly regarded by her customers and the staff she works with and will bring detailed understanding of the business and agri sectors as well as big picture leadership skills to the top table.”

First Mortgage Trust builds team

Lender FMT has hired a new business development manager in Auckland as it continues to grow.

Caroline Olagues recently joined FMT “and is excited to be a part of a leading non-bank funder”, the group said.

Olagues is half Danish and half American, however grew up in the Bay of Islands before moving to Auckland to study a Bachelor of Finance and a Bachelor of Property.

For the past five years, Olagues has worked in property finance at ASB Bank, 010

TMM 01 • 2021

where she worked with many of New Zealand’s leading property investors and developers, FMT said.

As a result of the success and growth in the South Island and lower North Island, Jeremy Finch has been promoted to southern regional manager.

And Mark Beams has been appointed as a BDM in Wellington.

Beams has extensive experience after working closely with brokers for most of the past decade.

He has recently moved from BDM

roles with ANZ and Bluestone, and moves to FMT with a desire to “further his experience in the unregulated lending environment with a key focus on commercial and development funding”.

FMT said: “Mark has built up strong relationships with his advisers over the years and looks forward to continuing these in his new role. He will continue to look after the advisers in the lower and central North Island as well as reconnecting with those advisers in the Tasman region.”

Mike Pero Mortgages hires Five new advisers have jumped on board at adviser group Mike Pero Mortgages.

Christchurch franchise owner Rob McCammon welcomes new mortgage adviser Sammi Schuurman. Prior to joining Mike Pero, Schuurman worked as a hairdresser for 11 years and prides herself on her excellent communication skills.

Joining Bryce Dahl’s team in Northland is Will Roberts. Roberts has 20 years’ experience in the finance industry, most recently working as an investment adviser.

Franchise owner Jacob Annals welcomes new mortgage adviser, Ryan Giles, to the Waikato team. MPM said Giles has extensive retail and business banking experience spanning over 10 years.

Wairarapa franchise owner Donald Stevenson has welcomed new mortgage adviser Angela Matuszek. Matuszek has over 30 years’ experience in the finance industry and brings a vast knowledge in lending, insurance and banking to help customers achieve their financial goals, MPM said.

Joining Kirsten Morris’ team in Gisborne is new mortgage adviser, Ronelle Boonen. ✚

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011

UP FRONT • REGULATION

Forwards to March 15 Transitional licensing figures look promising, and the FMA are ‘very pleased to see advisers taking the transition seriously’.

BY DANIEL SMITH

A

s summer draws to a close, and we move further in to 2021, the new regime will be a priority focus. Before the holiday break the FMA released their latest tally of licensing numbers which told a positive story for an industry where advisers were poised for change.

Back in September 2020, things were looking shaky with over 2,000 financial advisers yet to apply for transitional licences. The end of year data shows a pre-holiday surge which saw 97% of advisers covered by a transitional licence.

As of December 20 1,356 licences have been approved alongside 715 authorised bodies, meaning that well over 2,000 advisers have made the decision to engage with the new regime.

Individual financial advisers covered by a transitional licence now number 9,157, giving some leeway for double-ups on the FSPR. Speaking late last year, FMA director of market engagement John Botica said he was happy with the results. “I am very pleased to see advisers taking the transition seriously and engaging [with us] in the process. With everything else that has been going on this year, all of the stresses and strains that 2020 has thrown up, advisers have really answered the call to be part of a regime designed to provide even better customer outcomes.

“Up and down the country advisers make life better for their clients. They should rightly be proud. Licensing numbers show that the overwhelming majority are well on the way to being ready for the new regime.”

Those 3% of advisers yet to gain their transitional licence have until March 15 to do so.

Updates to FSLAA regulations December 2020 saw a slew of supporting updates to FSLAA. Penny Sheerin, partner at Chapman Tripp says that advisers needn’t worry too much about these updates if they are on top of the changes for the new regime.

“Really these updates are just the finer details. Tidy-ups to some of the wording 012

TMM 01 • 2021

transitional provisions to give affected providers time to update documents.

• Prescribing eligibility criteria for an entity that wants to be an authorised body under a licence that covers a financial advice service.

‘Up and down the country advisers make life better for their clients. They should rightly be proud. Licensing numbers show that the overwhelming majority are well on the way to being ready for the new regime’ John Botica of the regulation. Updating terminology to reflect the new regime and a number of other quite administrative points. A lot of it is not ground-breaking new content.”

But Sheerin notes that there is one area which advisers need to be mindful of.

“One thing to note are the changes to the FSP Register, specifically around limitations that have been put in place to limit the misuse of the register. These changes have been talked about for a while but now they are manifesting in the upcoming regulations.”

At the top of the changes to the FSLAA, are updates to the Financial Markets Conduct Amendment Regulations 2020.

The key changes to this set of regulations are detailed below.

• Replacing terminology from the Financial Advisers Act 2008 (FAA).

• Replacing references to financial advisers with references to financial advice providers and including

• Carrying over the effect of the Financial Advisers (Custodians of FMCA Financial Products) Regulations 2014 but with some updates and clarifications, and clarifying when assurance reports for assurance engagements must be obtained by custodians.

• Prescribing limited circumstances in which a provider of a client money or property service is not required to hold client money and property separate from firm money or property including duties to protect the interests of clients.

• Prescribing when firm money that is held together with client money is to be treated as client money.

• Prescribing requirements for the record of nominated representatives that must be maintained by providers.

• Prescribing the statement that lenders can give to make clear to consumers that the limited exclusion from the financial advice regime relating to lender responsibilities applies.

• Continuing duties imposed under the FAA for former authorised financial advisers and qualifying financial entities to retain records.

• Carrying over exemptions contained in regulations under the FAA. • Updating a cross-reference in the financial advice disclosure regulations so that financial advice providers are able to refer to their website for information about their legal duties.

• Enabling financial advice providers to provide contingency discretionary investment management services (DIMS) without being subject to DIMS licensing requirements (and providing for transitional arrangements). This carries over

and updates an existing licensing exemption for contingency DIMS provided by authorised financial advisers.

• Dis-applying certain provisions of the Trusts Act 2019 to trusts relating to portfolio investment entity (PIE) call fund units and PIE term fund units.

• Updating the information that must be disclosed to investors about the tax consequences of investing in managed investment schemes that are PIEs. • Amending the Financial Markets Conduct (Asia Region Funds Passport) Regulations 2019, including a new exemption from the licensing requirement for financial advice services.

Other released FSLAA regulations include: Financial Markets Authority (Levies) Amendment Regulations (No 2) 2020 • The Regulations set levies for the new financial advice regime as well as for the 2021/22 and 2022/23 years reflecting decisions made earlier this year.

Anti-Money Laundering and Countering Financing of Terrorism (Definitions) Amendment Regulations 2020 • The Regulations replace the now redundant terminology from the Financial Advisers Act 2008. No substantive changes to the AML obligations have resulted.

Financial Service Providers (Registration) Regulations 2020

• A requirement for additional information to be displayed on the Register.

• New measures to address misuse of the Financial Service Providers Register.

Financial Service Providers (Exemptions) Amendment Regulations 2020 • The Regulations exempt certain providers without a place of business in New Zealand from registration on the Financial Service Providers Register if they do not promote services to New Zealand clients.

With the new regime just around the corner it is important that adviser processes are robust enough to handle any difficulties brought about by the change.

Client complaint resolution numbers positive The levels of resolved client complaints against financial service providers show that systems are currently working, but this could change with the tide of the markets, says Financial Focus principal Murray Weatherston.

Weatherston says that the levels of complaints seen in New Zealand is actually relatively low. During 2020 FSCL only investigated 298 – 91 of which were settled, 103 discontinued and 44 resolved early by the participant. Only 42 cases went all the way through to the end of the process.

He believes that these numbers reflect the health of the DRS systems and of the industry as a whole. “The situation is clear. If the client has a complaint that the provider cannot deal with, then the consumer has the right to go free of charge to a dispute resolution scheme.

The fact that the numbers are low means that the adviser industry is in good health.”

One caveat that Weatherston adds: “Given the way the investment markets have been performing it is very hard to see why any consumer would have anything to complain about regarding investment advice.”

When analysing the performance of the DRS Weatherston believes that it is important to remember that the markets have largely been kind. “It’s hard to complain when you are not losing money.

It will be interesting to see, if markets turn, if that will lead to an increase in disputes.”

The confusion around what the numbers of complaints means for the industry stems from a misunderstanding of the way the systems work, Weatherson says.

“Some people think that the consumer can go straight to the DRS to make their complaint, which is not the case. The consumer has to go to the adviser first, and only if they can’t get a solution there can they then approach the scheme.

“Many people don’t understand that to even get to the DRS there has to be a complaint that has not been settled through the adviser-client channels.” ✚

‘One thing to note are the changes to the FSP Register, specifically around limitations that have been put in place to limit the misuse of the register’ Penny Sheerin

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013

UP FRONT • PROPERTY NEWS

Politicians under pressure to fix housing market Price inflation showed no sign of slowing in December, and politicians have laid out plans to fix the housing shortage.

BY DANIEL DUNKLEY

014

TMM 01 • 2021

Housing plans expected in budget The National Party has proposed working together with the Labour Government, as house price inflation continues to rise across the country.

Prime Minister Jacinda Ardern has confirmed the Government will announce plans to increase the supply of new homes in the May budget, amid rising pressure to address runaway prices and a shortage of listings.

Ardern said decisions around repealing the Resource Management Act would be announced in this month, with a first draft of the bill due to be published in May. In principle, the Government has agreed to implement recommendations made by a review of the RMA by Tony Randerson. The review called for the RMA to be replaced by a Natural and Built Environments Act and Strategic Planning Act. The report also called for a Managed Retreat and Climate Change Adaptation Act to be created to address issues around moving properties away from high-risk flood areas.

On the demand side, Ardern is also exploring changes to subdue house prices. While the PM has pledged not to introduce a capital gains tax while she is in office, the Government is said to be exploring an extension of the brightline test.

Under current rules, the bright-line test captures properties bought for the purpose of being sold, and sold within five years. There are rumours the Treasury could extend the term, a move that would hit property investors.

Government slammed over housing plan Jacinda Ardern’s Government has come under fire for its lack of action on the housing market.

The Government announced in January that it intends to build 6,000 public and 2,000 transitional homes between now and 2024, though the details were first announced at last year’s budget.

Commentators called on the Government to do more to fix the crisis.

Ardern backed her government’s record, and the Public Housing Plan.

"This is the largest public housing build programme since the 1970s," she said.

"We are working at a cracking rate on public housing."

Since 2017, Labour-led governments have built 4,500 state homes. The Government wants to surpass 1,800 new homes within the next three years.

However, the waiting list for public housing is growing longer. A total of 22,500 people are on the list, prompting concerns across the political spectrum.

National wants bipartisan approach The National Party has proposed working together with the Government to fix the housing crisis.

The opposition wants to introduce a temporary emergency legislation to build more homes, similar to the laws used to rebuild Christchurch following its devastating earthquakes.

At National leader Judith Collins’ State of the Nation speech in January, the opposition called for a bipartisan approach to the housing problem.

“It is too hard to build a house in New Zealand – it's as simple as that. We need to make it drastically easier," Collins said.

"It's really important that we take away those roadblocks," she added.

"Those roadblocks, as we've seen before, once you remove them as we did in Christchurch for a limited period of time, it can get houses built." Collins said.

Ardern batted away Collins’ request.

"The thing that she's saying we should do, we've already done," Ardern said on Tuesday. "But, I take the offer in good faith. We want to fix the housing crisis."

Concern over rent increases Rents rose across the country after last year’s rent freeze was lifted, according to data from the Ministry of Business, Innovation and Employment (MBIE).

Tenants are increasingly turning to advocacy organisations and taking cases to the Tribunal to fight against increases of nearly 40%.

Nationwide, average rents rose by 11% between September and the end of the year, after the imposed freeze on prices was lifted.

The average rent rose 3% in the month immediately after restrictions were lifted, according to MBIE rental bond data.

The Wellington region saw the biggest increases, with prices now higher than Auckland.

Tenancy Tribunal adjudicators have expressed surprise at the level of rental increases.

One tenant took their landlord to tribunal after their rent rose from $250 a week to $350 a week, an increase of 40%.

The Green Party Co-leader Marama Davidson called for “bold solutions” to help renters.

“The Government should be looking to increase the supply of affordable community rental homes and ‘build to rent’ developments, for example by extending Kainga Ora’s ‘buying off the plans’ underwrite to community and iwi housing providers,” she said. ✚ WWW.TMMONLINE.NZ

015

FEATURES • HOUSING COMMENTARY

Record prices continue Record low listings this summer is translating into record sale prices and there’s no sign of it abating, writes Daniel Smith.

T

he new year brought with it the end-of-year data for 2020, and what a picture it paints.

Record lows, record highs, and the continuation of a post-Covid housing boom that seems to show no sign of abating. But while there’s a general consensus that 2021 will continue to see strong growth, for property investors, lack of stock, the changed regulatory environment, and restrictions on lending may act as handbrakes.

Summer is traditionally a great time for the market, but as the tide of housing stock ebbed over Christmas and early January, many were left waiting for it to come back in. Data revealed stock at record lows and prices rising dramatically, with records broken up and down the country. There is much interest in the year ahead and it’s a fascinating time to be in the property game.

Prices soaring As the total pool of properties available for sale in New Zealand fell to record lows over summer, the upward pressure on house prices continued. The country is seeing a new record median house price for the fourth month in a row according to the latest data from the Real Estate Institute of New Zealand (REINZ).

The median house prices nationwide increased by 19.3% from $628,000 in December 2019 to a new record of $749,000 in December 2020. It’s not just a case of Auckland pushing the numbers up; median prices (excluding Auckland) increased by 17.8%, from $535,000 in December 2019 to $630,000 in December 2020.

Bindi Norwell, Chief Executive at REINZ says: “For the fourth month in a row, 016

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BY DANIEL SMITH New Zealand has seen house prices reach a new record – a continuation of the pattern we’ve seen in the housing market for the last few months – highlighting how strong the residential housing market is in all parts of the country.”

Data from Realestate.co.nz shows that the regions have dramatically caught up with the month-on-month price increases we have seen occurring in the main centres. The largest price increase during 2020 was in Gisborne, where average asking prices were up 21.8% on 2019 to $526,948. This was followed by Wairarapa and Manawatu/ Whanganui, both up 16.8% to $591,600 and $494,468 respectively. Southland prices increased 14.4% to $406,872 and Otago was up 13.7% to $526,609.

Nick Goodall from CoreLogic says the data shows investors should not expect a slowing down in prices any time soon.

“Without any major policy change regarding property in the works, the longterm affordability of the property market is reliant on significantly increasing supply, which is a slow-moving factor.

So, for now, all indications are that the fervent growth in property values will continue throughout the summer at least.”

to 8,935) – the highest number of properties ever sold in this month.

Vanessa Taylor, spokesperson for Realestate.co.nz says, “Properties in New Zealand, on average, cost $75,056 more in 2020 than they did in 2019.

Coupled with the record demand, this tells us that people didn’t shy away from buying and selling last year.”

But despite demand for property, decreasing stocks put the pressure on sales numbers. Nationally, 109,128 properties were listed for sale in 2020 – a 2.6% decrease on the 112,007 properties that hit the market in 2019.

Marlborough property seekers were most squeezed for choice last year, with 16.2% fewer homes coming on to the market in the region compared to 2019.

In Northland, new listings were down 15.9% on 2019 and in Nelson and Bays they dropped 14.0%.

Crunching the data

Taylor says, “What we’ve seen quite clearly throughout 2020 is demand for property outweighing supply, which could have contributed to price increases.”

Only Auckland bucked the trend, with a 10.5% increase in listings in 2020.

“In Auckland we’ve started to see a change,” says Taylor, “the large number

With low sales stock across the country, buyers have had to move fast. That speed is reflected in sales numbers that have broken monthly records (yet again). The number of residential properties sold in December 2020 across the country increased by 36.6% from December 2019 (from 6,543

‘For the fourth month in a row, New Zealand has seen house prices reach a new record’ _ Bindi Norwell

‘Properties in New Zealand, on average, cost $75,056 more in 2020 than they did in 2019’ _ Vanessa Taylor

of new homes being built exceeding demand caused by population growth.

But supply is still tight because of the shortfall in previous years.”

REINZ data shows the pressure on sales and housing stocks has led the market to achieve the lowest days to sell in 204 months. In December, the median number of days to sell a property nationally decreased to 27, the lowest since December 2003.

Across the country, 14 out of 16 regions had a median number of days to sell of less than 30 days which is the highest on record. Only Northland and the West Coast were exceptions.

For New Zealand excluding Auckland, the median days to sell decreased by four days from 30 to 26. Auckland saw the median number of days to sell a property decrease by five days from 34 to 29, the lowest for the month of December in 17 years. Taranaki had the lowest days to sell of all regions at 20 days. This was the lowest days to sell for Taranaki since records began.

Listings on the rise As investors face up to some of the lowest stocks in years, we are seeing house listings rising to meet the surge in demand. New annual data from Realestate.co.nz shows that as prices soared, so too did demand, with 23.0% more users searching for property nationally when compared to 2019.

Also, the number of people searching for property in 2020 more than tripled (up by 227.8%) when compared to 2016.

Taylor says all property listed on Realestate.co.nz in 2020 totalled an asking price sum of $94 billion, up 5.4% on $90 billion in 2019. But this rise reflects the rising value of property rather than an increase in listings – which have remained low.

Demand from users searching for property at Realestate.co.nz rose in every region in 2020, with the most significant increases seen in the South Island. Searches were up 46.1% for Nelson and Bays, 38.9% for West Coast and 37.6% for Marlborough.

The drop in listings has not been balanced across all regions, as certain regions face far lower housing stocks than others. REINZ data shows that regions with the largest percentage decrease in total inventory levels were: Nelson which dropped -49.1% from 352 to 179 – 173 fewer properties, Marlborough which dropped -49.0% from 245 to 125 – 120 fewer properties and Manawatu/Whanganui which dropped -48.3% from 609 to 315 – 294 fewer properties.

Wellington had the lowest number of weeks’ inventory with only four weeks’ inventory available to prospective purchasers. This is a record low level of inventory for any region since records began and highlights how we desperately need new listings to come onto the market in some parts of the country.

Low rates driving boom For Dominick Stephens, chief economist at Westpac, the current boom in housing can be summed up in three words: low interest rates.

“The data we have seen over summer has reinforced what we have been saying for a long time. When interest rates drop, house prices rise. And because I expect interest rates to stay low for 2021, I expect house prices to continue to rise.”

Stephens predicted a price rise, but even he is surprised by how dramatic this has been.

“The vigour of the price increase is numerically higher than what we were expecting, even though we were expecting something pretty strong.”

Stephens believes that what’s grabbing headlines at the moment is a symptom of low interest rates. “You see low stocks and rapid turnover, and these are signs of price increases to come. I believe that what we are seeing at the moment is going to continue at least for the next few months.”

For 2021, Stephens is predicting 12% house price inflation based on interest rates remaining where they are, but says he’s no fortune teller. “If interest rates rose in the future you will likely see a decline in house prices. That is what I am watching for – a change in the inflation backdrop, which would change the Reserve Bank’s behaviour, which could affect mortgage rates and house prices.

“From an investor’s perspective the light is now green. But if inflation rose, the Reserve Bank’s behaviour changed, then that light could turn amber and then red.” ✚

What’s driving house prices?

UP REINZ HOUSE SALES

December sales nationwide were the highest ever for the month across the country. Auckland saw an increase in sales of 66% yearon-year, with sales up by 24.4% nationwide (excluding Auckland).

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BUILDING CONSENTS In November 2020, consents were up by 4.2% year-on-year to 38,624.

Economists say consent issuance has shown continued resilience.

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MORTGAGE APPROVALS Reserve Bank data shows mortgage lending overall reached a record high in November 2020, at $9.3 billion.

Annual growth in new commitments to investors was up a staggering 64.8%.

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RENTS Stats NZ’s stock measure shows December’s rents were up by 0.2% on November and by 3.1% year-on-year.

HELD OCR The Reserve Bank has held the OCR at its Covid-19 prompted record low of 0.25% since September.

DOWN INTEREST RATES

Westpac’s 2.29% one-year special rate is likely to spur other banks on to similarly dramatic lows. There’s now an ongoing mortgage rates war, with rates at unprecedented lows and the situation unlikely to change in the near future.

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IMMIGRATION Net migration from October 2019 to October 2020 has been low due to border restrictions. Despite this, Stats NZ’s provisional estimates for the year ended October 2020 show annual net migration at 59,500 down from 64,000.

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A return to normality?

The pandemic dominated the agenda in 2020, delaying the planned introduction of the new financial advisers’ regulatory regime. But changes are back on the table this year, and coupled with a rip-roaring housing market, advisers are poised for another busy, challenging year. Will this year be more normal than the last?

BY DANIEL DUNKLEY

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hile New Zealand escaped lightly compared with other nations around the world, 2020 was a difficult year. The Covid-19 pandemic, which hit our shores in Q1, dominated the year, with a six-week national lockdown in March, and second lockdown in Auckland in August.

Amid the turmoil, the long-awaited introduction of the new licensing regime was pushed back from June 2020 to March this year, giving advisers breathing room to get a transitional licence and plan for the new environment.

As the seismic economic events of last year hit home, government measures to keep the economy afloat led to a busy year for advisers.

Brokers processed a wave of mortgage deferrals at the beginning of the crisis as the Reserve Bank allowed lenders to push the pause button on home loans.

Government and RBNZ stimulus also led to a stronger than expected housing market. A record low official cash rate and scrapped LVR rules boosted activity throughout the year.

As long as our border holds firm, 2021 is likely to be a different year altogether.

Advisers, economists and commentators hope New Zealand will

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continue its tentative economic recovery and keep the pandemic at bay. With green shoots in the economy, there are hopes that 2021 will see a return to normality.

Mortgage rates The Reserve Bank went for the nuclear option at the onset of the pandemic, slashing the official cash rate by a huge 75 basis points in March. Mortgage rates have steadily plummeted since then, with mortgage wars continuing into the new year.

Among the big four banks, Westpac led price cuts on one year mortgages, offering a rate of 2.29% quickly followed by its rivals.

Heartland Bank’s limited one year online offering at 1.99% continues to attract interest, while the likes of HSBC Premier continue to sharpen rates.

The official cash rate currently stands at 0.25%, a record low, but economists are divided on whether it will fall any further, given the signs of a tentative recovery, and hopes for a Covid vaccine rollout over the course of the year.

In January, ANZ revised its forecast for the OCR, predicting that rates would no longer drop below zero and into negative territory for the first time.

ANZ economists led by Sharon Zollner predict there will be one OCR cut next year, in May, to 0.1%.

ASB’s team, led by Nick Tuffley, has also abandoned its prediction of negative rates next year amid a brighter outlook for the economy. The bank’s forecasters believe the OCR has now troughed at 0.25%.

Economists are divided on whether negative rates would stimulate the economy or be a mistake.

Independent voice Michael Reddell believes the central bank should have acted more quickly to bring rates below zero, while Kiwibank’s Jarrod Kerr does not think a negative OCR would be effective.

Nonetheless, economists believe we remain in a “lower for longer” interest rate environment. ASB predicts the OCR will stay put until 2023, and the wholesale swap markets have priced in five basis points worth of cuts for the year.

The OCR isn’t the only weapon in the RBNZ’s arsenal to push down rates.

At the back end of 2020, the central bank launched its Funding for Lending Programme, specifically designed to lower borrowing costs for retail banks, and stimulate the economy.

‘The rampant run in the housing market has surely taken a negative cash rate off the table. We now expect the OCR to be left unchanged, well into 2022’ Jarrod Kerr Some economists believe the FLP negates the need for further OCR cuts.

The programme may be sufficient to keep downward pressure on mortgage and other loan rates.

Kiwibank economists recently revised their OCR outlook and now think rates will stay on hold.

“The rampant run in the housing market has surely taken a negative cash rate off the table. We now expect the OCR to be left unchanged, well into 2022,” chief economist Jarrod Kerr said.

Kiwibank economist Jeremy Couchman warns NZ could yet see some pain from the nation’s closed border, which could influence the RBNZ’s thinking.

“We’re still waiting to see what happens over the course of the summer.

The border remains closed to visitors, and that will hurt the tourism sector over these months. While the rebound has been great so far, that level of activity can’t be sustained, and we know unemployment is likely to peak at 6.5%.

On the balance of probabilities, it looks like mortgage rates will remain at current levels, or dip even lower over the course of 2021 if bad news arrives.

Regulation After years of warnings and dire predictions, the long-awaited implementation of the new licensing regime was kicked into the long grass at the height of the pandemic. However, the months have flown by quickly, and advisers now have just a matter of weeks to get their licensing affairs in order.

Advisers have been slow to get to grips

‘The true cost of maintaining a FAP licence is likely to become prohibitive for some’ David Whyte

with the new regime, yet there are signs the industry is undergoing permanent change. There were a series of mergers at head group level at the end of 2020, with Kepa acquired by NZFSG, and Newpark bought by SHARE. Newpark continues to encourage advisers to work with their own FAP licence, while other major groups, such as Astute Financial and NZFSG, will see the majority of advisers work under a group licence.

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‘I expect two phases, the first few months will be pretty good, but the market could cool in the second half of the year, due to LVR restrictions and affordability pressures’ Kelvin Davidson Newpark Group’s Gopal Sreenivasan, head of strategic partnerships, says the industry still needs to work through issues with the FMA in the year ahead, as we move to full licensing.

“My business is prepared to welcome the regime. Still, some of the things are not clear on the expectations from FMA,” he says.

Craig Pope, of Pope & Co Mortgages, based in Wellington, says he has “no real concerns” ahead of March, “as I’ve always followed a detailed six step process”.

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things off, but is pretty relaxed about it at this stage”.

With an additional nine months to prepare, advisers have no excuses ahead of the forthcoming changes. Head groups have signed new agreements with lenders under the new licensing regime, and finally, the new regime is upon us.

Strategi chair David Whyte, in an article for Good Returns, noted an acceleration in transitional FAP licence applications last year following the pandemic.

He believes March marks a “historic milestone” for the industry. He thinks some businesses may struggle to cope with the demands of their own FAP. “The true cost of maintaining a FAP licence is likely to become prohibitive for some and while there has been a measure of self-congratulation in certain quarters for the numbers of transitional licences applied for, I suspect the celebrations may be premature,” he adds.

A new era of professionalism and regulation awaits the sector, and while the licensing regime may be a headache for some advisers, there is no stopping it now.

Red hot housing market Despite dire predictions at the beginning of the pandemic, efforts to prop up the economy, such as lower interest rates, quantitative easing, and a removal of loan to value ratio restrictions, helped the market to defy gravity and enjoy a record year.

December data from the Real Estate Institute revealed nationwide prices rose by nearly 20% last year to hit a record high in December.

The nation’s average median house price rose by 19.3% to $749,000

in December, up from $628,000 in December 2019, an increase of $121,000 over the 12 month period.

REINZ said housing stock for sale had fallen to record lows, leading to faster sales and higher prices. According to its data, 11 regions posted record median prices in December.

Mortgage lending jumped to $9.2 billion in November, over $1.5 billion more than the previous monthly record total, according to RBNZ data released around Christmas. A surge in investor activity was behind the record.

Investors borrowed $2.24 billion in November, up on $1.8 billion in October, and close to the record $2.4 billion borrowed in May 2016.

Investor lending at high LVR levels, above 70%, rose to $844 million in November, up from $745 million the month before. Those levels have not been seen since 2014-2016.

While house prices rose by 8% in the December quarter, headwinds on the horizon may take some of the heat out of the market.

Amid concerns about an unsustainable housing market, the Reserve Bank has signalled plans to reintroduce LVR restrictions in March.

The restrictions are already hitting pre-approvals, and there are signs that December’s housing market flurry was partly fuelled by investors getting in while they can.

ANZ reintroduced strict LVR restrictions on investors in December, and is mandating investors provide a 40% deposit in order to get a home loan.

The other big banks have not followed ANZ’s lead, but pressure on the investor market is likely to take some of the heat out of recent activity.

'One of the key value propositions non-banks like Prospa have is our ability to combine speed with flexible, personalised service' Adrienne Church ANZ economists say “affordability and credit constraints” are likely to cast a shadow on the market, and predict last year’s gains are unsustainable.

“This is expected to take some heat out of the market at some point, but when that will occur is highly uncertain. In the meantime, New Zealand’s issues with acute housing unaffordability continue to worsen.”

Kelvin Davidson, a senior property economist at CoreLogic, believes there won’t be a lot of changes in the market in the first half of the year, but expects a significant shift if the Reserve Bank opts to impose 40% deposits on investors.

“I expect two phases, the first few months will be pretty good, but the market could cool in the second half of the year, due to LVR restrictions and affordability pressures. The political debate won’t go away.

“Debt-to-income tools have been talked about [by the Reserve Bank], and an extension of the bright-line test. It feels like there could be more regulation coming. While prices rose by 10% last year, I could imagine a rise of 7-8% this year.”

Non-banks aim to grow market share With sharper rates than ever, non-bank lenders took a swathe of near-prime and prime customers during the pandemic, with traditional lenders more selective about new business and workers employed in high-risk sectors.

Luke Jackson, NZ head of Resimac, says advisers are increasingly aware of the speed and service that non-bank options can provide.

“Non-banks have a well-deserved reputation for speed and accessibility, generally turning deals around faster than the main banks,” he adds.

“The agility offered by non-banks also enables them to adapt to change faster than competitors, which is crucial in the economic environment we’re currently in and with the fair amount of uncertainty in the year ahead.”

Non-bank SME lender Prospa recorded a 200% surge in originations in the December quarter, driven by adviser business.

Prospa’s Adrienne Church says awareness of non-banks is on the rise, and expects the trend to continue.

“This is driven by a number of factors, including new products and players coming to market, the impact of Covid on the risk appetite of traditional lenders, and more Kiwis embracing digital products and services,” Church says.

“Advisers will play a key role in building this awareness and consideration of non-banks as viable alternatives, and educating their clients on their options in the market.”

Non-banks benefit from more nimble decision making and technology processes, another reason for their success in recent years, Church says.

“One of the key value propositions non-banks like Prospa have is our ability to combine speed with flexible, personalised service,” she says.

Church encourages advisers to contact non-bank BDMs to explore their options if they become frustrated with traditional bank channels.

“The best advice for advisers is to firstly, be aware of the options available.

This knowledge comes from knowing your BDMs, attending PD days and conferences and digesting the material provided from both lenders and aggregators,” she says.

Church adds: “Understanding what’s available in the market will enable advisers to offer better advice, as you can better identify options that are fit for purpose.”

Hopes for the year Advisers hope for better turnaround times and more efficient processing from the banks.

Since the pandemic, turnaround times have worsened, with little improvement despite measures to raise more staff, and process loans in branches.

Krish Krishna, an adviser at Mortgage Suite, hopes 2021 will bring “more streamlined processing and faster turnaround times”.

“There are no signs of improvements anytime soon unless they streamline the processes and get more experienced assessors onboard,” Krishna adds.

Kris Pedersen, of Kris Pedersen Mortgages, calls turnaround times “the largest problem most advisers have faced last year”. He says the issue “is causing a large amount of channel conflict”.

Newpark’s Sreenivasan anticipates turnaround times “will stay around three to four weeks, and I predict they will get worse around March to April due to the traditional influx of applications that happen around this time of year”.

Elyce Peters, founder and director of The Mortgage Girls, says it will continue to be difficult for advisers dealing with slow turnaround times “in a hot market”: “Hopefully, they will get better at that.

At the moment we’re seeing times from three days to five weeks. I feel sorry for the assessors as they are under the pump.”

She is unconvinced that the new LVR restrictions from ANZ, and planned reinstatement of LVRs by the Reserve Bank, will have a major effect on market demand.

“There’s a real push on investors at the moment, both in terms of LVRs and the tenancy tribunal developments.

That’s only going to stop the people who want to get their first investment – not those with 15 plus properties. We need investment properties in the market as not everyone wants to buy a house.”

Peters hopes the industry can continue to make progress under the new regime.

‘The industry is definitely growing.

Market share is growing to become more like what we see in Australia’ Elyce Peters “The industry is definitely growing,” she says. “Market share is growing to become more like what we see in Australia. It’s about ensuring we provide better advice out there for clients and make sure that clients see all of the options available to them.”

She believes the new licensing regime will weed out bad advisers, leaving a more professional industry to meet the rising demand from clients.

“It will create a more professional industry, and ensure that advisers are meeting standards. Going forward, that will only create more confidence in the industry among the public, raising awareness.” ✚ WWW.TMMONLINE.NZ

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SBS UNWIND. Reverse Equity Mortgage.

Keep your house AND get a tasty bite out of your equity.

This is not a wind up.

It’s the tooth : ) Would an SBS Unwind Reverse Equity Mortgage work for you?

Are you?

The owner of your property and at least 60 years of age.

Needing to access wealth in your property.

Wanting to stay in your property.

Unwilling to be tied to regular loan payments.

Living in one of these cities/regions (some exclusions do apply):

› › › › ›

North Island Auckland (all Auckland Territorial Authority) Wellington Hamilton

Tauranga Palmerston North New Plymouth Hawke’s Bay

0800 727 2265 sbsbank.co.nz/unwind Specific lending and eligibility criteria, T&Cs and Reverse Equity Mortgages Fees and Charges apply. Further information is available on request and free of charge at your local SBS branch or at sbsbank.co.nz

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South Island Tasman Region Christchurch Timaru Queenstown

Dunedin Cromwell Invercargill

We’re proud to be the winner of Canstar’s Most Satisfied Customers Award 2020!

Debunking some reverse equity mortgage myths.

SBS Bank says reverse mortgages offer retirees financial freedom.

As the older generation moves towards retirement, there’s growing demand from many to be able to live the life they want and enjoy a lifestyle they deserve.

But they also face the challenge that when they stop working, money becomes tighter. They’re faced with superannuation payments that fail to keep up, declining interest rates on savings and investments along with rising living costs.

Many older Kiwis find themselves watching the dollars and cents because while they might be ‘asset rich’, they can be ‘cash poor’ with potentially hundreds of thousands of dollars tied up in the home they own.

SBS Bank has released SBS Unwind, an updated version of its reverse equity mortgage (REM), which is designed to offer those aged over 60 the opportunity to gain greater control of their finances and the freedom to enjoy the style of retirement they’ve been planning.

SBS Bank Group chief executive Shaun Drylie says more retirees are recognising the benefits and opportunities of unlocking the wealth in their home and a reverse equity mortgage was becoming an extremely viable option.

“Many retirees aren’t considering this type of loan because there’s uncertainty around how REMs work, so we’ve tried to make SBS Unwind as simple as possible to provide that flexibility and freedom,” Drylie says.

REM loans allow homeowners aged 60-plus to borrow money against the equity in their property. To be eligible, they need to own their home outright or have a standard home loan that is small enough to be paid off by drawing down the REM. The amount of money that can be accessed depends on the age of the youngest resident nominated to live in the property and the value of the home.

Customers don’t have to make regular repayments with a REM. The balance of the loan, which grows over time due to the interest compounding, does not need to be paid back until the property is sold or when the last of two residents nominated to live there moves out or passes away.

There were many myths about reverse equity mortgages, Drylie says, but those were misconceptions that could easily be cleared up by talking to the SBS team.

Many people were also worried that they would drain all the equity from their house, but there were ways to help ensure this didn’t happen, Drylie says.

Another common myth was that taking out a REM meant if their circumstances changes, the homeowner was stuck in their home, Drylie says.

mandatory requirement. “This is about enabling people to live more comfortably with less stress into retirement. But it’s also important people are comfortable with what they’re doing,” Drylie says.

For more information about SBS Unwind and whether it would be suitable for you, along with copies of Standard Contract Terms and Reverse Equity Mortgage Fees and Charges, visit sbsbank.co.nz or call 0800 SBS BANK (727 2265).

“A REM allows you to stay in your home – they don’t trap you there. Borrowers are able to repay their loans at any time if they so choose – so if things do change, the house could be sold and the loan repaid.” Shaun Drylie Clarification around what REM borrowers could use their loan funds also helped dispel another myth, Drylie says.

“These loans aren’t restrictive, they can be used for whatever you wish – they whole point is to enable retirees to live their life the way they wanted to. That’s the whole point of working towards our retirement.

Drylie encourages homeowners to talk to the SBS Bank team and also obtain independent legal advice, which is a

We’re proud to be the winner of Canstar’s Most Satisfied Customers Award 2020!

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FEATURES • SPONSORED CONTENT

Referral marketing for alternative lending

BY MICHELLE SARGEANT

L

ast year was monumental in altering the way many advisers serve their clients and how they can future proof their businesses.

Between delayed turnaround times and changing bank policies, there is a growing number of New Zealanders who are being let down by traditional lenders and are finding themselves needing a specialist solution. More specifically, we’ve found around 23% of people looking for a loan need alternative lending1.

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It’s a big misconception that people who need alternative loans have challenging financial histories. In reality, some of these customers may have qualified for a prime loan in the past but due to a tweak in a lender’s policy, they now find that they are no longer eligible.

However, while the need for specialist solutions is growing, our research shows that almost 40% of customers getting turned down for a mortgage don’t know that there are alternatives to banks1.

What does this mean for your business?

At any point in time, certain types of customers that you typically look after could be declined for a loan or may have a need for a solution from a non-bank lender.

By expanding your awareness of alternative lending and accepting that one size does not in fact fit all, comes an enormous opportunity to grow and the potential to help more kiwis achieve their financial goals.

A great place to look is where there is the most significant opportunity. As research shows, alternative lending is proving to be an area of need that is currently underserved and growing.

Having the ability to meet these borrowers needs by being accredited for both traditional and alternative loan solutions could be a way to position your

business for sustainable growth. Not only will this be your best defence against ongoing market changes, but it will give you the satisfaction of helping more families through real life hurdles.

Additionally, research has shown that New Zealanders are feeling nervous about their financial prospects with consumer confidence continuing to fall over 20202.

We think this highlights what we have always believed – which is just how important the role of a financial adviser is to our industry and the paramount role they play in reassuring these customers that there may still be options for them through non-bank and specialist lenders.

Are you positioned to attract this growing segment of the market?

Recent research has found that customers who took out a loan in the last six months were most likely to have spoken to an adviser when looking for a loan. However just as importantly, they also turned to their networks for recommendations about who may be able to assist2.

Our findings also show that 60% of new business comes from referrals1 - this being either from existing customers referring friends and family or, recommendations from professional networks such as accountants or financial planners.

83% of people are willing to refer products and services.

But only 29% actually do.

Texas Tech University & Advisor Impact.

“Anatomy of the Referral: Economics of Loyalty.”

December 2010.

What this suggests is that delivering a great service, while an essential ingredient to reaching customers in the first place, is not enough on its own. Referrals are the lifeblood of your business and should not be something you should leave to chance.

Eighty-three per cent of satisfied people are willing to refer products and services, but only 29% actually do.

There are many reasons why this could be the case, but it mainly comes down to people being busy and simply forgetting to.

By systematically encouraging your customers to tell their friends, family and other people about you, or speaking to your professional networks about the sorts of customers you can help, you will have more opportunities to engage with new clients.

Your real-life guide to referral marketing

in maximising alternative lending referral opportunities. This includes:

With this in mind and feedback from advisers expressing that there is a strong need for content and practical tools specifically targeting the non-conforming market, we are thrilled to be launching the Pepper Money Referral Marketing toolkit; a guide that can be used to help advisers position their business to attract referrals from customers who may need alternative lending solutions.

Commenting on the release, Pepper Money’s National Sales Manager, Michelle Sargeant says “We are passionate about supporting financial advisers with education to better support their customers. By sharing all this information with advisers, we not only hope to meet their need to sustain or grow their business but also to meet their customers’ need for alternative lending solutions as traditional lenders are saying no more often.”

“There is a real opportunity in referral marketing activity, particularly in the alternative lending space. Customers are looking for someone who understands them and are willing to take a look at their unique situation. When provided with a workable solution, they often become an advisers biggest advocate.”

In addition to the referral guide, Pepper Money will also provide advisers with a practical set of marketing tools to assist

• A series of case studies they can customise with their branding and leave with their referral partners as a reminder of the type of customers they can assist • A customer satisfaction survey template that helps advisers gather actionable feedback from their existing customers; and • Prepared content on alternative lending to help advisers create their own landing page or emails The guide will be available to Pepper Money accredited advisers via the Pepper Money Adviser Portal later this month. Simply head to adviser. peppermoney.co.nz or speak to a Pepper Money BDM. Looking ahead, Pepper Money plans to continue helping mortgage advisers identify the types of customers that they can work with, along with presenting different ways to grow their business and providing tools that can help aid in the process. ✚

Source:Pepper Money Pulse Survey, June 2019 2 Source: RFi NZ Mortgage Council Survey, October 2020 1

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COLUMNS • MY BUSINESS

Starting out My Biz speaks to trainee adviser Lillian Nguyen from Finax Home Loans about her journey from Air New Zealand to the adviser market.

BY MIRIAM BELL

Tell us about your background before moving into mortgage advice.

I’ve always been good with numbers, so I was always interested in working with them. I did a degree in accounting and 028

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international business at university and, after that, I went into banking, joining ASB as a customer service officer in 2013.

In my time at ASB, I worked my way up to being a business relationship manager and managing a portfolio of clients. That role enhanced my lending skills as I was dealing with more complex structures, and assessing business lending as well as home lending.

After five years at the bank, I decided I wanted to travel and see the world.

Being a flight attendant was a high school dream so it seemed a good idea to give it a go. In early 2018, I left to work as international cabin crew for Air NZ. I did that for two years but I remained in touch with my banking contacts and kept up my knowledge of mortgages and finance.

How did you end up getting into the mortgage advice business?

Last year, I lost my Air NZ role due to Covid-19 and had to start looking for a new job. When I was at ASB, I loved

helping customers buy houses. It’s just so exciting to enable people to achieve that goal of purchasing their own home.

So I started looking for a job in an area related to my banking background and ended up applying for a job at Finax Home Loans. It all happened very quickly and at just the right time. I actually ended up starting work during the second (level three) lockdown.

I’ve always had a passion for lending and mortgages. This opportunity has allowed me to go into an area of work that I enjoy, and pursue that passion.

And how are you going with learning the business?

While I was away from the financial industry for two years, as soon as I started here it felt like I'd never left.

The Finax team has been helpful and welcoming, and I’ve learnt a lot from the company founder, Lucia Xiao’s, knowledge and experience.

My banking experience has been useful – even though there are big differences

between this line of work and working for a bank. Mortgage advisers can offer a greater range of solutions to their clients, but, in order to do so, they must know and understand a far greater range of lending policies and criteria.

Currently, I’m putting loan applications together for clients, not giving them advice. But I’m in the process of getting accredited with the banks. Then I’ll continue working towards getting level five certification to be an adviser. My goal is to complete the level five process within seven to eight months.

What makes you passionate about becoming an adviser?

While I am not yet an adviser, and I’m just starting out on the road to become one, I am looking forward to being one.

That’s because I’ll be able to share my knowledge with clients to help them achieve their financial goals and, in turn, that allows them to focus on their other goals and to enjoy life more.

For me, that is what is exciting about becoming an adviser: being able to work for clients, with their best interests at heart, to provide them with different solutions that serve them well, and which help them to really maximise their financial potential.

Is there any particular area that you would like to specialise in?

I hope to focus on first home buyers and investors. With first home buyers, it’s an exciting journey: achieving that milestone of buying their first home. But it’s also a daunting journey as not everyone has the experience or access to the support they need. I want to play a part in this journey, providing as much support as possible along the way.

With investors, it’s about helping them to grow their portfolio and working with them to achieve the financial freedom to do other things in their lives. To help them improve their lifestyle rather than simply working to create income or cash flow.

Do you make use of social media and/or new technology in your work?

Yes, at Finax we make use of social media and technology. In particular, we use LinkedIn and Facebook.

What has been the high point of your time in the business? And the low point?

So far, the high point for me has been being able to walk back into the financial

industry. I am grateful for the opportunity that Lucia has given me as well as her support for me to settle back in.

But the low point would be that – despite my banking background – I lack in adviser experience.

However, with the support I’m receiving, I’m confident that I’ll learn and develop the necessary skill and experience.

Do you have a mentor? If not, has anyone been a great inspiration to you?

I didn’t have a mentor before joining the company. Since I joined Finax, Lucia has become my mentor. She motivates and inspires me to focus more on my own financial goals and makes me believe that I am capable of doing so much more.

Is there a typical working day for you?

It turns out that no two days are the same in this industry! That’s because every day I meet different clients, and work towards understanding their unique background and goals. Creating a strategy for each individual client means the work never follows a set pattern.

What challenges for the industry do you see ahead?

Banks are getting stricter with their lending guidelines and restrictions so that’s a challenge. But, despite that, I believe there will always be a solution for our clients.

Looking ahead, what are your goals for the future?

My first goal is to become a registered financial adviser. Then my goals are all about working to effectively advise my clients to improve their knowledge and options and help them to achieve their financial goals.

Also, I want to grow with the company so that we can reach more people.

Finally, do you have any tips for others just starting out in the industry?

If you don’t have any knowledge in relation to this sector already, I think it would be pretty challenging!

But, generally, build up your knowledge.

Get some education in how the banks work and how the industry works. Study hard so that everything makes sense.

Also, I think it’s important to learn to think outside of the box in order to offer the best range of solutions to your clients. ✚

From I’m from Vietnam originally.

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Family I currently live with my mum, my brother and my sister.

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Out of work interests Fitness, hiking/trail walking, outdoors.

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Film/TV show Action, Stranger Things, Lucifer.

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Favourite book

The Lovely Bones, Jack Reacher series – One Shot.

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Favourite music RnB.

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Motto When one door closes, another one opens.

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COLUMNS • SALES & MARKETING

Time to update your business in 2021 Advisers need to conduct a thorough review of their digital and social media offering each year, writes Paul Watkins.

BY PAUL WATKINS

I

t’s time to reflect on a strange year and get 2021 right. Things have changed.

Not only the obvious, like lower interest rates, house prices screaming up and lots of clients wanting to refix at lower rates, but electronically too.

So here is your 2021 checklist. These are items to check on or update as the year gets underway.

Regulation First the obligatory regulatory stuff. Is your handling of client data in line with the Privacy Act? Is this a page on your website? A link in your emails? Is it appropriate to show it anywhere else?

Terms of Trade Next is your written Terms of Trade. I hope you have one.

Have you had it legally checked recently, in the last year, to make sure it stacks up in the event of disagreements with clients?

A badly worded Terms of Trade agreement can have consequences, as was demonstrated recently by one broker who had to repay a client.

Your website Now move on to your online presence.

First your website. No matter what platform it is written in, it is likely to need regular code updates. This is particularly the case if it is written in WordPress.

If an outside agency manages your website for you, it is likely to be fine.

But if it is managed internally, the code, plugins, and links need to be checked constantly.

As websites get bigger and more complex, links and plugins can stop working. Get a team member to click every link on the site and see if it is working okay.

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‘A badly worded Terms of Trade agreement can have consequences, as was demonstrated recently by one broker who had to repay a client’ Once the technical components and coding are checked, next check the correctness and relevance of the content.

Start on the home page, and see if you pass this test: within five seconds, can I identify my main offer, any speciality area, or a clear “why me?”. If not, rethink the layout, wording and images.

Try to avoid smiley, American, perfect happy-family images – which abound on NZ broker websites. Make it more real.

Before moving to the other pages of your website, think about what clients want to see. The simplest way to do this is to note the questions clients ask you.

Write down the last 20 opening questions you received. Clients may ask about accessing KiwiSaver for a first home, or how to break a higher rate mortgage to refix at a lower rate.

Maybe clients are asking about being declined by a lender or asking how much they can borrow before house hunting. Some questions may be about the process of borrowing for investment properties.

It will be different for each of you, but patterns will quickly emerge.

Why is this important? Because it’s your clue to organic Google search traffic and how to word your website.

If seven of the 20 opening questions are about re-fixing a higher rate loan, then you should have this as a prominent item on your website. Use the same language that clients use.

If clients say, “How do I change my mortgage to a lower rate?”, then that is how your headline should read.

That is how clients type their search queries into Google. So you want your page to show up in the results.

Each page of your website is, in effect, a “home page”.

For example, if your most common questions from clients are about first home buying, investment properties and re-fixing, then each of these topics deserve their own dedicated page.

Your search results will improve, and traffic will increase, and all at a zero cost – just your time in reconsidering the text and images on your website.

A notable point on this review is to avoid jargon. “LVR” is meaningless to most clients, use “required deposit” or similar.

This also applies to your newsletters if you do one (I hope you do).

Articles about “OCR” mean nothing to clients. They want to know about interest rates and trends and more specifically, what they should do based on any changes.

When it comes to paid Google ads, use a keyword research tool (some are free) to see what people are searching for, as this is likely to have changed over the past year.

Google My Business is the free listing you get about your operation. Check it for the right images, address, phone contacts, hours of operating, and what reviews you have been getting. This is an increasingly important aspect of all brokerages now.

Social media Now look at your social media. Start with LinkedIn. Is it up to date, both your personal page and your business page?

Are the images enticing and information correct? Is the picture of you a professionally taken one? Do you describe yourself well?

Next is your Facebook page. The same applies. Is all of the info correct? Do both your Facebook and LinkedIn pages have good regularly posted video content? If not, put educational style video into your marketing plan.

This leads to the next item, the rolling three-month marketing activity calendar.

Do you have one? If you don’t, then create a simple chart in Word or Excel.

The columns are the months or weeks.

The rows should be respectively called “Website”; “Facebook”; “LinkedIn”; “Newsletter”; then any additional mediums you use. If you don’t have any additional items, these are the four most important.

Now fill in the activity in each cell and allocate someone to do each of them. An important point here is that if business is good right now, do not become complacent and let up on these activities, as good times rarely last. And if things fall off, you still want to be in the front of their minds.

In summary Last year was not a typical year, and while you go through this checklist every year, it’s more important than ever in 2021.

‘When it comes to paid Google ads, use a keyword research tool (some are free) to see what people are searching for’ • your website is checked so that coding, plugins and other technical aspects are up to date • the content of your website is relevant to the questions clients are asking you. This will help with organic (unpaid) search traffic and assist in determining paid Google ad keywords • you check how up to date your Google My Business listing is • your LinkedIn and Facebook pages are up to date and you have programmed new video content to be added regularly • your three-month rolling marketing activity has been created, filled in and responsibilities allocated.

Get help if you need it

Make sure:

A final point is to get help with the above.

If you do not currently use an outside agency, then get someone in for half a day to facilitate this process. All the best for 2021. ✚

• your Privacy Act and Terms of Trade is checked, preferably by external legal advisers

Paul Watkins is a marketing adviser to the financial services industry.

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COLUMNS • INSURANCE

Struggling clients need advice Clients struggling to pay their premiums need sound advice to help them weather the storm, writes Steve Wright.

BY STEVE WRIGHT

F

rom time-to-time, clients fall on hard times and in tough times, like the pandemic, can have difficulty paying their premium.

Times like this are when your good advice can be invaluable. So what can you do to help them?

As usual, each client’s specific situation and needs must be taken into account, but there may be several possible suggestions or recommendations. Here are some of my thoughts on the subject.

Make sure they come to you first It is essential to keep reminding clients to talk to you if they are having trouble with any aspect of their life, disability or health insurance. Talk to you BEFORE they take any action. There is no shame in falling on hard times, but taking action without advice can be very costly.

Never cancel a policy without advice The worst thing any client can do is to unilaterally cancel their policy. Cancelling any life, disability or health policy can be disastrous, especially if simply done due to temporary affordability challenges.

Aside from being completely exposed to the financial risk the policy was protecting them from, if the client’s health has deteriorated since they first took out their policy, they may not be able to simply start up new cover again.

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‘Premium structures can be reviewed to see if there is a more appropriate premium structure for the immediate term’ A new policy will require underwriting and take their deteriorated health history into account, possibly meaning loadings and exclusions not present before. In the worst case, their health may result in them being uninsurable, no cover being offered, and leaving them unprotected – possibly permanently!

Premium holiday and policy suspension Many Kiwi insurance companies include some very valuable and sometimes generous, premium holiday or policy suspension benefits (and sometimes both). If affordability is a short-term challenge caused by a specific event like redundancy, then clients can apply for a policy suspension or premium holiday if these are provided for on their policy.

Recent Covid-19 relief offered by insurance companies has seen many clients save their policies by taking advantage of premium holidays or policy

Unambiguously Committed to Independent Advisers

‘Cancelling any life, disability or health policy can be disastrous, especially if simply done due to temporary affordability challenges’

suspensions on offer and, has brought the various insurance company offerings around holiday and suspension into sharp focus for advisers.

As usual, the policy wording needs careful examination, but a true premium “holiday” usually means you don’t have to pay premiums and cover (protection) stays in place. By contrast, a policy “suspension” usually means you don’t have to pay premiums, but you have no cover either (although you can typically get cover back at the end of the suspension period without underwriting if you commence paying premiums).

Premium holiday and policy suspension benefits are typically limited and can be “used up”, so careful consideration is necessary before taking advantage of them. They may be needed in the future!

Benefit changes If affordability is a longer-term challenge, then benefit changes may be required, like removing optional benefits, or increasing the waiting period or shortening the payment term on income cover or mortgage repayment cover, for example.

Increasing excesses can also be useful in lowering health insurance premiums.

Reductions in sums insured or removing benefits no longer needed might also be an option. The most suitable course of action will be driven by the client’s circumstances and needs.

As with all advice, clients must fully understand the consequences of “downsizing” cover, including the loss or reduction of potential claim benefits and how this might affect them. Of course, clients must also understand that getting back any benefits given up may require underwriting, with the consequent problems a deterioration in health might bring – no ability to get those benefits back!

Premium structure changes Premium structures can be reviewed to see if there is a more appropriate premium structure for the immediate term. Changing from level premium to stepped, for example, may drop prices in the short term, but could cost clients in the long term. These implications must be understood by the client.

Switching providers to save premium Switching providers just to save premium costs is full of potential risk. If the reduced premium is not guaranteed to remain lower (something I’ve never seen myself), or significant benefits are given up, the end result might simply be swapping a benefit-rich policy with one not as generous and soon paying the same or even more for it!

As with most things, you get what you pay for. Switching to another insurer and taking comparable products and benefits will probably not save premium over the

long term. Switching insurers can be risky too.

For a start, clients have to go through the whole disclosure process and there is always risk of non-disclosure. In addition, if their health is no longer as good as it was when they first took out their current insurance, they may not get cover with a new insurer without new loadings or exclusions. The good news is, changes to benefits or options to reduce premium can usually also be done with the existing insurer and without the risks inherent in switching.

Which course of action is right for your client depends entirely on the client’s circumstances and their needs. Solutions other than those I’ve mentioned may be better. Ultimately though, good advice might be all that is needed to help clients hold on to their policy. Because after all, the life, disability and health insurance we have is a valuable asset we may not be able to get again if our health has deteriorated. ✚ Steve Wright has qualifications in Law, Economics, Tax and Financial Planning and is General Manager Professional Development at Partners Life.

This article is for information purposes only, its content is intended to be of a general nature, does not take into account your financial situation or goals, and is not a personalised financial adviser service. It is recommended you seek advice from a financial adviser which takes into account your individual circumstances before you acquire a financial product.

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

Here are the most-read industry stories from tmmonline.

01 ADVISERS REACT TO LVR CHANGES The Reserve Bank has imposed strict new LVR requirements on investor lending, but advisers say other measures may have been more appropriate to help first home buyers.

06 WARNING ON FEE FOR SERVICE CHARGES More clients are playing off mortgage advisers against their bank, leading to disputes over fee-for-service charges, says FSCL chief executive Susan Taylor.

02 LENDING PREDICTIONS FOR 2021

Interest rates will remain at historic lows for the next two years and banks will become more receptive to new customers this year, predicts economist Tony Alexander.

03 JEFF ROYLE AND RESIMAC TEAM UP FOR INVESTOR LOANS iLender's Jeff Royle has teamed up with Resimac to launch a new loan product for investors impacted by strict bank lending criteria.

04 HOW WILL 40% DEPOSIT REQUIREMENTS AFFECT THE MARKET?

07 NEW ASB BROKER TEAM

ASB has announced a new look third-party banking team following the departure of long-serving Marc Oliver.

08 BE CLEAR ON CLAWBACKS

Mortgage advisers must clearly disclose clawback agreements with clients, industry leaders say, as disputes on the topic continue to emerge.

09 ANZ GETS TOUGH ON INVESTORS

The 40% deposit requirements imposed by ANZ Bank – and possibly the RBNZ next year – are unlikely to slow the Auckland market to a halt, argues economist Tony Alexander.

05 BIG BANKS SAY NO TO 40% INVESTOR DEPOSITS The other three big banks will not follow ANZ in making investors raise a 40% deposit for a home loan, following the lender's controversial decision.

ANZ New Zealand has lifted its deposit requirement for residential property investors to 40%, marking a major change in the lending market.

10 IS THE HOUSING MARKET COOLING OFF? A new survey of mortgage advisers shows "solid evidence of things cooling off" in the housing market, with the impact of LVR changes and pressure on landlords ramping up.

TMM Online also has all the latest mortgage rates and changes. www.tmmonline.nz

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

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

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