TMM 03 • 2021 • WWW.TMMONLINE.NZ
Mortgage advice enters the Golden Age
All you need to know about CCCFA
From London to Raglan: An adviser's story
How to handle anxious clients
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The golden age of mortgage advice As banks reduce high street presence and non-bank lenders increase market share more borrowers are heading to mortgage advisers for personalised face-to-face service and support. PAGE 18
Up front 04
Advisers grow market share.
A round-up of the impacts of the CCCFA on the mortgage market with Daniel Dunkley. PAGE 26
MORTGAGE LINK SPONSORED CONTENT
New GM for Liberty; FMA names third CEO; Kelly Brough makes strides at Link Group.
TMM interviews Strategi’s Daniel Relf about the transition towards full licensing.
What the major banks will need from advisers under the new CCCFA.
CAANZ slams interest deductability changes.
Kiwis’ positive expectations of the housing market continue.
Mortgage Link are celebrating 30 years with expansion.
Kiwibank’s adviser push; Avanti’s biggest NZ securitisation; Borrowers flock to three years.
Brett Wood talks to TMM about advising in Raglan and his love of the surf.
SALES AND MARKETING
Paul Watkins on the importance of discussing rate increases with anxious clients.
Why recommending premium cover is so important, writes Steve Wright. WWW.TMMONLINE.NZ
UP FRONT • EDITORIAL
Growth for advisers
irst up we hope you are all well out there and surviving these crazy Covid times we live in. For us here at TMM it has thrown a few challenges and got a little derailed for a while. But the good news is that we are back on the tracks and steaming ahead to finish the year with a bit of a bang.
CCCFA While Covid has been a curve ball, so too has the impending changes to the CCCFA legislation. Although this piece of legislation had been in the making for a while, it does not seem to have been particularly wellsignalled to the wider lending industry. For my part it really hit my radar when talking to one of the big bank chief executives. We’ve taken that on board and devoted a good chunk of this issue to the changes and what they mean, particularly for mortgage advisers. The overall feeling is that it will create more work for advisers and lenders, and it may make it harder to get deals done, it is bound to push more borrowers into the arms of advisers. The good news is that the Government sensibly delayed the full implementation of the legislation until later this year. These changes also fit in with one of the other themes of the moment. I’ve often talked about the growth of the mortgage advice sector. Besides changes like CCCFA pushing people to advisers, banks are doing it too – even if unwittingly so.
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TMM 03 • 2021
Hardly a day goes by without someone talking about how banks are making things more difficult for customers. Added to that some banks, including Kiwibank in our news section, talk about how they want to grow third party distribution. It is more good news for the sector. Likewise, it is a golden age for nonbank lenders. They are all reporting increased growth in business and as very few of them have direct distribution channels it is more growth for advisers. There is a growing feeling that after some reluctance advisers are now much more comfortable with non-banks and the business volumes will grow strongly in the future.
A goodbye and hello To wrap up this editorial I would like to acknowledge and thank Daniel Dunkley. Daniel has written for TMM and tmmonline.nz for a number of years now. Daniel is moving on and we wish him all the best. The good news is Eric Frykberg will be taking over his role. Eric spent many years at Radio New Zealand and is now freelancing. He can be contacted at firstname.lastname@example.org
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UP FRONT • TMMONLINE.NZ/NEWS
Kiwibank’s adviser push gets rolling Kiwibank is ramping up its push into the mortgage adviser market signing up more and more firms. “We do see [the] adviser market as a really strong opportunity for us,” chief executive Steve Jurkovich told TMM. He says in the past four months it has brought on 35 new adviser accounts (including firms and groups), and he expects to add up to 50 more “connections” in the next six months. “We are finally making some progress reaching into the adviser market,” he said. Progress had been slower than expected, mainly due to technology issues. These were not at the bank but largely to do with integrating Kiwibank into adviser CRMs. “We have been
frustrated a bit with tech,” he says. “I was a little bit unreasonable on the timeline,” Jurkovich adds. "Now it’s a matter of being patient." Kiwibank’s offering is cloud-based and is designed to make the bank easy to deal with. Jurkovich says one of the ongoing issues in banking is the lack of transparency. With its offering advisers can see at what point deals are within the bank and can see timing and pull through rates. Jurkovich says this allows advisers to “hold us to account”, and hopefully do more deals with Kiwibank. It’s also about efficiency: “We don’t want to put brokers through double keying everything.” Overall around 30% of Kiwibank’s home loans are originated through
brokers and advisers, including its fully-owned subsidiary NZ Home Loans. Jurkovich reckons around 50% of home loans are originated through advisers and he wants to see Kiwibank get to that level. As for the overall market, he expects advisers to increase their market share. “North of half of [the] market works with advisers,” he says. “I don’t think that is ever going to change. The genie is out of the bottle.” Customers enjoy the ease and convenience that advisers offer. Kiwibank’s profit for the 12 months to June 30 rose from $57 million to $126 million. Overall, net lending was up by $3 billion, an increase of 13%. Residential mortgage lending grew by $2.2 billion, an 11% increase in the year.
Avanti closes out biggest ever NZ securitisation Avanti Finance has raised $350 million in its recently completed securitisation, making it the largest amount sourced from this kind of transaction in New Zealand’s history, to date. The funds from this most recent raise will be used for growing Avanti’s mortgage loan book, and Avanti has strong funding to support continued growth in the rest of the business. “With this increase in our funding capacity, we’re excited to be able to continue to support the mortgage
TMM 03 • 2021
adviser community who have been an integral part of our success in this market,” chief executive Mark Mountcastle says. Avanti Finance provides a broad range of finance solutions to the New Zealand market, including personal loans, vehicle loans, business loans and home loans, directed primarily at customers who are not served well by the main banks. Most recently, the business has released several new products aimed at the “near prime” market.
“We’ve seen a significant amount of interest in our new near prime home loan product and car loans, as well as in our open bridging solutions,” Mountcastle says. “It’s our innovative products that are a big reason for our continued success. They meet New Zealanders where they are, not where the banks need them to be. It’s why investors, both current and new, have shown such interest in assisting the funding of these products.”
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TMM 03 • 2021
UP FRONT • TMMONLINE.NZ/NEWS
Borrowers flock to three years Mortgage advisers are seeing a noticeable jump in the number of home buyers preferring the three-year fixed rate term for their mortgage interest rates, data from independent economist Tony Alexander’s August mortgage advisers survey shows. The Reserve Bank has held off raising the official cash rate in light of uncertainty surrounding the latest nationwide lockdown duration and impact. But the bank has made it clear it sees the economy as growing at a pace faster than resources can keep up. That means rising inflation from the already high mid-July rate of 3.3%. It is highly likely the cash rate will be raised at the next review
on October 6, if not earlier, and the Reserve Bank has signalled its expectation the cash rate will now have to rise by about 0.25% more than it was considering in May. With increasing talk of mortgage rates rising, the survey shows a clear shift by borrowers to protect themselves against the rate rises to come. The latest Covid-19 outbreak has actually provided them an increased length of time in which to get that protection before the official rate rise cycle commences, says Alexander. For the first time since just before the March 23 tax announcement, there are more mortgage advisers saying they are seeing more first home buyers seeking advice than
fewer. A net 3% have reported more compared with a net 10% reporting fewer first-time buyers last month and a net 15% in May. This result is consistent with many other results from similar surveys of market activity in that there is recovery underway after the initial sentiment slump from late-March. In contrast to first home buyers, there has been a drop in inquiry to mortgage advisers from investors. A net 48% of brokers have reported they are seeing fewer investors seeking advice. This reverses the improvement to -19% in July and takes the decline in investor activity back to near the -53% net result of June. ✚
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UP FRONT • PEOPLE
New GM for Liberty After a long career at ASB and Sovereign Adrian Chase has jumped ship and joined Liberty Finance. Chase spent more than 22 years at the bank and nine of those was heading Sovereign Home Loans. He is now the general manager of Liberty Finance. He told TMM that the move was simply because it was time for a change. Mark Collins remains the overall head of the group which includes Mike Pero
Mortgages, Mike Pero Real Estate and Liberty’s lending and deposit business. Meanwhile, Mike Pero Mortgages has a new franchise owner in Auckland. Natasha Popova has more than 10 years of experience in finance and accounting, and has a keen interest in helping buyers get onto the property ladder, “whether it’s through tailor-made loan solutions, debt consolidation, goal setting or affordability reporting,” Popova said. She moved to New Zealand from the UK four years ago. Popova said: “I believe in the importance of the ‘why?’ in achieving my goals. This inspires me to help people and their families settle into their dream homes, and support their why?”
Kelly Brough makes strides as National Manager, Link Group Kelly Brough was appointed National Manager of Link Group in April this year and has helped the group grow. Link Group CEO Josh Bronkhorst says: “Kelly was the obvious choice: Delivering the level of professional support we are committed to for our advisers required someone with exceptional management skills, as well as a real understanding of what advisers need.” In her first few months in the role, Brough has focused on fine-tuning support team functions and operational efficiency under the new regime; delivering a range of licensing resources to the adviser network, to reinforce understanding of requirements and to give advisers confidence in new business practices; and onboarding a rapidly increasing number of advisers new to the group. “Stability and support that can be counted on is high on the list of priorities for many advisers looking at their options in the new regime,” Link Group fits that bill – we’re well known for our commitment to collective success and fostering a culture that’s like an extended family,” says Brough. 010
TMM 03 • 2021
In the last 12 months Link Group adviser numbers have continued to increase; growth that has continued since the new regime commenced on March 15. “It’s a real privilege to take on the National Manager role of the group that I chose as ‘home’ some 11 years ago. In that time I have seen this business evolve, work through the challenge of change, continue to grow, and importantly maintain the tight-knit culture that the Mortgage Link Board committed to in 1991. Josh and the new Link Board remain committed to maintaining and growing this culture. I’m looking forward to seeing what we can accomplish in this new era of financial advice,” says Brough. Brough has more than 11 years’ experience with the group, first as an adviser for nine years and then as Business Development Manager for two years. She is responsible for managing the head office team and operations, provider relationships licensing, compliance, adviser network development and the group’s bespoke CRM, Advice Link, Brough has already made her mark on the role, Bronkhorst says.
FMA names its third CEO The Financial Markets Authority has appointed an experienced international regulator to take over from Rob Everett who leaves at the end of October. Samantha Barrass will take over from Everett in January next year and FMA general counsel Liam Mason will be acting chief executive in the months before her arrival. Barrass, while currently based in London, has a strong New Zealand connection and brings deep international regulatory experience and leadership skills to the role. She has worked in a range of regulatory and executive roles in the UK and Europe and between 2014 and 2019 was the chief executive of the financial regulator
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in Gibraltar providing conduct and prudential regulatory oversight. Earlier in her career, she worked for nine years in several roles at the Financial Services Authority in the UK (now the Financial Conduct Authority). She has also held senior roles at the UK Solicitors Regulatory Authority and the London Investment Banking Association. After graduating in economics from the University of Canterbury in Christchurch and completing post-graduate study at Victoria University of Wellington, Barrass began her career as an economist at the Reserve Bank of New Zealand. “Her experience as a consensusbuilding leader will stand the FMA in good stead as it continues its current activities and readies itself for a wider mandate in regulating banks and insurers, as well as climate change reporting,” FMA chairman Mark Todd said. Barrass said the FMA is at an important juncture in its journey to support and enhance the economy and financial health of New Zealand. ✚
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UP FRONT • REGULATION
Traffic builds on the road to full licensing The transition to full financial adviser licensing is inching along. Daniel Dunkley talks to Strategi CEO Daniel Relf to see what is happening.
e’re more than five months in to the new financial advice regime under FSLAA, with transitional licences now valid for two years until March 15, 2021. Transitional licence holders will need a full licence by March 16, 2023 if they want to continue providing advice under their own licence. Meanwhile, anyone applying for a financial advice provider (FAP) licence must now apply for a full licence under the new regime. TMM spoke with Strategi chief executive Daniel Relf about how advisers are approaching the new regime, how many advisers have applied for their full FAP licence, and whether it has led to an exodus from the advice profession.
Advisers have until 2023 to get a full licence – are you seeing any sense of urgency among advisers? Have many people got their full licence yet? We are seeing similar behaviour with full FAP licensing as we saw with transitional licensing. A small number of firms are early adopters and have applied for and received their full FAP licence. Our understanding is that under 110 full FAP licenses have been approved. We are not seeing any sense of urgency from FAPs to get licensed. There are many reasons behind the slow start to FAP licensing. Larger FAPs often have greater resources, so are generally further ahead with their FAP licence documentation and are able to apply by now. Business has been booming for most financial advice businesses and transitionally licensed FAPs have been flat out handling new clients. The Covid lockdown will have had an impact, but only over the past five weeks. While a number of businesses have not yet fully decided if they will sell, obtain their full FAP licence or become an authorised body. There is still much fluidity in this area. 012
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Do you expect many mortgage advisers to go for their own FAP licence? Or work under a group/ aggregator FAP? We anticipate a lot of movement in the total number of FAPs and authorised bodies as we get closer to the March 15, 2023 due date. This has been caused by the need for strategic alignment and the risk appetite of the FAP, aggregator groups and authorised bodies. This will see aggregator groups removing high risk FAPs and authorised bodies from their agreements and FAPs deciding to become authorised bodies under the aggregator groups or another FAP. Conversely, many authorised bodies will realise that the compliance involved with holding a full FAP licence is not as expensive or scary as some commentators have been suggesting. These firms will decide to obtain their full FAP licence.
Do you expect some advisers to abandon plans to get their own FAP licence once they realise how tough compliance demands will be? Yes, there is and will continue to be a decrease, but it’s not necessarily due to increased compliance demands. Over time the number of FAPs will decrease as like-minded FAPs consolidate and merge to gain economies of scale to service their clients and meet their strategic goals. This is a similar trend we’ve seen in other jurisdictions in Australia and the UK. We agree that compliance obligations have risen in the new regime but they are not over the top. The cost of compliance is not a deal breaker and any small profitable well run business should be able to cope with a few thousand dollars of compliance costs each year. One way or another, a FAP (be it a licensed FAP or an unlicensed FAP (authorised body)) will pay more – either directly to a licensed FAP or to some third party to provide the needed compliance support.
‘There are some great examples emerging of innovative use of technology in delivering financial advice’ Daniel Relf Has the new regulatory regime resulted in many advisers dropping out of the market? At this stage, the number of industry exits is still relatively small as the barriers to operating are still low. There will be an increased level of exits as we approach the end of the transitional period, but many of these will be people who have delayed retirement. We do not expect the level of industry exits that Australia had as our regulatory regime here is very different. The compliance costs in NZ are a fraction of what they are in Australia. Despite the doomsayers, there are plenty of new entrants to the industry. Many existing adviser businesses are desperate to hire new advisers but this is primarily due to expansion rather than adviser attrition. There are some great examples emerging of innovative use of technology in delivering financial advice. We are seeing an increasing number of advisers starting to treat their business as a proper business and build formal policies, processes and controls into how they operate. This creates a sound platform for their future growth. ✚
CoFI debate back Advisers face further regulatory changes as the Financial Markets (Conduct of Institutions) Amendment Bill (CoFI) heads back to Parliament, writes Matthew Martin.
oFI is back on the agenda. The Financial Markets (Conduct of Institutions) Amendment Bill is set to reform the way banks and insurers pay commission to advisers, with sales and volume based incentives set to be outlawed. The legislation will not affect traditional linear commission, according to legal experts. However, under the proposed law, financial institutions will not be able to force advisers to place a certain amount of business to retain their accreditations, or provide bonuses or prizes to advisers that place the highest volume or value of loans. Parliament began the bill’s second reading on June 10 with just two MPs speaking before the debate was interrupted. The FMA admitted New Zealand’s insurers are not ready to implement the bill saying general insurers “... broadly have a poor understanding of, and commitment to, good conduct and culture practice”. In June, Minister Poto Williams started the second reading saying some changes to the bill had been made after consultation. Williams said 59 submissions were made with the majority supporting it in principle but after the second round of consultation she said there would be further amendments. The minister said the bill fills a legislative gap and it was important to
‘The select committee has recommended that minimum requirements for fair conduct programmes be clarified and included in the bill’ Minister Poto Williams
ensure consumers were treated fairly. She said there can be an imbalance of power between institutions and customers. “The select committee has recommended that minimum requirements for fair conduct programmes be clarified and included in the bill,” Williams said. “This is in response to submitters’ feedback that leaving the detail of conduct programmes to regulations would leave the regime uncertain.” Under the bill, the minister will have the power to make regulations related to incentives. Cabinet has already banned value or volume-based incentives and the minister will have a list of matters that have to be considered. Also, intermediaries, such as financial advisers, will not need to comply with an institution’s conduct programme.
Concerns were raised that the regulation-making power was too broad. In response, the minister said the group of intermediaries this power extends to has been narrowed. MBIE is currently consulting on intermediary provisions for the bill “... to ensure the intermediary obligations are right-sized and will work in practice”. While the vast majority of those submissions supported the intent of the bill most of those submitters said it was too broad in its scope. National MP Nicola Willis criticised it as “... a compliance heavy, box-ticking exercise”. Willis said her party opposes the bill but acknowledged the fact that “... financial institutions, banks, insurers and the like should have controls in place to ensure they are focused on the best interests of their customers”. In its submission, AIA NZ said it was concerned the scope of the proposed regime was too wide and, in some cases, overlaps existing licensing regimes. “That wider scope creates commercial uncertainty for market participants and creates an additional layer of complexity and cost upon the financial services industry where the case for imposing that burden has only been partially made out, or where recently introduced legislation is in the process of being implemented.” AIA NZ said commercial uncertainty and added red tape could result in increased costs and negative outcomes for consumers. ✚
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TMM 03 • 2021
o further protect Kiwi borrowers, the CCCFA is set to undergo a series of changes for mortgage lenders around loan suitability, staff due diligence and personal liability, and proper evidencing of customer finances. Effective December 2021, it is anticipated that the new rules on borrower suitability and affordability will impact financial advisers and their clients directly with many lenders adopting stricter affordability criteria to prescribe to the regulatory regime.
What does this mean for Pepper Money? The new CCCFA requirements put the responsibility on lenders to take a much broader view of the borrower. As a non-bank lender, this holistic approach is our ‘bread and butter’ and what the new legislation requires - being responsible, determining affordability, and making sure that we are acting in the best interest of your customer – is something we’ve always done. Pepper Money takes the time to look at each customer’s situation and base our decision on that customer's specific ability to afford a loan. We don't throw a blanket over those who don't fit a box and call them 'too risky'. And we don't automatically turn someone down based on their credit history. That said, if the loan isn't right for them, we say so. We're here to help, not make things harder. We aim to connect with the customer’s goals, acknowledge that they are not defined by their situation, and find a winwin outcome. And despite the individual assessment process, we maintain a oneday turnaround for home loan enquiries. We are committed to maintaining this customer-centric approach to the distribution and monitoring of Pepper Money loans, and we will make sure that no matter the customer’s circumstances - we look at them now and into the future and do what is right for them.
How are you supporting financial advisers and their customers through change? Pepper Money is committed to creating platforms that are designed with financial advisers and their customer’s needs in mind. We want to create an experience
that is as effortless and frictionless as possible. By maintaining an innovative mindset and our continued investment in technology, we can help support advisers in a time of uncertainty. Likewise, we are determined to minimise the administrative work involved in complying with CCCFA changes, so that financial advisers can focus on what they do best: finding financial solutions for families. And in the case of Pepper Money’s alternative lending products, offering mortgages to Kiwis who don’t fit the criteria of the main lenders. Additionally, with the changing lending landscape and economic impacts of the global pandemic, chances are many customers that have never needed to consider an alternative lender in the past are now finding themselves needing a specialist solution. This unknown territory combined with increased turnaround times and paperwork from some lenders, can increase a customer’s unease when applying for a home loan. At Pepper Money, we believe that customers should never be in a position where they do not understand their financing options, regardless of their circumstances. That is why Pepper Money’s Product Selector was created to help financial advisers source the bestfit home loan solution for their customer, the first time. With the client’s written consent, the adviser can use the Pepper Product Selector tool to quickly and easily understand if one of our solutions is a good fit for their client. It follows our Credit Cascading Model, which provides three Pepper Money solutions (Prime, Near Prime, or Specialist) with a high probability of conversion – removing the majority of the showstoppers experienced in a standard submission. Ultimately, Pepper Product Selector gives financial advisers an opportunity to demonstrate their value as a trusted source. Not only can they give their customers the confidence of the rate available to them, the maximum LVR, fees, and loan amount on offer against the security, but they can have deeper conversations with their clients about their goals. Conversations like what they are looking to achieve, if they are thinking of growing their family, what the next 5+ years look like - so that they can ensure the solution they put forward supports
the customer into future, and they are catered for on all parts of that journey.
How does the Pepper Product Selector work? Pepper Product Selector helps with searching for and identifying the right Pepper Money product for a client. It starts by asking the financial adviser a few questions to understand how much the client can afford. It then combines that information with the customer’s credit bureau score to provide a specific Pepper Money product in the form of an Indicative Offer. Before doing this, advisers need to obtain their client’s consent, as their credit history will be automatically obtained by the tool via a Bureau credit enquiry. This will leave an enquiry on their credit file but will not impact their credit score. In minutes a financial adviser can: • Calculate the customer’s indicative borrowing power upfront • Check the customer’s credit history – with no impact to their credit score • Have an indicative offer for a Pepper Money loan solution – with the product, rate, fees and repayment amount outlined Following this, if the customer is happy with the proposed solution, the customer and financial adviser can proceed to the application with confidence - attaching a copy of the Indicative Offer letter to the application.
What’s next for Pepper Money? Pepper Money is dedicated to helping people succeed; it’s at the heart of what we do. We will continue to invest in our diversified products and services, and our digital capabilities to ensure that we continue down the path of meeting a wide range of customers’ finance needs. We know the most valuable asset our advisers have is their customers – and our most valuable asset is our people. This continued investment in technology and solutions will give everyone a seamless, effortless experience and it will help set our financial advisers up for the future. ✚ WWW.TMMONLINE.NZ
FEATURES • HOUSING COMMENTARY
Govt torpedoes fail to sink market Despite the Government’s best intentions and policy shifts Kiwi’s positive expectations of house price growth are hard to sink, Sally Lindsay writes.
here has been a further modest decline in ASB’s housing confidence survey, but Kiwi’s perceptions of house price growth remain around a level seen during the peak of price confidence in past housing booms. The latest ASB survey shows in the three months to July a net 58% of people expected house prices to rise over the following 12 months, down from a net 64% in the three months to April and a net 73% historical peak in the three months to January. The current net balance is made up of 65% expecting prices to increase and 7% expecting declines. This is despite widespread predictions from economists of a slow down or even a price drop. Because of this hard-to-shift mindset about house prices, the ASB has revised its annual growth upwards to 22% this year, mainly reflecting how resilient prices have been to date.
TMM 03 • 2021
ASB chief economist Nick Tuffley says, however, the tide is going out, and there will be just 2% growth next year as price growth becomes dead in the water. From a government policy perspective, a number of torpedoes have been fired at the housing market this year and a fresh salvo is being loaded into the tubes. As yet the housing market has only taken on a little bit of water: month-to month growth has slowed only slightly from its February/March peak frenzy, and annual house price growth has hit 30%. It is of little surprise that perceptions of whether it is a good or bad time to buy a house are still weak, says Tuffley. A net 20% of respondents see now as a bad time to buy, little changed from a net 21% in the three months to April. The latest result had 11% of respondents seeing now as a good time to buy a house, with 31% seeing it as a bad time (making the net -20%). Interestingly, Auckland is less downbeat overall with a net 13% seeing now as a bad
time to buy, against a net 25% “bad” for the rest of the North Island and a net 21% “bad” for the whole of the South Island.
Climb continues August’s lockdown threw up some surprising results in the housing market. While sales were down 26.5% from last August, house price growth hit a new record of 31.1% across the country. House prices appear impervious to anything thrown at them. According to the REINZ House Price Index (HPI), prices still managed to climb 2% in August. However, the data was distorted by lockdown and will remain so while Auckland is in level four lockdown, says Kiwibank’s economics team. Median prices for residential property across the country increased by 25.5% from $677,400 in August last year to a record $850,000 last month, REINZ data shows. Four from 16 regions reached new
‘The contrasting outcome seems to be explained by fewer days in lockdown over August, and the completely different climate in the market this time around’ Jarrod Kerr record median prices and 25 districts reached new record median highs. The median house price for New Zealand, excluding Auckland, increased by 22.8% from $570,000 in August last year to a new record of $700,000 last month. Auckland again underpinned the strength of the housing market hitting a record median house price last month of $1.2 million – up 26.4% from $949,500 in August last year. This growth was reflected throughout the region with five from seven districts reaching new record median prices – Rodney District ($1.28 million), Manukau City ($1.157 million), Waitakere City ($1.12 million), Franklin District ($950,000) and Papakura District ($940,000). The rises contrast with last year’s lockdown that generated a cautious contraction in prices, says Kiwibank chief economist Jarrod Kerr. “The contrasting outcome seems to be explained by fewer days in lockdown over August, and the completely different climate in the market this time around. “There was still significant interest in the housing market prior to lockdown. Also, the real estate industry and supporting services (conveyance, banking, etc) were better prepared to process transactions already in train during lockdown.” Auckland fared better than any other region in August. It managed to avoid a double-digit fall in sales during the month – only -9.3% – and annual house price growth of 27.9% was the fastest pace of growth in almost six years. Elsewhere, sales fell much faster, in the range of 15-30%. There were some eyewatering house price gains in places like Canterbury and the Hawke’s Bay. However, the total number of properties available for sale across the country dropped year-on-year by 31.9% in August to 12,249, down from 17,974 in August last year – 5,725 fewer properties. This is a 3.4% drop from
July and it is the lowest level of listings ever seen. It was not unexpected as the normal spring lift in listings has been delayed by the lockdown. Meanwhile, auction rooms may have gone quiet when alert level four was dropped on the country, but the latest data indicates this just meant a shift to online auctions. Last month 26% of all properties sold by auction. This is the highest percentage of New Zealand homes sold by auction for an August month since records began.
Affordability woes The average property value across New Zealand is 7.9 times the average annual household income, a record high in CoreLogic’s Housing Affordability Report’s 18-year history. It is published every six months. The figure for the second quarter of this year is up sharply from the 7.4 times recorded just three months ago and 6.6 times of 12 months ago. The long-term average is for property values to be 5.8 times the average annual household income. Property values rose 15% during the first six months of 2021, well ahead of the increase in gross average household income which rose just 1.0%, illustrating the country’s acute affordability challenges. CoreLogic’s chief property economist Kelvin Davidson says since the last report in late February, the New Zealand economy and property market have generally remained buoyant. The report also found it currently takes 10.6 years to save a house deposit, beating the previous first quarter high of 9.9 years. It takes almost three years longer to save for a house deposit than the long-term average of 7.8 years. On average, households who take out a new home loan spend 38% of their income on their mortgage repayments, compared to tenants, whose rental payments absorb 21% of household income. Despite historically low interest rates, average mortgage payments as a proportion of household income have increased from 32% a year ago. “However, this is not to say that renting is easy either – that figure of 21% is also above average. It’s also worth noting that the typical income for a renting household may well be lower than the overall average, which would imply a much higher figure than 21% of their income being spent on accommodation costs,” Davidson says. “Mortgage repayments are now back to levels last seen in early 2018, when typical fixed mortgage rates were much higher, above 5%.” ✚
What’s driving house prices? UP REINZ HOUSE PRICES Median prices for residential property across the country increased by 25.5% from $677,400 in August last year to a record $850,000 last month.
RENTS Stats NZ stock measure shows April rents were up by 0.2% in August, compared to April and by 3.2% year-on-year.
• INTEREST RATES ASB has hiked mortgage rates by up to 30 basis points. The bank’s sixmonth fixed term goes from 3.29% to 3.55%. One year rates increase from 2.55% to 2.85%, 18 month rates increase from 2.79% to 3.09% and two year rates increase from 2.95% to 3.25%. Kiwibank’s one year rate goes up to 2.65%, its two year rate was raised only +10 bps to 2.89%. This is the lowest of any of the main banks.
IMMIGRATION The latest migration figures show a net gain of 1,139 people in July, more than double the net gain of 527 in June and almost 15 times the net gain of 76 in July last year. July was the fifth consecutive month that the net migration gain increased. The increases have come from a steady reduction in the number of people leaving the country long term, while the number arriving long term has been relatively stable.
MORTGAGE APPROVALS RBNZ data shows total new mortgage lending to investors was slightly up in July to $1.472 billion. In June it had shrunk to $1.436 billion down from the high in March of $2.325 billion. A year ago investor mortgage lending was $1.451 billion. Mortgages for first home buyers were $1.605 billion, down from $1.649 billion in May and new mortgage commitments to other owner occupiers were up slightly to $5.655 billion compared to $5.365 billion in June.
HOLDING OCR The Reserve Bank has held the OCR at 0.25% – the rate it has been at for more than a year. Economists are predicting it to rise in October.
Mortgage advice enters the Golden Age Banks continue their retreat from the high street, and mortgage advisers stand to gain an advantage. With the new regulatory regime underway, advisers are more bullish than ever that they will grow their market share, writes Daniel Dunkley.
he Covid-19 pandemic has transformed industries across the world, and in New Zealand, the banking sector has been forced to accelerate some major changes over the past year. To save costs, the nation's biggest lenders have reduced their high street presence over the course of the Covid crisis. This has reduced the level of choice for borrowers seeking in-person advice as they address their home loan needs. The nation’s biggest lenders have blamed Covid-related pressures for their branch closures, continuing a trend
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that began several years ago. The rise of digital banking and online customer service propositions has led many banks to pare back their bricks and mortar sites. The biggest five banks in New Zealand closed 84 branches in the year to September 2020, according to KPMG’s 2020 banking report, with the number of retail sites falling from 934 to 850. Amid the high number of closures, prominent figures, including the New Zealand Bankers’ Association chief executive Roger Beaumont have questioned whether branches have a future, as customers are increasingly referred online and to call centres.
Between September 2020 and June 2021, the big five banks closed a further 77 branches. The closures have affected the level of customer service for the average Kiwi borrower, impacting their ability to talk face-to-face with a home loan expert at their bank of choice. Tightened lending conditions compound the issue for many borrowers. Customers unable to find a branch have been forced to jump through more hoops online and over the phone, with many unable to reach a satisfactory outcome for their lending needs as banks become more selective.
The incoming changes to the Credit Contracts Legislation Amendment Act will make the home loan application process even more cumbersome for borrowers. After December, banks will need to make more detailed enquiries about customers’ affordability and will require more evidence on expenses and income. As the application process becomes more complex, it is expected that banks will turn more “non-standard” borrowers away. As the application process becomes more difficult, mortgage advisers look set to enhance their value proposition. The decline in face-to-face bank customer service is benefitting the mortgage advice sector. Advisers say they have experienced an upturn in business since the pandemic, with customers looking for a friendly face on the high street and frustrated with their lack of options.
Banks respond – but is it enough? While the evidence suggests banks are reducing their high street presence, lenders say they are committed to maintaining staffing levels to serve their home loan customers. As the market surges this year, many say they have brought in new staff to meet the rise in demand and remain committed to mobile mortgage manager propositions. “We’ve increased staff to help process the current high number of home loan applications,” a spokesman for ANZ told TMM. ASB’s executive general manager for retail banking, Craig Sims, responded: “ASB is focused on helping our customers achieve their homeownership goals and in recent months, we’ve increased staffing across our in-branch, contact centre, mobile mortgage and third-party lending
teams to meet demand.” Westpac, meanwhile, said: “We’ve increased the size and capability of our in-branch, contact centre, and mobile mortgage manager lending teams to meet increased customer demand. We helped first home buyers to purchase 3,512 homes during the six months to the end of March – a 35% increase on the same time last year – and we encourage customers to talk to us about their homeownership goals.” A Kiwibank spokeswoman said: “At Kiwibank, we’ve been upskilling our workforce to match what our customers want from us, that is more complex conversations including how we can meet their ongoing financial needs and advice on home loans. “Over the past year, we’ve almost doubled the number of people able to have a home loan conversation with customers. It is exciting to be in a better
place to provide this advice, enable quicker decisions for our customers and support more New Zealanders with their aspirations of homeownership.” BNZ added: “We want our customers to have the best possible experience and have increased our workforce to match the extraordinary growth in the housing market. “Having the right people in the right place to serve our customers is important to helping people into new homes, and we’ve significantly increased the number of people able to help customers get home loans. “We’ve added 50 bankers to the front
line, trained more people to work on lending, increased our processing staff in the back office, and enabled our bankers to work across regions so they can meet demand no matter where it’s coming from. This also includes broker. We are continuing to monitor and manage this to ensure we can deliver the kind of experience our customers expect from us.” Though banks are closing more branches than ever, experts believe lenders will retain much of their direct business. Massey University professor David Tripe is sceptical that branch closures will reshape the lending market.
“I would not have thought that branches were a particularly effective location for mortgage sales for banks and that their mobile managers were much more effective,” he says. “There may be an ongoing switch to brokers, however, but it’s not clear to me how much more expensive the broker channel is than other existing channels for mortgage distribution. There might be an increase in banks’ costs, but this might be recovered through other charges – getting a loan is currently quite a cheap deal for a borrower in New Zealand compared with some other markets.” WWW.TMMONLINE.NZ
‘Using a mortgage adviser’s leverage and relationship with the banks makes a world of difference to the consumer’ Joel Oliver Visible presence the key As lenders shrink their high street footprint, top advisers say they have experienced an increase in activity as clients seek a personal connection with a broker. Joel Oliver of SuperCity Mortgages says borrowers are struggling to keep on top of ever-changing bank policies through the pandemic and require an expert's advice. “People are time-poor, and bank policies are changing frequently,” he says. “Often a consumer could talk to two people at the same bank and get different answers. Using a mortgage adviser’s leverage and relationship with the banks makes a world of difference to the consumer.” Oliver believes borrowers will become more aware of the broad range of lending options available to them as lenders become pickier. “No one at a branch at one bank can tell a client that the proposition is the best for them, as they simply do not know what any other banks would have done differently or better. It can and will always only be biased. “A good mortgage adviser does not care what bank offers the best outcome, as long as it is the best outcome for the client. That is paramount. The brokerbanker client relationship grows stronger year on year, and people enjoy dealing with a specialist for financial advice.” Kris Pedersen of Auckland-based Kris Pedersen Mortgages says the older demographic is likely to be most affected by branch closures, as they have grown accustomed to in-person service. While NZFSG’s Bruce Patten says borrowers are frustrated with banks at the moment. “I’m still getting a lot of customers that are disgruntled with their current bank 020
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and the lack of responsiveness. I had a client that walked into their bank to ask about rates, and they referred him to the app. He was like, ‘that’s not what I expect from my bank’, and he came to us.” Before the recent Auckland lockdown, Patten said more customers than ever were coming through the door. “Clients want multiple options,” he adds. “I’ve never had so many walk-ins as I’ve had recently. You used to get maybe one a week. We’ve had three today alone and one yesterday. We’re definitely getting enquiries from people that we wouldn’t have done in the past.” Adrienne Begbie, managing director of non-bank lender Prospa New Zealand, believes banks retrenching from the high street will boost the adviser channel. “Their share of business will increase as customers look for personal service they don’t or can’t get from the banks,” she says. “This is another reason we value the adviser channel; they are in a prime position to give customers better customer service and help them with all their lending needs, including business lending.”
Market share growth Though broker market share has increased in recent years, the Covid crisis could accelerate the shift in New Zealand as bank resources come under pressure. NZ advisers’ share of the mortgage market remains a long way behind other nations, at roughly 50%. In comparison, across the Tasman, Australian brokers took 60.1% of the market in Q3 2020, according to the Mortgage & Finance Association of Australia. The CEO of Aussie Home Loans, James Symond, expects Australian brokers’ market share to surpass 70% within five years. He says customers are increasingly aware of the range of finance options at their disposal. The AHL boss predicts that repeat business, customer loyalty, and word of mouth referrals would drive the trend. How long will it take for New Zealand to approach the same levels? NZFSG’s Patten predicts that broker market share will eventually resemble more mature markets like the US and UK, where brokers take a 60-70% slice of the mortgage market. Although direct-to-bank dominates in New Zealand, Patten believes it’s only a matter of time before the trend follows other markets. “That’s just the way it is going to be. Brokers’ share of the mortgage market is increasing. It’s hard to know for sure as the banks don’t share that information with us, but we are very confident that our share has increased and will continue
‘We value the adviser channel; they are in a prime position to give customers better customer service and help them with all their lending needs, including business lending’ Adrienne Begbie to. I’d say we [advisers] are somewhere between 40% and 50%. “It’s a bit of a secret over here as to what our true market share is,” Patten added. “Which is strange because in Australia, it’s talked about constantly.” According to Patten, Australia’s 2019 Royal Commission into financial services has raised awareness about advisers: “Brokers became more well-known over there, and that has flowed over here.” He predicts market share growth will continue. “It’s just an inevitability. We are going to take more mortgage business because the banks can’t cater for the volume of customers. They want to be involved in the origination of home loans, but it will be more digital-focused.” Oliver agreed that market share would rise in the years to come. “I believe mortgage advisers’ market share will continue to trend upwards just like in Australia where it is now [hitting] about 65%.” Sarah Johnston, chief executive of Astute Financial, believes bank branch closures will continue to boost the industry. “We have already seen the increase in business to the adviser network since Covid 2020, and branch closures only continue to support the value of the advisers who continue to provide face to face and one on one connections.” Johnston remains confident that market share will build as it has in other comparable markets, “based on the fact a mortgage adviser is truly an expert in this field” and has “in-depth knowledge across all lenders”.
Regulatory benefit Advisers believe that the new regulatory regime will enhance the industry’s position of strength. The FSLAA regulatory regime, which came into effect on March 15, could also be a positive for the adviser sector in the long term. While adviser firms have been hit with greater compliance demands, brokers expect the legislation to build confidence with consumers. Patten believes the FSLAA regime will enhance the position of the industry in the eyes of the consumer. “The legislation is another thing that works in our favour. It will lead to greater trust in the profession. Before, it was an
under-regulated regime. Now we are accountable for what we do and say. In the long term, that will lead to more business,” he says. Katrina Shanks, chief executive of Financial Advice New Zealand, echoes the level of optimism felt across the industry. “Mortgage advisers have always provided significant value to a client who is seeking to obtain lending for their home. The personal service, trusted relationship and transfer of knowledge reassures their client they are in the hands of a professional. Due to the trusted relationship that is formed, they also know the adviser cares about their outcome,” she says. “As the environment changes, and there are reduced opportunities to build relationships and access advice face-to-face through other channels, there is an opportunity for the mortgage adviser channel to flourish. Mix a vibrant property market and the appetite for personal advice which is delivered faceto-face. This is an ideal opportunity for financial advisers to grow the market segment. “As we have now entered a new regulatory regime, this will only increase consumers’ public confidence and trust in seeking financial advice and increase their financial health, wealth and wellbeing.”
‘Mix a vibrant property market and the appetite for personal advice which is delivered face-to-face. This is an ideal opportunity for financial advisers to grow the market segment’ Katrina Shanks With a robust regulatory regime, increasing customer confidence, and a visible high street presence, the mortgage advice sector is increasingly well placed for a period of growth. ✚
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FEATURES • SPONSORED CONTENT
Mortgage Link Celebrates 30 Years with Expansion
n the era of instant gratification and season of urgency of change, make sure that what you want for the future of your advice business remains centre stage, says Josh Bronkhorst, CEO of Link Financial Group, the holding company of Mortgage & Insurance Link, Advice Link (the company’s in-house CRM) and FG Link (the company’s Fire & General Insurance business). “Many advisers are grappling with change right now. An understatement of course. But amidst all the change and the immediate need to ‘get it right’ in this new regime, it’s crucial that advisers keep a firm view on what they want for the future of their advice business.” “We did the same at Link Financial Group: we took a long-term view on how our group could best serve both Kiwi consumers and financial advisers; to define who we wanted to be as a group in five to 10 years and beyond. In the same year that the group celebrates 30 years since the launch of its flagship brand, Mortgage Link, it continues to grow its insurance offering through the Insurance Link brand, Fire & General Insurance through the FG Link brand, its software and technology offering through the Advice Link brand and is also paving the way to further expand its advice services in the medium term to include investments through its Invest Link brand. “It’s been four years since we launched our Mortgage and Insurance CRM, Advice Link. Whilst this has been a massive and sometimes daunting task we now have +- 200 users including administrators. Anyone who operates under our licence is required to use our CRM for audit and file review purposes. Advice Link makes it much easier for advisers to follow a compliant process and also makes it a lot easier for us to assist our advisers through our ongoing file review and audit programme now run through Advice Link,” Bronkhorst says. “In addition to Mortgage and Insurance, under the Link Financial Group Licence – we will be selectively offering a home to Fire & General and investment advisers,” says Bronkhorst. We realised early on that offering advisers choice would be the most
sustainable long-term approach. Advisers who use our brand are required to operate under our FAP licence as Authorised Bodies however advisers who use their own brand are able to utilise our Aggregation services whilst operating under their own licence or the Link FAP licence. This we believe provides advisers with the flexibility to choose which operating model best suits them and their vision for their business. Advisers operating under their own licence are able to utilise our FAP services including file review and audit services and general compliance support provided they use Advice Link. We recently bolstered our compliance team through the appointment of experienced compliance manager Iwinca D’Souza who now leads a strong compliance support offering. Whilst Mortgage Link started out as an aggregator offering a home only to advisers who wanted to work under the Mortgage Link brand; Link Financial Group is now also home to more than 100 advisers (both Mortgage and Insurance) who operate their own brands. “When we sat down to plan the future of the group, helping advisers grow their advice services was top of the priority list. We now support advisers across all areas of advice – Mortgage, Insurance, Fire & General, KiwiSaver and soon investments also. We have created a pathway for those who would like to expand their own offering to their clients to a comprehensive and holistic advice model.”
Image caption: Josh Bronkhorst
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Since 2015, Link Group adviser numbers have increased from 25 to 200 plus. Over the last six years the company has consistently grown by +- 50% per year; growth Bronkhorst attributes to the group’s unwavering culture of support and progress. “Our three-decade experience as a group has taught us a lot about how to provide commercially valuable services for advisers, but also the importance of building and nurturing a culture that can be counted on for support. It might sound passé in today’s world, but we continue to pride ourselves on viewing the Link Group as an extended family.” We are often referred to by our lender and insurance partners as the Link family. “2021 has turned out to yet again be a big year for advisers. And in the busyness and urgency of change, it can be all too easy to let the short term take undue precedence.” “For those who are still going through the process of defining how they will operate under the new regime, I encourage you to give yourself the opportunity to ensure your decisions are made with both your short-term needs and your long-term goals in mind,” says Bronkhorst. ✚ To find out more about Link Group and licence options for advisers, contact Kelly Brough 027 373 2864 | firstname.lastname@example.org or Josh Bronkhorst 021 835 506 | email@example.com
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UP FRONT • PROPERTY NEWS
CAANZ slams interest deductibility changes Accountancy trade bodies have hit out at the Government’s plans to restrict the deductibility of mortgage interest for investors.
n its submission to the Government Chartered Accountants Australia and New Zealand (CAANZ) warned that the law could be overly complex for most Kiwis. It claims the reforms will lead to unintended consequences and unnecessary complexity. “We believe that the ad hoc measures introduced and proposed do not accord with good public policy design. The focus to ‘level the playing field’ for first home buyers by damping residential investor demand for existing housing stock is unduly narrow and will lead to unintended consequences.” The group said the move “undermines investor confidence”, and would create “boundary issues and complexity”. According to the group, the tax changes will disproportionately impact people that cannot afford tax planning advice. “We are very aware that many taxpayers who will have to apply these
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rules will not be sophisticated taxpayers and if the rules are overly complex, there will be widespread non-compliance.” The group said that the potential law, in its current form, could lead to residential property boundary issues, confusion over the treatment of nondeductible interest on disposals and losses. It also raised concerns about the level of new build interest concession, with new builds set to be exempt from the law. CPA Australia, meanwhile, agreed that the law would make the tax system unnecessarily complex, and said the changes would not impact housing affordability. The body warned that investors and owners of multiple properties would find it particularly difficult to navigate the new system. It added the changes “will create more tax issues, unintended consequences, be excessively complex and increase compliance costs. Moreover, it will
‘We believe that the ad hoc measures introduced and proposed do not accord with good public policy design’ CAANZ place enormous strain on the relevant regulatory authorities to police compliance with the new rules.” The consultation period for the law changes closed on July 12. The Government’s new measures are set to be introduced into Parliament later this year but will come into effect from October 1. Interest deductibility on existing investment properties will be gradually phased out between October 1 this year and March 2025. ✚
FEATURES • CCCFA
Banks speak on CCCFA The lowdown on what the major banks will expect from advisers following the impending CCCFA changes.
BY PHILIP MACALISTER iwibank chief executive Steve Jurkovich says the impending CCCFA changes will be quite hard, but people will get used
to it. “Customers will be frustrated by what they perceive as extra hoops they have to go through,” he says. There will be a settling in period, and it will be good for mortgage advisers. “It will support the growth of the adviser market,” he says. “The adviser will do all the mahi.” He says it will be hard for a borrower if they try to do it themselves and approach multiple lenders. Jurkovich describes it as a “once in a generation change” and the fact that liability sheets home to directors and bank officers “sharpens the focus”. That has been the experience in the Australian market. But he says: “Ultimately satisfying the customers can afford [the loan] and being responsible is not a bad thing.” Jurkovich warns that when borrowers get to the end of a fixed rate period and want to check out their options they won’t just be able to rollover a loan. Lenders will have to ask for more information than they do currently, even if it is the same lender. It won’t be “tougher” to get the money, but it will be more “onerous”. Jurkovich, overall, is not too concerned. “We will get through it and in a year’s time we will be wondering what all the fuss was.” He compares it to when AML came in. “It’s a bit harder but people get used to it.” The good thing is that it’s uniform for the whole industry and no one will get an advantage. ASB chief executive Vittoria Shortt takes a different view. She is “worried” and warns there may be “unintended consequences” of the new legislation. She says if that is the case then she will “call them out”. “If there are outcomes which don’t make sense from the customers’
‘It will support the growth of the adviser market’ Steve Jurkovich perspective then I think we have to call them out.” Shortt says Australia proposed similar legislation but subsequently did not implement it. She says it will take longer to process a loan application, and there may be unintended consequences. “That is why Australia did not go ahead with it.” She warns the CCCFA changes are material and impact not just home loans, but all lending including credit cards and personal loans. “It will be significant for the whole market,” she says. “We have to keep a really close eye on it.”
What advisers will have to do Representatives from the four big banks told a Financial Advice New Zealand webinar that there will be changes advisers need to adapt to. The key message was that advisers will have to have conversations with clients about income and affordability. This information will need to be recorded and validated. Just saying the conversation has been had with a customer will not be good enough. BNZ general manager, third party, Adam Ward says if information is not recorded and validated then in the regulator’s eyes it didn’t happen. There will also be changes to UMI calculators and greater detail required about a client’s income. Just putting
a number into the “other” field will not be good enough. ASB head of third party banking Amanda Young said the bank is making 10 key changes to its process; some will have no or a low impact and others “moderately high”. The bank has developed tools to capture the new obligations, an adviser declaration form as a way of attesting to CCCFA obligations and a redesigned adviser guide book. Westpac head of third party banking Liz Cannon said the responsible lending declaration form the bank introduced three years ago had served it well and helped ensure the bank was doing the best it could to meet its obligations.
‘If there are outcomes which don’t make sense from the customers’ perspective then I think we have to call them out’ Vittoria Shortt For advisers who submit deals to Westpac CCCFA “won’t be a major change”. ANZ will have an upfront declaration form that advisers will have to provide before assessment of a loan application can start. In essence advisers will have to share detailed information of the conversations they are having with clients with lenders. ✚ WWW.TMMONLINE.NZ
FEATURES • CCCFA
How will CCCFA changes impact lenders? Changes to the Credit Contracts and Consumer Finance Act 2003 will be felt across the mortgage market. Here’s what we know ahead of their implementation on December 1.
n December 1, amendments to the Credit Contracts and Consumer Finance Act 2003 and CCCF Regulations 2004 will come into force. The changes will influence how lenders assess borrowers, keep records, and place greater responsibility on directors and senior managers within credit firms. The changes come into effect alongside the updated and tightened Responsible Lending Code, as part of a Government drive to reform credit regulations and reduce risky borrowing. The amendments are part of a broader Government push to reduce highrisk lending to vulnerable customers, following tightened LVR limits and moves towards debt to income ratios. The CCCFA emphasises the importance of putting policies, procedures, and training in place to ensure ongoing compliance. It also includes guidance on monitoring and training. The first tranche of changes under the revised CCCFA will require directors and senior managers of creditors to exercise “due diligence” to ensure compliance. Directors will face harsher sanctions and penalties for non-compliance. Directors and senior managers will need to be certified by the Commerce Commission as “fit and proper”. “Due diligence” will mean lenders: • require their employees and agents to follow procedures (including automated procedures) that are designed to ensure compliance • need methods in place to identify and remedy deficiencies in the effectiveness of those procedures. Every director and senior manager will need to comply with the new due diligence obligations.
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Consumer lenders will also need to be certified by the Commerce Commission after October 1. Certification will only be granted if senior managers are deemed “fit and proper” by the Commerce Commission. Some entities are exempt from the certification requirement, including registered banks, licensed insurers, and qualifying financial entities under the Financial Advisers Act 2008.
Suitability and affordability changes Advisers will feel the most significant changes through amendments to the Credit Contracts and Consumer Finance Regulations 2004. The changes will prescribe minimum standards for lenders as they assess the suitability and affordability of a borrower. They include: • an express list of enquiries to establish that a loan is suitable for a borrower • requirements for lenders to estimate borrowers’ income and expenses and verify expenses (including benchmarking in some cases) to establish that a loan is affordable for a borrower. The new rules will make lenders adopt stricter affordability criteria. Lenders will be required to place more scrutiny than ever on borrower affordability. The changes outline requirements for lenders as they estimate borrowers’ income and expenses. Pauline Ho, special counsel at Dentons Kensington Swan, said the new regime would be “more prescriptive in terms of what banks need to check off as they process applications”. “It sets out the things they need to ask about; the breakdown of outgoings and
‘As the regulations basically take a onesize-fits-all approach, potential borrowers who are non-standard might find that they fall in the too-hard basket for some lenders’ Kate Lane what those outgoings are comprised of, not just utilities, but things like school fees and other expenses as well.” Lenders will need more evidence of expenses, and borrowers and advisers will need to turn over more documentation. The amended law requires lenders to keep records on affordability and suitability. Customers and the Commerce Commission will be able to access these records. According to Kate Lane, a partner at MinterEllisonRuddWatts, the changes “set a baseline as to what analysis lenders must do in relation to suitability and affordability”. Lane says they could impact the way non-standard borrowers are treated. “As the regulations basically take a one-size-fits-all approach, potential
‘There will be an ongoing compliance burden and greater penalties for liability’ Pauline Ho borrowers who are non-standard might find that they fall in the too-hard basket for some lenders given the detailed verification work required on income and expense information.” Lane says the regulation will make applications “very time consuming” for lenders. Larger lenders with more sophisticated compliance departments should be able to weather the storm. Ho doubts the changes will lead to a “complete overhaul in how the main banks approach things”. “They should already have robust processes in place in terms of suitability and affordability. Generally, they are already above and beyond what the legislation requires,” Ho says. However, smaller lenders, such as second-tier non-banks, may find CCCFA compliance more difficult. “The finance companies on the margin might not have as much of a buffer [in their affordability assessments],” Ho adds. The extra compliance burden could force smaller lenders out of the market, Ho says. “Compliance costs may become too high, with the certification requirements and so forth. There will be an ongoing compliance burden and greater penalties for liability.” Lenders have already begun to adjust their processes ahead of October 1. The changes have already been felt in the market. According to independent economist Tony Alexander’s August market report, banks have begun to pay more attention to the short-term debt of borrowers, particularly first home buyers. Alexander said lenders had begun to monitor borrowers’ credit more closely – particularly debt held through pay-later services such as Afterpay. “There is a general tightening of criteria as banks get ready for the new Credit Contracts and Consumer Finance Act (CCCFA) changes,” Alexander said. “This
legislation requires lenders to be certain the borrower fully understands what they are signing up to.” Advisers say the banks have contacted brokers to explain the new rules, and have warned of potential changes to the loan application process. David Green of AdviceHQ said banks were “in some cases applying the changes” already. “What this means is a further tightening of lending conditions and more hoops for clients to jump through,” Green warns. Green says the main banks have begun to ask more questions about home loan terms and borrowers’ expenses. Lenders are asking whether customers can pay off their debt before retirement or afford to pay off shorter terms with larger repayments. “Two key areas in focus are loan terms and expenses,” Green adds. “We can only hope banks take a pragmatic approach in these areas, as opposed to a simplistic view, for example calculating loan terms using 65 years less their current age. CoreLogic calculated the median length of time Kiwis hold a home is 7.4 years which means the full loan term is never reached.” On August 16, the Commerce Commission published new guidance for lenders on their disclosure obligations under the CCCFA, covering the various types of disclosure required under the new regime. Law firm MinterEllisonRuddWatts said the guidance would put compliance departments under strain across the lending market, and would serve as a reminder “to all consumer lenders of the need to review policies and procedure”.
Covid delay In September, banks were given more time to implement the CCCFA changes as the Government agreed to delay the changes by two months. The original deadline of October 1 was pushed back to December to give lenders more time to adapt during lockdown restrictions. The Ministry of Business, Innovation and Employment (MBIE) confirmed it would “extend the compliance date for most of the new credit law changes”. “Of significance to lenders and borrowers, the Government has agreed to a short delay to the full commencement of the Credit Contracts Legislation Amendment Act 2019 (the Amendment Act) by two months, to December 1, 2021. “This is considered necessary due to the impact of recent Covid-19 alert levels on lenders’ implementation of the reforms, which has disrupted training
and other preparations and forced a reprioritisation of resources to support existing customers,” MBIE said. “This delay will include the regulations that were due to come into force on October 1, 2021, such as the Credit Contracts and Consumer Finance (Lender Inquiries into Suitability and Affordability) Amendment Regulations 2020.” However, the Commerce Commission says new certification requirements will still come into place on October 1, and “the Commission’s guidance for when lenders need to be certified still applies”. “Lenders will now have until December 1, 2021 to comply with the remaining changes in relation to responsible lending, due diligence, disclosure, and fees and advertising requirements,” the Commerce Commission said.
‘What this means is a further tightening of lending conditions and more hoops for clients to jump through’ David Green “The Government remains committed to implementing the credit reforms in a timely manner for the benefit of consumers,” MBIE said. “Decisions around a delay have not been made lightly, and the Government has a strong expectation that the Credit Contracts and Consumer Finance (Lender Inquiries into Suitability and Affordability) Amendment Regulations 2020 be implemented by no later than December 1.” The new Responsible Lending Code will be updated to reflect the new start date, while the Commerce Commission will also update its guidance. MBIE will undertake a brief public consultation on reissuing the addendum to the Responsible Lending Code, which elaborates on and offers guidance on how lender responsibility principles and lender responsibilities may be implemented by lenders while dealing with borrowers who have been impacted by Covid-19, it said. ✚ WWW.TMMONLINE.NZ
COLUMNS • MY BUSINESS
From London to Raglan Loan Market Raglan's Brett Wood talks about his journey from the London tourism sector to life in laid-back Raglan. BY MATTHEW MARTIN
What was your motivation to get into the mortgage broking/lending business? I did a business degree then worked in tourism for five years but wanted a career change to put my degree to good use. I landed in London on my OE in October 2001, a month after the Sept 11 twin tower attacks. There was zero tourism so that fast-tracked the initial move into the industry. Years later, back in NZ, the GFC fast-tracked my move to starting my advice business. After two redundancies in a row I had ended up in a finance role that I hated, so decided to take control of my life and start as a mortgage adviser – in the middle of the GFC with a new baby!
How long have you been in the business and where did you learn your trade? I’ve been in the mortgage industry 20 years – with 12 years as a mortgage adviser. My first mortgage industry role was in London as a BDM for a "mortgage packager". I knew nothing about mortgages and my role was to visit mortgage advisers, convince them to use our services and find lenders for their clients – I had to learn a lot quickly. Then I came back to NZ and worked as a BDM for Bluestone for three years. This role showed me how the good advisers did things … and the not so good advisers showed me how not to do it.
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Why did you decide to base yourself in Raglan and what have been the challenges/advantages in setting up your business there? After living in Sydney and London, I was desperate to live by the beach. I knew once kids arrived the surfing would suffer so Auckland wasn’t an option. Peter Wood and Ali Toumadj at Bluestone supported the move and so my wife Megan and I gave Raglan a try for six months. We’re still here 16 years later. Raglan was a challenging place to start a mortgage advice business for sure and particularly so in the GFC conditions. The population is about 3,000 and back then nothing was selling. I had to look further afield and did a lot of driving in the first five years. What that’s led to is a diverse range of referrers and clients around the country.
Finding experienced support staff in Raglan is impossible. I’ve always had to train staff up from the ground, which initially is hard work. But it means when looking at candidates it’s more about the right attitude and ability and willingness to learn which has worked out well.
You’ve won a few awards recently, what do you think are the reason/s behind your recent successes? What makes you stand out among the many people in your trade? A few of the awards are purely volume based but the latest is more on how the business operates. We have to settle a lot of loans to compete with city based advisers as the average loan size is about half of what a central Auckland adviser would have. With settling a high level of loans comes exposure to a lot of scenarios so when a client calls the chances are we’ve recently dealt with that scenario or close to it which I think helps. I keep in close contact with some of NZ’s highest performing mortgage advisers to get ideas on improving our workflow and workshop applications – that’s super important at the moment. Being a Raglan based financial adviser I probably have a more casual approach than most but that’s not at the cost of professionalism – I think clients like that.
How do you reach out to new clients? Is this via social media, advertising? Near 100% of our business comes from existing clients and referrals. I do have a poor excuse of a business Facebook page but it’s more to add to my online presence as most referrals Google search me before calling these days.
How did you cope during the Covid-19 lockdown and has this hurt your business, or made it stronger? The first three weeks of the March 2020 lockdown were intense with hundreds of phone calls from stressed borrowers, existing and new. That was difficult with two kids at home and with Megan working and studying. I spoke with about 500 of our clients in those first three weeks and was constantly emailing useful information to our entire client base. A lot of deferments and interestonly were arranged but we also moved people who arranged deferments directly with their banks once we’d talked with them and explained the consequences.
Ultimately I’d say Covid has strengthened my business as our clients and referrers experienced that we’re here with quality advice and information when it really matters. I’m picking that in such a turbulent environment more people are seeking advice so they can make better informed decisions which is great to see.
What is a typical working day for you? I get to the office at 8:30am, do a pipeline meeting with the team, receive a phone call every eight minutes, try sneak a surf in if the waves are pumping, reply to as many emails as I can, leave the office at 5:30pm with 50 more emails than when I got in. I’ve given it a good nudge in those hours so I don’t work after 5:30pm or on the weekends.
What was the best piece of advice anyone has given you? And the worst? The best advice was “don’t complain about the market until you have 100% market share”. As a newbie in an incredibly tough market that helped me stay positive and prosper while I was seeing experienced competitors shut up shop. The worst was a “friend” who told me I was an idiot and I’d lose everything. There’s a high chance he could’ve turned out right of course but I didn’t listen.
What are your long-term business goals? I want to increase settlements by 60% within the next few years by expanding the team and improving the workflow. Introduce AI and other tech to free up time. I want the business to be an ingrained part of the Raglan community and for it to support local clubs, charities and schools. I’m looking at succession and planning with my accountant now for how best to position for that in the future.
How have you adapted to the new financial adviser regulations? Has this been an easy process for you? Loan Market and NZFSG have made the transition fairly painless. The new systems are smooth and flow well and there’s now the tech to support the advice we’ve been giving, be compliant and have a more professional presentation. ✚
From Born in Sydney to a Kiwi mum, moved to New Plymouth as a oneyear-old. Kerikeri for high school. Raglan for 16 years.
Family Wife Megan, kids Ava (12) and Emmett (9).
Out of work interests Surfing, music.
Film/TV show The Mighty Boosh.
Favourite book Barbarian Days: A Surfing Life.
Favourite music Varied, nothing you'll find in the top 40.
Motto Experience yields insights.
COLUMNS • SALES & MARKETING
How to handle anxious clients Advisers need to discuss rate increases with clients, says Paul Watkins.
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he worst market research is anecdotal, but recent conversations with friends highlighted an issue with mortgages which I am sure you are more than aware of. A home-owning couple I know in their mid-thirties have a large mortgage but are terrified of what will happen a couple of years from now. They can make the payments perfectly well now as they both earn well, but they want to start a family. Giving up one income for a short time has already been factored into their finances. However, they know that interest rates and therefore repayment rates will go up in the not-too-distant future, which is quite a concern to them. Another couple are first home buyers and have accumulated a healthy deposit. They told me they are stunned at how much they can borrow at current rates, which has allowed them to look at higher priced homes. The mortgage broker they have dealt with has cautioned them on this and has done some modelling to show the impact of a rate rise. This now has them in the dilemma of, “should we just go for it and see what happens?” or, “let’s assume the rate rise will happen and act accordingly”. The third couple are about to renovate as “money is so cheap”. Adding to their mortgage, they are adding a pool, deck, Archgola, new fences and a new kitchen. Six-figure additions. Are they right to do so?
‘We all know interest rates are at an all-time low, but we also know that they can’t stay this way’ I can imagine that such conversations are going on in large numbers of households right now. Even at the higher end, say a $1 million mortgage, which of course is quite common in Auckland, if rates jump by say 2%, that could mean an extra $1,000 or more a month in repayments. We all know interest rates are at an all-time low, but we also know that they can’t stay this way. Is it causing any notable concern among your clients? Or are they quietly hoping that it will all be fine and they will easily cope when rates rise? Press headlines right now are contradictory. “Rates predicted to rise early next year”; “Government wants to see rates hold until the economy stabilises after Covid” and similar. The banks have differing opinions on when rates will rise. How should you approach this issue with clients? The key here is to keep in touch and offer ideas on how to cope with the rate
increase (yes, I know, it's me on my wornout-record line of sending newsletters, emails, creating Facebook and LinkedIn posts, or making regular phone calls). But the alternative is to ignore them, which will increase their anxiety and not prepare them for the future changes. With the majority of mortgages in New Zealand apparently coming off a fixed term during the next twelve months or so, what do they do? Fix again? And if they fix, then for how long? Should they pay the break fees and refix right now? Or maybe they need the flexibility of being able to make extra payments. Should they perhaps change lenders? Stretch the term? I doubt many of your clients have more than 5% of the knowledge you have about mortgages and what options may exist. All they know is how much they borrowed and what the repayments are. It's unlikely many will even remember the interest rate they originally signed up to, or their current balance. They live in ignorant bliss – for now. The panic will follow in the next year or two. Some perspective: An interesting study, published at https://journals.plos. org, looked at stress, anxiety, depressive symptoms, alcohol consumption, family relationships, suicidal thinking that came from Covid and its impact on New Zealand. The study found that “New Zealand’s lockdown successfully eliminated Covid-19 from the community, but our results show this achievement brought a significant psychological
toll.” We live in anxious times, so don’t accidentally add to this. You could also note that issues around money are often cited as the number two reason for marriage failures (behind infidelity), with the mortgage of course being at the heart of this. We are living in a strange time. Covid has affected a lot of our lives in many different ways, including seeing soaring house prices and very low interest rates. My message is to take the time to educate clients on options for the future. We also live in the “how-to” generation, where YouTube is catching up to Google as a search engine. Your clients can find anything they ever wanted to know on the internet, with many now choosing Facebook as their primary news source over television or the press (which is not so good). Your best bet is to be seen as the expert. Explain re-fixing, break fees, do some longer-term modelling, show options for when the fixed term expires and, of course, the changing investment property rules. You will not run out of ideas for two-paragraph articles or twominute videos. I know the objection to doing this is that they will learn too much and not see any value in using you again. In fact, the complete opposite occurs. They see you as the guru and when they need help, they know that they can trust you as the one who knows what to do. Turn your cell phone camera on and hold it up to your face. Talk in casual
‘We live in anxious times, so don’t accidentally add to this’ language as if they are sitting in front of you. Tell them example case studies (no real names or circumstances of course) or explain some of the jargon or give a quick update based on what you may have recently learned from a lender’s economist. Do not sell! Educate. I have talked about this before, as educating your clients will serve three significant purposes. First, it will help you stand out from the myriad of brokers who simply offer their services in blatant advertisement format. It will show you as the one who knows what they are doing and can be trusted. The second reason is that it makes you eminently referable, and referrals are the best way to gain new clients. We all like boasting about “we have found the perfect …” (complete the sentence with plumber or electrician or barber or mortgage broker). And the third reason is that it will help alleviate anxiety and mortgage worry among your clients – which is very real, as I was surprised to learn from my random group of friends recently. ✚ Paul Watkins is a marketing adviser to the financial services industry.
COLUMNS • INSURANCE
Why premium cover is important Is premium cover the most important product a life and health insurance adviser should recommend? Asks Steve Wright of Partners Life.
eaving the answer to this question aside for the moment, how does premium cover/waiver of premium feature in your recommendations? Does it feature at all, or do you see it simply as something “insurers insist on” with disability products like income cover or mortgage repayment cover? Does your client understand what premium cover does?
What is premium cover? Like all products, the name does not necessarily tell you what it actually does, and even when products seem to do the “same job”, they may not do it the same way or as comprehensively. It takes some research to determine what each product does and does not do (this is a major reason why advisers are valuable to their clients). Premium cover as a product, is typically a disability product: it “pays” (waives) the policy premium if the life insured is disabled (meaning they are unable to work). The definition of “disabled” under premium cover typically mirrors the definition of disability in income cover or mortgage repayment cover, but it might not – something you should check. Cover that waives premiums when a life insured is disabled is what I want to discuss in this edition of TMM.
What does premium cover do? Premium cover typically waives policy premiums due for the period while the life insured is disabled or until the end of 032
TMM 03 • 2021
‘Some providers do allow premium cover even if a life insured only has life, trauma, or medical insurance on their policy’ the premium cover payment term, again typically, age 65 or 70, after a selected waiting period – more stuff for you to check. It is also important to check what premium a particular provider’s premium cover will waive on total or partial disability. For instance, is it: • the life insured’s income protection or mortgage repayment premiums due only • the life insured’s premiums for all benefits covered on the policy • the total policy premium (ie including all benefits for all lives insured on the policy)? Please also check to see whether or not the premium cover benefit will be apportioned (premiums only partially waived) on partial disability. If it is apportioned, your client will have to pay the remainder of the premium not waived themselves. Premium cover typically only waives policy premiums on disability if the person disabled is actually covered for
Unambiguously Committed to Independent Advisers
‘Premium cover does cost a small additional premium, but when one considers the critical protection premium cover gives, it seems like an essential recommendation to me’
premium cover benefits on that policy. Just like any other product, if a life insured on the policy does not also have premium cover over themselves, no benefit (waived premiums) can be paid if they are disabled. Being a disability benefit, it is important to check how premium cover will apply to a life insured who is not employed. Premium cover typically only covers the premiums of the policy it is included on, not other policies a client might own. If a client has multiple policies, each policy will need premium cover to be selected/ added, to protect its policy premiums.
Can clients who don’t have income cover/mortgage repayment cover on a policy, protect these policies with premium cover? This depends, mainly on whether or not the provider allows the option or even provides premium cover. Again, this is something for you to check, and consider, when making your recommendations. Some providers do allow premium cover even if a life insured only has life, trauma, or medical insurance on their policy. Some specialist providers do not provide premium cover, which means disabled clients will have to find the money to pay for these premiums themselves.
Why should advisers recommend premium cover? Clients who are disabled and cannot work, still have an obligation to pay their
premiums. Even if the client is receiving monthly disability benefits, why would they want to spend any of this on life and health insurance premiums? It’s tough enough getting by on the reduced income that disability benefits typically pay, so having premiums waived by premium cover is like getting a bigger disability benefit, premium cover effectively increases disposable disability income because it removes a fairly large expense from the disabled client’s budget. Premium cover that pays life and health insurance premiums when a client is disabled is really “disability insurance for your insurance”. To lose the protection of life and health insurance simply because a client is disabled and can no longer afford the premiums, seems like a disastrous client outcome to me. Especially because now that their health is poor (they are disabled after all) the need for insurance shoots up and the likelihood of a claim is greater. You can completely remove this danger for your clients by recommending suitable premium cover, to protect and fund their policies, when they are disabled. Beware not to confuse premium cover with the premium waiver benefits you sometimes find in health insurance, which typically waives medical insurance premiums for a year or two on the death of a life insured, but not when the life insured is disabled. Premium cover does cost a small additional premium, but when one considers the critical protection premium cover gives, it seems like an essential recommendation to me.
I don’t see the value of premium cover only as being the value of the premiums the product might waive, possibly to age 65 or 70 (even though this may amount to tens of thousands of dollars: tens of thousands of dollars they don’t have to find to pay to keep their insurance alive). For me, the real big value is the possible claims paid to the client by their life cover or trauma cover; or the significant medical treatment costs of private surgery or life-saving drugs not funded by Pharmac, paid by their insurer. These are claims paid (amounting to potentially millions of dollars) because their policy, and its benefits, remained in-force and did not lapse when disability struck. Premium cover could just be the product enabling all these good claims outcomes and perhaps this is the answer to my initial question – premium cover may very well be the most important product a life and health insurance adviser recommends. ✚ 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 circumstances, situation or goals, and is not a personalised financial adviser service or legal advice. It is recommended you seek advice from a suitably qualified professional before you take any action or rely on anything stated herein.
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 NEW CEO FOR THE FMA
06 OCR DECISION REVEALED
02 MORTGAGE STRATEGY DILEMMA
07 RESIMAC WRITING MORE PRIME LOANS AND DEALING WITH MORE ADVISERS
The Financial Markets Authority has announced the appointment of an experienced international regulator to take over from Rob Everett who leaves at the end of October.
Borrowers could be better off fixing low-cost short-term mortgages and rolling them over a five year horizon, despite expectations of rising interest rates, according to ASB.
03 TIGHTER LVR RESTRICTIONS FOR OWNER-OCCUPIERS The Reserve Bank plans to tighten LVR restrictions for owner-occupiers as it clamps down on low deposit home loans.
04 CCCFA CHANGES: WHAT ADVISERS NEED TO KNOW Changes to the Credit Contracts and Consumer Finance Act are set to impact borrowers from October 1. Here's what the amended lending rules will mean for clients.
05 KIWI ADVISER NETWORK LURES EXPERIENCED ADVISERS New aggregator Kiwi Adviser Network has secured the membership of two experienced NZFSG advisers as it looks to take on the bigger groups in the market.
The Reserve Bank has kept the official cash rate on hold at 0.25% following the delta community outbreak. Here's what the central bank said:
Resimac has had a bumper year in New Zealand seeing its settlements increased by 81% to $434 million in the financial year to June 30.
08 CCCFA CHANGES DELAYED
The Government has agreed to delay the start of the Credit Contracts Legislation Amendment Act after pressure from the industry.
09 FSCL CASE HIGHLIGHTS CLAWBACK DANGER A mortgage adviser has been forced to drop their request for a commission clawback following a dispute involving FSCL.
10 LOCKDOWN ISSUES HIT HOME LOANS Customers unable to settle their home purchase during lockdown have been forced to re-apply for mortgages, according to advisers, as Covid restrictions impact the market.
TMM Online also has all the latest mortgage rates and changes. www.tmmonline.nz
TMM 03 • 2021
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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