TMM - The NZ Mortgage Mag Issue 5 2016

Issue

05

2016

Be prepared New rules that will change your world

MARKETING YOUNG ADVISER TO MILLENNIALS OF YEAR JEFF ELIAS

QUIETER TIMES?

IMPACT OF LVRS

CONTENTS UPFRONT

16

04 EDITORIAL How lenders treat home loan lending, new regulation rules it’s challenging times ahead for advisers.

06 NEWS A call for equal standards for all and read of the latest videos on the TMM Online website.

08 PEOPLE ON THE MOVE The latest appointments and people news.

24 Where are the mortgage advisers?

A call for action is being made for mortgage advisers to have their say on the FAA review.

Jeff Elias

FEATURES 10 HOUSING COMMENTARY What impact are the new LVRs having on the housing market?

12 PROPERTY NEWS ROUND-UP A collation of the latest property news from the New Zealand Property Investor magazine.

14 REGULATION There’s now greater clarity on what’s expected on lenders after a long-running court case.

20 BUSINESS ADVICE Tips on how to being more effective when running customer appointments.

24 MY BUSINESS: JEFF ELIAS The Young Mortgage Adviser of the Year winner talks about how stepping out on his own was the best way to future-proof himself in the industry.

COLUMNS 22 SALES AND MARKETING Paul Watkins explains how to connect with the Me-Me-Me generation.

26 INTEREST RATES Why people are buying ‘unaffordable houses?

28 PAA PAA board member, Karen Tatterson talks about the impact changes in the market relate to mortgage advice.

30 INSURANCE Steve Wright writes of the importance of insuring terminal illness separately.

32 LEGAL TMM’s resident legal expert Jonathan Flaws on making a mark in the digital world.

34 INTELLIGENCE A breakdown of what the Kiwi property investor looks like.

EDITOR’S LETTER

The times they are a challenging...

O

ver the many years we have been publishing TMM I’ve probably said, more than once, that we live in interesting times.

I’ll say it again now. But this time it is arguably the most interesting time.

Yes there have been challenging times, especially when the Global Financial Crisis took hold of the world. (And upfront commissions suddenly vanished).

Now the issue is around how lenders are treating home loan lending, especially property investment loans.

This is all sheeted squarely back to the Reserve Bank and its continuous tightening of lending rules.

While it wasn’t that long ago that credit was easier to get than a hamburger at McDonald's, and banks were throwing plenty of cash at customers, the opposite is now true.

Getting deals over the line is proving to be more difficult by the day and cash contributions are becoming just a happy memory.

One of the biggest concerns at the moment is how banks are dealing with security releases and in many cases demanding that proceeds from sales are applied across a property investment portfolio.

The Reserve Bank has made it clear that it

04 WWW.TMMONLINE.NZ

isn’t requiring banks to do this – they are doing it off their own bats.

While dealing with the latest Reserve Bank rules are a challenge further challenges lie ahead. You could argue that right now the value proposition of a mortgage broker is arguably the strongest it has ever been.

Things are getting so complicated that borrowers, particularly property investors, should be seeking professional advice.

That though, could all get wiped out if the next, mooted, restrictions are put in place.

This is the idea of debt to income restrictions. Under these rules the maximum amount someone could borrow would be a multiple of their income. What this multiple is remains unknown.

But as one mortgage adviser said to me, this would hurt the industry significantly. People would not necessarily need to access the knowledge and expertise of advisers.

The other challenge on the horizon is further regulation of all financial advisers. There remains a feeling that mortgage advisers have their head in the sand over these changes.

This issue's lead focus on what is looming ahead with regards to financial adviser regulation.

The Ministry of Business Innovation and Employment outlined, in July, what it plans to do around adviser regulation. It is expected an Exposure Draft of law changes will be out before Christmas.

Be very clear. This draft is your last chance to try and influence change. If you don't like it and sit there and no nothing you have no right to whinge and grizzle about the changes.

If you take anything to read over Christmas, the make sure it is the Exposure Draft. For more on this please read the lead story in this issue.

This is the final issue for the year, look out for the next issue of TMM in late January.

Philip Macalister Publisher

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

The NZ Mortgage Mag is published

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

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

Join NZ’s most dynamic mortgage business Mike Pero is expanding and we’re looking for exceptional people to grow with us.

If you’re in the industry and ready to take your career to new heights as a business owner, join the team and brand that can help you succeed.

We can support you with integrated marketing, ongoing sales leads and a leading CRM system.

Give us a call today, we’d love to start a conversation with you.

Colleen Dennehy

Scott Jackson

021 287 8727

027 296 2104

Network Sales Manager North Island

Network Sales Manager South Island

05 Visit us at mikepero.co.nz/about-us

NEWS

CLEAN UP NEEDED FOR ALL

By Susan Edmunds

S

OME MORTGAGE BROKERS are hoping tough rules will be introduced for their sector, and say that would improve outcomes for consumers.

A review of the Financial Advisers Act is under way and it seems virtually certain that all advisers will be held to the same standards ethical and disclosure under the new regime.

But it will be up to the Code Committee and the Code of Professional Conduct to determine what qualification and competence standards are required. More information on what the new code might look like is due out soon.

Mortgage broker Bruce Patten said the new rules should clear up consumer confusion around the current registered and authorised financial adviser designations. Everyone providing advice will either be a financial adviser, or an agent of a financial advice firm.

He said it seemed likely that everyone working as an adviser would have to hold a level five qualification, or equivalent, within a few years.

“That will help tidy up the industry,” he said.

“We will have people drop out who have been in business forever and don’t want to go through it, or there will be an entry barrier for people who don’t want to spend three months doing the papers to get in. If that entry point is more difficult, we should have better quality people coming in.”

Mortgage advisers who were not aligned to a particular product provider should do well out of the changes, he said. They will once again be able to describe themselves as “independent” – something they had not been

06 WWW.TMMONLINE.NZ

Bruce Patten

Glen McLeod

permitted to do under the previous version of the Financial Advisers Act. “It should push more customers our way. It’s still very unclear what the final picture will look like but so far I feel the right decisions have been made.”

Glen McLeod, of Edge Mortgages, agreed it was important that stricter standards were introduced for the industry. He is currently completing a level five qualification and said it was too easy for people to set up as a mortgage broker without enough experience or training.

He said it would be appropriate for the level five standard to be required across the board– those offering investment advice should then have qualifications beyond that.

“Having the standard set very high is a good thing for the industry. We are playing with people’s biggest assets.”

But he said it was disappointing that it appeared the banks would be allowed to continue to operate largely unaffected – only transitioning from QFEs to financial advice firms with agents. The advice company will still be responsible for managing agents’ compliance.

“I struggle to understand why they have looked at advisers in the mortgage and insurance space before they looked at the banks and insurance companies,” he said.

“We give advice on a daily basis and are held accountable for that.”

Once the code of conduct applied to all advisers, it should be regularly reviewed and the requirements increased over time, McLeod said. He said a rising bar was needed for the industry to do its bit in improving New Zealanders’ financial acumen. ✚ Read more of what advisers think of the FAA review on page 16.

TMM's latest video Here are some of the latest mortgage videos you can watch online at www.tmmonline.nz The state of the housing market

CoreLogic's head of research, Jonno Ingerson talks about the impact the Reserve Bank's lending restrictions have had. Ingerson says there has been an impact in the level of buyer-demand and new listings with it being lower than in mid-winter.

He says in Auckland prices have started to cool off but not so much for the rest of the country with the rate of price increase may have slowed but not dropped.

Young mortgage adviser of the year named

Jeff Elias from Online Mortgage Brokers in Wellington has been named as the PAA's Young Mortgage Adviser of the Year. Â Elias, who was has been a mortgage adviser for nearly two years, talks to TMM publisher Philip Macalister about his career so far.

"Jeff has set up his own practice and the judges were impressed how much he has developed his processes, technology and advice material to assist clients to better understand Mortgages, structures and the ongoing support to help clients meet their goal of paying off their mortgage," they said.

To see more videos go to TMMOnline.nz and visit the video section.

07

PEOPLE

PEOPLE ON THE MOVE Got a new appointment you would like to tell advisers about?

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

Westpac’s new broker boss Westpac is due to announce details its new national manager of Third Party and Mobile Mortgage Managers soon.

Teresa Jacques has taken up the position which became vacant after Colin Smith was promoted to another role in the bank. Rachel Lelean has been acting national manager during the transition period.

Kylie Kneale, who left after a bank restructuring has finished her contract marketing role with accounting software company Xero and returned to Melbourne.

Demand increases Mortgage Supply The Mortgage Supply group has added two more advisers to the ranks of its branded operation.

Shafeel Aktar joined the team as a mortgage adviser following a very successful career as an award winning mobile manager for various banks.

Aktar is currently based in the West Auckland office, and will be covering the South and East Auckland areas, with the plan to open a branded Mortgage Supply office in the near future.

Meanwhile Adrian Pitman is a new mortgage adviser, based in Mortgage Supply’s West Auckland office.

Pitman has had many years of lending experience within the BNZ. He started his banking career in 2005, working with The Mortgage Supply Co director – David Windler, and is pleased to be working together again after a number of years.

Pitman is excited to be in the market as a mortgage adviser, as he believes there is a great advantage in being able to offer his clients the most appropriate solution for their needs, rather than only being able to offer one suite of products.

Son joins mother’s mortgage business Loan Market has three new advisers.

Andrew Ashkettle comes from an information technology background after completing his studies at Auckland University. He's been working in his mother's business, Robyn, since the start of the year learning the ropes and has transitioned into becoming a mortgage adviser.

Helen Stuart, who has been a personal assistant to Lisa Meredith for the past two years has decided to make the jump into the mortgage adviser space and will be joining Meredith's growing team based in Kingsland, Auckland.

Vimal Mudliar comes from banking background have been with ANZ Business Banking past 10 years and is well versed in retail and business banking. Mudliar will be based in West Auckland.

Financial personal trainers to open in West Auckland enableMe has opened its Auckland West branch in Henderson. This is the fifth enableMe franchise to open in Auckland, taking the total number of enableMe offices nationwide to eight.

The franchise will be owned and operated by Chris Liddell, an experienced mortgage adviser. Previously, Liddell was enableMe’s longserving in-house lending and mortgage manager. enableMe specialises in one-on-one coaching to help people save money, reduce debt and reach their financial potential.

The company uses a patented mortgage repayment system that helps

08 WWW.TMMONLINE.NZ

people save thousands of dollars in interest costs each year, the company says. enableMe has locally owned franchises in Auckland, Wellington, Bay of Plenty and Christchurch.

More Mortgage Express appointments Mortgage Express has appointed Debbie Haywood as Regional Manager – Wellington and South Island.

Haywood’s long-standing career in the financial services industry includes over 25 years in sales and banking. Her previous roles include business development account manager at Southsure Insurance and Home Loan Development Manager at Sovereign Home Loans.

More recently, she worked at Harcourts Real Estate.

“Debbie is an experienced business development manager who has worked for various lenders,” Mortgage Express chief executive Sarah Johnston says.

In her new role as Regional Manager – Wellington and South Island, Haywood will continue to build on her established relationships with lenders, and help Mortgage Express advisers grow their own businesses.

She will be based at the Christchurch Regional Office.

MortgageLink adds five new (and not so new) faces Jeff Royle owner of iLender Mortgages recently joined MortgageLink and has brought two other brokers with him. Royle and his team specialise in non-bank solutions especially around the high LVR and Lo Doc space.

Royle has more than 25 year international experience in this highly specialised field He operates online and has customers and advisers from Dunedin to Kerikeri and also customers in Australia buying in New Zealand.

Emma Li has joined Mortgage Express as an adviser based in Auckland.

Li spent over 5 years in the real estate industry in China, before moving to New Zealand in 2014 and joining Harcourts as a real estate agent.

She has in-depth property market experience having worked in the real estate industry for just over two years.

Eddie Biesenbach is another new Mortgage Express adviser.

Biesenbach began his career in the finance industry in 2003, working as an International Personal Banker for Barclays offshore in the Isle of Man. Since arriving in New Zealand, he has spent six years working in banking with experience in lending, investments and insurance at BNZ, Westpac and ANZ. Biesenbach has also worked as a mortgage adviser for just over three years.

Conversant in both English and Afrikaans, Biesenbach will be providing advise around residential and investment lending, as well as business and commercial lending.

Mortgage Advisers

Since 1991

Branded and Non-Branded Options Promotion on Website

Jeff Royle

Debbie Haywood

Supporting

Liam Thomas has joined Mortgage Link Otago. Previously he worked for The Cooperative Bank and before that Forsyth Barr.

“I started out life as a musician and still frequent the local (Dunedin) muso’s club to re-live my youth. My passion is finance and insurance,” he says.

Eric Rolfes has been in the banking industry for 28 years, working as a mobile manager and Branch Manager for ANZ, National Bank, and Countrywide Bank.

He has successfully assisted thousands of clients over the years with the purchase of their home. Rolfes has lived on the Hibiscus Coast for more than 25 years, and is well known in the local community.

Chinese-born Jenny Liu is a long time resident of New Zealand having lived here for more than nine years. Throughout her time here she has held a variety of positions in different companies and is currently working in the real estate and financial services industries.

When she arrived in New Zealand she worked as a secretary in a law firm and then as a business trader for three years, before her current position with Mortgage Link.

Feng Wei is financial adviser with Mortgage Link. He joined Mortgage Link, after his six years work experience in a bank with various roles from branch staff, risk and compliance associate and the most recent role as the mobile mortgage manager.

Wei has strong financial service background and sound knowledge about mortgage, insurance and real estate market. ✚

Advice Process and Flowchart Market Leading CRM’s Iress incl Mortgage Tool & Finware Leads PD Days and Conference New to Industry Adviser Training Compliance Support Business Planning and Support Succession Planning and Support PI Cover and Disputes Resolution Scheme Package Access to Insurance Link and Insurance Link General

Call Josh Bronkhorst: 027 397 7198 Helena Merson: 027 466 7010

Thinking Mortgages ?

Think Link

mortgagelink.co.nz 09

HOUSING COMMENTARY

By Miriam Bell

Market confusion Contradictory messages have been the name of the housing market game of late. Miriam Bell seeks to establish some clarity from the data confusion.

F

alling sales, softening demand, continuing tales of increased buyer restraint. They are the hallmarks of a cooling market and Auckland’s market has them all. Yet, at the same time, Super City prices continue to rise ever upwards.

This story is not replicated exactly in other markets around the country. But the size and dominance of Auckland’s market inevitably has an impact on others, for better or worse.

And the result is a morass of conflicting market tales.

Commentators agree it shows that the latest round of LVRs have had a definite impact on the broader market. What they don’t agree on is whether the current slowdown is likely to set the permanent tone.

SUPER CITY SHINE DULLS There is no question that the shine has come off Auckland’s formerly turbo-charged market.

Across the board, October’s data depicted a much quieter scene while reports of reduced auction sales, longer time spent on market and more considered buyers grew.

For the first time, realestate.co.nz released data measuring demand for property in markets around the country and Auckland is the only region where demand has fallen.

Demand for Auckland property dropped by 9.6% in October.

010 WWW.TMMONLINE.NZ

Alongside falling demand, realestate.co.nz’s data offered another sign that Auckland’s market is slowing. Auckland is the only region where the amount of properties for sale is now up year-on-year. If no new listings were to come onto market, all the city’s existing properties would be sold in 12.5 weeks, as compared to 9.3 weeks in May this year.

Realestate.co.nz CEO Brendon Skipper says Auckland asking prices continue to rise and, as such, properties are spending longer on the market. “Vendors continue to be focused on selling at a premium while buyers are being more considered and taking time to assess all of their options. With more stock on the market buyers aren’t feeling the same pressure they were 12 months ago.”

But it is perhaps the steep decline in Auckland’s sales volumes which best sums up the change in its market. The latest REINZ data has Auckland sales dropping by 12% in October, as compared to September, and by 16% year-on-year.

STEEP DECLINE IN SALES Barfoot & Thompson’s data is just as stark on sales. It has Auckland sales numbers slumping to the lowest level for an October in five years.

The agency’s sales numbers declined to 778 – which is a quarter lower than in September and a quarter lower than the recent three

month average.

Barfoot & Thompson managing director Peter Thompson says the last time sales numbers fell this low in an October was in 2011 when the market had not fully recovered from the GFC. It is yet another sign the Auckland market is losing its forward momentum, he says.

In a reflection of this, at months end the agency had 3,711 properties listed, which is 21.3% higher than at the end of September and the highest number at month-end in three years.

At the same time, both the average sale price and the median sale price increased in October to $943,801 and $865,000 respectively.

However, Thompson says the rate of growth has slowed. “The average median price increase over the past 12 months now stands at 10.9% compared with 17.4% for the 2015 calendar year and 11.1% for 2014.”

The combination of falling sales numbers, an increased amount of listings and rising prices is rare and hasn’t occurred for many years, he says.

In his view, it is high end property sales which are lifting the sales prices. “Where buyer resistance to prices has been felt most is in the under $1 million price category. Greater choice has created an environment where buyers feel less pressure to pay the asking price.”

PACE OF GROWTH SLOWS QV’s October data gives substantiation to Thompson’s take on Auckland as it also shows a slowing rate of growth. It has the region’s average value rising to $1,045,207 in October which, once adjusted for inflation, is a 13.6% year-on-year increase. But this rate of growth is its slowest pace since March 2015.

Auckland is not alone in this. QV’s data showed the average national value increased to $622,309 in October which, once adjusted for inflation, is a 12.4% year-on-year increase.

This is the slowest pace of national growth since May this year.

QV national spokesperson Andrea Rush says the index is now showing a slight tick to the right. This reflects an easing of 1.6% in the annual rate of growth over the past month as the latest round of LVR restrictions begin to take effect.

Sales volumes are down by around 12.0% on the same period last year and mortgage approval rates are also down, she says.

“Auckland, Tauranga and Hamilton home values are continuing to rise, just at a slightly slower pace than they were prior to the new LVR measures being introduced in late July.”

The impact of the new LVR rules are most obvious in Auckland though. QV’s Auckland general manager Jan O’Donoghue says demand has eased back from previous highs at the low-end of the market as there are not as many investors active.

“New investors and ‘Mum and Dad’ investors are the ones most affected as they are reliant on higher loan to equity ratios, and so tend to be more affected by the LVR changes than well-established investors. There are still properties selling but it is not as easy as it was prior to the new rules coming into play.”

STRENGTH IN THE REGIONS The Super City’s changed environment is, as ever, having a ripple effect on the rest of the country.

Skipper says that while demand for Auckland property has fallen, demand for property nationally is up by 14.1% and has soared in certain regional markets. For example, demand for property in the Manawatu-Wanganui region grew by 50.4%. The ManawatuWanganui region saw the biggest increase, but the Otago and Taranaki regions also saw hefty growth in demand – with rises of 44.7% and 39.4% respectively.

Rush says that as less established investors have difficulty raising finance, due to the new LVR requirements, they are looking to the regions. “Investors shut out of more expensive markets are turning their sights to more affordable markets in relatively close proximity to North Island main centres such as the Western Bay of Plenty, Whangarei, Rotorua and the Waikato District. All of these areas continue to see very strong value growth.”

The October data from both Trade Me Property and REINZ shows regional markets around the country reaching new highs in their average prices.

Trade Me Property has seven regions hitting new asking price records. They were the Bay of Plenty, Canterbury, Marlborough, Nelson, Waikato, Wellington and Auckland. It also has the national average asking price at a new record high of $618,000.

WEAK SPRING BOUNCE The REINZ data is less buoyant in tone. As noted earlier, it records a steep decline in sales volumes and a drop in the national median price to $510,000. But it shows four regions – again, including Auckland – hitting record high median prices. They were Northland, Waikato/Bay of Plenty and Southland.

REINZ spokesperson Bryan Thomson says the data suggests the revised LVR rules are having more of an effect on lower-priced sales, as compared to higher priced sales, particularly in Auckland. “But the market for lower priced properties is becoming more difficult for both buyers and sellers.”

There is some evidence the normal spring “bounce” in listings has been weak this year and this could reflect vendor uncertainty, he says. “This could have the result that we’re seeing, which is that supply falls but the demand is still there, so prices keep rising.”

REINZ SALES: DOWN Once seasonally adjusted, sales volumes dropped both nationwide, and in Auckland, in October.

INTEREST RATES: UP Interest rates remain low, but some banks have started to increase them slightly.

OCR: DOWN The Reserve Bank cut the OCR to a new record low of 1.75% in November..

COOLER MARKET While the data illustrates the impact the LVRs are currently having on the market, economists are questioning how long that impact will last.

ASB economist Kim Mundy says while sales activity tumbled across New Zealand in October, recent housing market activity has been supported by robust demand and limited supply. “The latest round of investorfocused LVRs appears to be weighing on market activity. We expect this to continue to suppress market activity over the remainder of the year.”

BNZ chief economist Tony Alexander says there has been some post-LVR pullback in the housing market, but not really all that much.

He remains of the view that come the New Year the market will be lifting again.

Conversely, ANZ economists say there are some important factors that mean this cooling of the market may last longer. These factors include stretched valuations, increased risk, banks more actively rationing credit and reaching the trough of the interest rate cycle.

“Outright weakness is hard to envisage when net migration flows sit at records, supply is responding only slowly, interest rates remain historically low and the underlying economy is still performing well. But we do feel that it is now less likely that the market bursts away again in a few months’ time as it has done before.”

The factors they list are no panacea amid housing shortages in Auckland, Wellington and the Bay of Plenty, they say. “But they should temper the market’s natural push to keep rising, and effectively buy time for the supply side to adjust and respond – which it will, over time.” ✚

IMMIGRATION: UP Annual net migration was back up to record levels in September and so, for the first time in months, was the monthly net gain.

BUILDING CONSENTS: DOWN Once seasonally adjusted, building consents were down, both nationwide and in Auckland, in September.

MORTGAGE APPROVALS: DOWN Reserve Bank data shows that mortgage lending declined in September – for the fourth month in a row.

RENTS: NEUTRAL Rents were static nationwide and in the major regions, including Auckland, in September. However, Wellington rents were up making it the exception to the trend.

011

PROPERTY

By Miriam Bell - Brought to you by New Zealand Property Investor

Too busy to keep up with everything that is going on in the property sector?

TMM is here to help. Read our round-up of property news and events in each issue of the magazine.

012 WWW.TMMONLINE.NZ

Regional hotspots

Rents on the rise

Not all housing markets are created equal. Put simply, areas which don’t have healthy local economies supported by growing populations are not a good bet to invest in.

The Infometrics Regional Hotspots 2016 report identifies the key areas in New Zealand which are primed for population growth over the next decade.

Infometrics chief forecaster Gareth Keirnan said that with population growth of 2.1% per annum, and running at its fastest rate since the mid-1970s, almost all of New Zealand has had a bit of a “hotspot” feeling to it this year.

But the hotspots identified in the report are not looking at run-of-the-mill population growth over the next five to 10 years, he said.

“In many cases, these locations are faced with rapid expansion because they are areas for development that have been targeted by local councils as planners try to facilitate urban growth to match their city or town’s popularity.”

Not surprisingly, the 10 hotspots highlighted in the report are concentrated around the country’s main metropolitan centres.

Infometrics top 10 hotspots for future growth are: 1. Hobsonville: 254% 2. Southwest Christchurch: 105% 3. Central Christchurch: 83% 4. Papamoa: 74% 5. North Hamilton: 70% 6. Beachlands / Drury: 54% 7. Orewa / Albany: 53% 8. Central Auckland: 47% 9. Central Otago: 29% 10. Central Wellington: 25%

Auckland landlords saw the city’s first increase in median weekly rents in six months in October, Trade Me Property’s latest rental data reveals.

Trade Me Property’s Rental Index shows median weekly rents in both Auckland and Wellington were up in October – although the national median remained unchanged at $440.

The national median rent has now flatlined at the same price for the last four months, although it is up by 4.8% year-on-year.

However, Auckland’s median weekly rent went up by $10 to $510 in October.

Head of Trade Me Property Nigel Jeffries said the increase was the first move in the city’s rents since April and lifted them above the $500 mark they had been stuck on.

“Auckland’s rents are up just 3% on last year so landlords won’t be celebrating, but it’s significant to see rent expectations tick up for the first time in quite some time.

“The average annual rent cost for a typical Auckland property is now $26,520 – still a lot less than the cost of most mortgages in the city.”

Wellington’s median rent rise was more substantial than that of Auckland and comes on the back of a slight fall in September.

The capital’s weekly median rent jumped back to $420 in October.

Mortgage-free decline New Zealand’s hot property market has led to a decline in the number of mortgagefree properties, according to new data from myvalocity.co.nz.

The property valuation website has released

research showing the number of mortgagefree properties nationwide has dropped from 39% to 35% in the last decade.

All regions have seen a decline apart from the Far North, Coromandel and Kawerau which have remained relatively stable.

Myvalocity CEO Carmen Vicelich said this trend doesn’t make much sense on its own - given current market conditions and the growing aging population who traditionally pay off their mortgage and downsize before retirement.

However, it seems that increasing numbers of those older Kiwis with equity in their pocket leveraging up to buy more property instead of paying down their mortgage.

Myvalocity’s data also shows at least 10,000 new investors* have entered the market in the last five years.

This group has collectively bought more than 26,000 residential properties between them, with an even spread of new investors located across the country.

Tax rules may trip There’s devil in the detail of the new residential property tax rules and that’s where the rules can trip investors up, tax experts have warned.

Over the last year, a new residential property tax regime has come into force, expanding the existing rules around land sales in the process.

The new regime includes the bright line test, residential land withholding tax (RLWT) and associated information disclosure requirements.

In a presentation at the recent Chartered Accountants Tax Conference 2016, BDO tax associate Brett Spencer said the regime might appear straightforward, but there is more to it than meets the eye.

“The new rules are still being bedded down and not all of the practical issues associated with them have become apparent yet.”

❝Sophisticated

property investors are likely to be aware of the new rules and should dispose of their purchases accordingly, but there are many people likely to be caught out by the rules in accidental or unwitting situations.❞ - Matt Hay This is partly because the legislative process introducing the regime was undertaken quickly and partly because of the policy rationale behind the regime.

Concerns over Auckland house prices and the role of non-resident buyers in relation to them was the real driver for the new rules, he said.

The haste to address this meant there were some practical issues with the regime from the start. These range from problems obtaining IRD numbers to the filling in of tax statements.

Co-presenter lawyer Matt Hay said the new regime added a level of complexity and risk to transactions already perceived as high risk.

Sophisticated property investors are likely to be aware of the new rules and should dispose of their purchases accordingly, he said.

“But there are many people likely to be caught out by the rules in accidental or unwitting situations.”

Targeted rates for developers?

Auckland housing developers could face growth infrastructure targeted rates under Budget proposals announced by the city’s new mayor.

In a bid to boost the city’s revenue, while keeping a cap on rate increases and funding much-needed infrastructure growth, Auckland mayor Phil Goff has issued a set of proposals for consultation.

Goff’s proposals include the introduction of a targeted rate for new large-scale developments, along with a visitor levy and a regional fuel tax.

“Ratepayers have shouldered the responsibility for the growth of our city and cannot be expected to continue to do that on their own,” he said.

“This proposal shares that responsibility more fairly across all of those who benefit from living and doing business in our city.”

Goff’s proposal aims to meet the challenge posed by years of underinvestment in infrastructure, coupled with ongoing rapid population growth, and to support the aims of the Unitary Plan.

The land opened up by the Unitary Plan includes 11,000 hectares in new greenfield areas and these areas will require substantial investment for new roads, sewers, water pipes, parks and community facilities.

The proposed growth infrastructure targeted rates would sit alongside the existing development contribution and infrastructure charges.

They would spread a lump sum charge out over time as an annual payment, and could be triggered ahead of development occurring.

It is expected the rates would increase land holding costs and weaken the incentives for landbanking – which was an issue Goff campaigned on. ✚

013

REGULATION LEGAL

By Susan Edmunds

Bank fees under review New guidelines offer clarity on what’s expected from lenders, after outcome revealed in long-running court case.

B

anks are likely to have to change some of the fees they charge their home loan customers as a result of the outcome of a long-running court case.

Fees relating to low-equity deals have become less common because of Reserve Bank rules that limit low-deposit lending.

But banks still charge a range of other loan fees, including application fees that can run to 1 per cent of the total loan borrowed. These are expected to come under the spotlight over the coming months.

The Commerce Commission last month issued updated draft guidelines designed to help lenders set fees.

It had been waiting for the final outcome of its case against Motor Trade Finance (MTF) and motorcycle retailer Sportzone.

The Supreme Court finally rejected their appeal after a long-running battle over fees in their contracts that the Commerce Commission said were unreasonable.

Sportzone, which went out of business after the Canterbury earthquakes, charged an establishment fee of $200, to which MTF added its establishment fee of $190.

Sportzone charged an account maintenance fee of $5 in addition to MTF’s $3 a month, an administration fee of $50 was charged to borrowers who paid their loans back early and there was a fee charged for “PPSR Financing Statement Registration”.

There were also fees charged when loans went into arrears.

They were found to be in breach of the Credit Contracts and Consumer Finance Act. The CCCFA, which was amended in 2015 to

014 WWW.TMMONLINE.NZ

include lender responsibility principles, sets rules restricting the fees lenders can charge over the life of a consumer credit contract including the type of fees, costs, and losses that can be recovered via fees and how the fees are disclosed and described.

The central provision prohibits lenders from imposing “unreasonable” fees and the guidelines cover establishment fees, other credit fees, prepay fees, default fees, and thirdparty fees.

The two companies had been under investigation since 2006.

They had argued that the Act could be interpreted as permitting a lender to recover all of its costs from the fees it charged its customers, as long as the costs it was covering related to the lending business.

❝ Now the final judgment in the MTF/Sportzone case has been issued the commission is able to consult with the credit community on fees guidelines❞ - Anna Rawlings

But the Supreme Court backed the Commission in its view that fees should be designed to cover specific transactions, not the whole array of a business’ costs.

The Commerce Commission said the ruling cleared the way for updated guidelines to be issued.

“Now the final judgment in the MTF/ Sportzone case has been issued the commission is able to consult with the credit community on fees guidelines,” commissioner Anna Rawlings said.

“These guidelines aim to clarify how lenders should approach the task of setting credit fees.

They also provide guidance on the limitations that apply to the fees lenders may charge. We recognise it has been some time since our 2010 draft guidelines and that lenders are keen to understand their obligations and our approach to enforcement, so we are pleased to be able to issue the draft guidelines for consultation today. We look forward to hearing feedback on the draft.”

A key part of the guidelines is that the lender’s costs and losses are the key factors in deciding whether a fee is reasonable.

In some cases, a fee should could not reasonably charged at all, even if it was

covering a cost, the commission said.

It cited the example of a lender who charged a “welcome letter fee” of $15. “This fee was likely to be unreasonable, even if the cost of sending the letter was $15, because welcoming the borrower was not a step for which it was reasonable to charge.”

The guidelines also say fees that are aimed discouraging borrowers from certain conduct are likely to be unreasonable if they exceed the lender's costs.

That will mean changes for the banks.

They charge a range of fees – Kiwibank has a $250 application fee, charges $75 for discharge of security and $60 per hour to “investigate something about your home loan”.

ANZ has an application fee of up to $500 for owner-occupied lending, or up to 1 per cent of the loan amount for other lending and a $250 fee for loan top-ups, among other fees.

Peer-to-peer lender Harmoney has already changed its fee structure after the Commerce Commission questioned its initial percentagebased loan fees.

ASB charges a $400 loan processing fee, a $150 top-up fee and $50 when customers switch to or from a fixed rate. Westpac charges $400 per loan, $150 for re-documented loans and $50 for a temporary loan limit increase.

When applicable, the banks also charge

low-equity fees and premiums on lending to people with deposits under 20 per cent.

Massey University banking expert Claire Matthews said it was likely that some of the fees would have to change.

She said they would struggle to charge something such as a low-equity fee under the draft guidelines. “Fees have to be transaction specific and I think it would be difficult to justify,” she said.

“I think it's helpful to think about where these fees came from. Initially banks took out Lenders Mortgage Insurance for high-LVR loans, for which they were charged a premium that they passed on to borrowers - which is reasonable, and transaction specific. Partly due to the ongoing increase in house prices, the banks moved to self-insure but continued to charge a 'premium'.

Use of the term 'premium' was really no longer appropriate, so it became a fee. Charging a margin on the interest rate is more appropriate, because it reduces as the loan reduces and is only charged while the LVR is over specified limits, so it is risk-related,” she said.

“I believe the banks will already have reviewed their fees to ensure they meet the new guidelines, but they will need to keep them under regular review as their costs change to ensure they remain appropriate.”

A spokesman for the Bankers’ Association

agreed there would be a flow-on effect to banks.

“The Commerce Commission’s draft consumer credit fees guidelines are, however, still being consulted on. Therefore the extent to which the guidelines will impact banks will not be fully known until they are finalised.”

ASB spokesman Christian May said it was too soon to say what the impact on its policies would be. “The Commerce Commission guidelines are draft only at this point and subject to industry consultation.”

He said fees were a commercial mechanism that varied from bank to bank.

Under the draft new rules, establishment fees can only cover costs incurred in the credit application and processing, documentations of a loan contract and advancing credit to the borrower.

They cannot include a profit margin, a share of marketing costs, bad or doubtful debt provisions or things such as entertainment.

Other credit and prepayment fees must also reflect only the specific costs, be they actual or estimated.

Default fees must also meet a reasonableness test and default interest must not be oppressive.

Submissions on the proposal close October 24. ✚

015

Be Prepared

Mortgage advisers have largely been missing in action during the current review of the Financial Advisers Act (FAA). Your last chance to get involved is looming. The chairman of the Code Committee, David Ireland, warns if you sit there and ignore what’s happening, you can’t complain if you don’t like the outcome.

T

he Government’s legislated review of the Financial Advisers Act (FAA) is getting into its final throes. The group who will be most affected by the changes are registered financial advisers (RFAs), including mortgage brokers.

But mortgage advisers have, largely, been missing in action during the review. None of the groups made submissions on what they would like to see changed.

Kensington Swan partner David Ireland, who chairs the Code Committee which sets the rules for authorised financial advisers (AFAs), has two simple messages for mortgage advisers: You are one of the groups who will have to change your business practices.

You only have two chances to have your say: When the exposure draft of the legislation is released (due before Christmas) and when the Code Committee revises the code of conduct all advisers will have to operate under.

Ireland is quite certain the current FAA doesn’t work.

Since it came into force “band aid” changes have been made, he says, and it is now a “bugger’s muddle”.

He said the changes had corrupted the policy objectives of the Act. In its first iteration, the FAA affected AFAs the most. RFAs, a group which includes most mortgage advisers and insurance brokers, were left largely untouched.

There are some requirements around registration but nothing much changed with how they run their businesses.

Ireland says when the act is revised, RFAs “will have a big step up”.

“There’s a tsunami coming. You can stand on the beach and think it is going to have no impact or you can move to higher ground.

“Standing there and not moving increases your risk of drowning.”

Are you an FA, a FAF or an agent?

Under the current proposals, MBIE is recommending that the classifications of AFAs, RFAs, qualifying financial entities (QFEs) and QFE advisers should be removed.

Instead three new types of adviser should be introduced:

accountable for their agents’ compliance.

The question all mortgage advisers will need to address is how they structure their business for this new environment.

Will dealer groups become FAFs and all their members agents? Or will a firm which belongs to a dealer group become a FAF?

What do you do?

❝There’s a tsunami coming. You can stand on the beach and think it is going to have no impact or you can move to higher ground. Standing there and not moving increases your risk of drowning.❞ - David Ireland

One of the questions mortgage advisers need to ask themselves is what is their “scope of service”? Or put another way, what do they offer clients?

Under the most recent revisions to the code of conduct, AFAs have to be clear on what they offer to clients.

Mortgage advisers may need to work out what they do and what services they want to be authorised for. A theme throughout this piece is the rules are still unclear.

As Ireland says it is unknown how “granular” the Financial Markets Authority will be. At one end the rules could be just mortgage advice. At the other end the FMA could break it into categories: advice on simple, straightforward owner-occupied properties with LVRs of less than 80%, help with property investment loans, commercial loans and more complex advice such as asset lends and specialist lending.

Ireland says the FMA will be looking at what the licence is for and who will be delivering the advice.

He doesn’t think it will be as detailed and prescriptive as the licencing regime fund managers are currently going through under the Financial Markets Conduct Act. “The FMA response will be proportionate to the scale of business risk.”

1. financial advisers (FA); 2. financial advice firms (FAF) 3. agents (being persons giving advice on behalf of a FAF).

Both financial advisers and agents will be able to provide the same financial advice.

But in the case of agents there will be an additional requirement that the financial advice firm the agent works for is permitted to give the advice.

Financial advisers would be individually accountable for complying with the new regime, but financial advice firms would be

017

Low risk; Yeah Right Mortgage advisers often argue that they shouldn’t be as tightly regulated as investment advisers, as their risk level is lower.

This is going to be hard to argue as there are more mortgage fraud cases ending up in court compared to investment-related ones.

Most recently the Serious Fraud Office (SFO) won a mortgage fraud case against Simon Turnbull. He was jailed for three years and two months after pleading guilty to 16 charges of obtaining by deception or causing loss by deception.

According to the SFO, he was involved in a $33 million mortgage fraud where false loan applications were submitted to a fund management company to purchase 16 properties in and around the Auckland region.

SFO director Julie Read said: “SFO prosecutions against those who commit mortgage fraud help to ensure an honest market where New Zealanders can safely invest at a fair rate.”

In February 2014 another defendant, Malcolm Mayer, was sentenced to six years’ imprisonment for his role in the fraud.

Other names worth mentioning are Kerry Buddle, jailed for four years and three months.

❝SFO prosecutions against those who commit mortgage fraud help to ensure an honest market where New Zealanders can safely invest at a fair rate.❞ - Julie Read 018 WWW.TMMONLINE.NZ

Members who are agents to the FAF and can’t get their own FAF licence may face some challenges. ❝That’s where we might see some bleeding. ❞ - Bruce Patten Then there was the case of Eli Devoy (aka Ellie Stone, aka Eli Ghorbani, aka Elaheh Ghorbani Sar Sangi) who was sentenced to five years' imprisonment with a minimum period of imprisonment of two years, six months.

She was the principle defendant in an extensive mortgage fraud scheme prosecuted by the SFO, where five defendants were guilty of Crimes Act charges.

What are the groups thinking?

Loan Market director Bruce Patten says the group will probably become a FAF and advisers can then be agents of that entity.

He says it makes sense as Loan Market is a branded, “business in the box” model.

Having Loan Market as a FAF is likely to appeal to the smaller offices with one or two advisers.

Patten himself, who has a bigger operation where all his staff are already qualified to at least the level five standard, will itself be a FAF and its staff will become agents.

He is going down this route as it makes his business more valuable if he ever chooses to sell it.

The country’s largest network, NZ Financial

Services Group, is still working through the proposals. Patten, who is a director, says that it is possible NZFSG will become a FAF and invite some of its members to become agents. It is unlikely this offer will be made to all members.

Some, like Squirrel, are likely to become FAFs in their own right.

However, members who are agents to the FAF and can’t get their own FAF licence may face some challenges.

“That’s where we might see some bleeding,” he says.

There is a likelihood the proposed regime may trigger some consolidation and may also force some advisers out of the industry.

Patten, like other group bosses, points out that the rules are still not clear, and they could change.

Mortgage Link managing director Josh

Bronkhorst says if FAA review goes in the direction it is currently headed, Mortgage Link would most likely become a FAF as opposed to all its advisers becoming licenced.

He describes this as being “almost like” the current QFE structure, however QFEs are generally used for vertically integrated business to sell their own products.

If Mortgage Link goes down this track it would provide additional services to its members, and the company would need to take a role monitoring the quality of advice being given.

Currently the group is working with IDS and developing advice manuals.

If it became a licensed entity then the fee structure for its members would increase.

The group has nearly doubled in size in the past year and now has 31 principals. It currently works on a licensee model and is looking to get to between 50 and 60 principals in the next 24 months.

Q Group founder Geoff Bawden is very clear on what the proposed FAA review changes mean. “We will become a licenced financial entity.”

That means all of the group’s current advisers would become agents.

Bawden is working with Mortgage Express

to develop the necessary templates and processes. While they compete with each other it made sense they shared costs, he said Jenny Campbell from the Mortgage Supply Company is waiting for more information.

She points out that when the FAA was first introduced, there were big changes right at the end of the process and she is wary of that happening again.

She is also annoyed that education providers are trying force advisers into doing training now, when the future requirements remain unclear.

Mortgage Supply, she says, is also in an interesting position as it probably has more AFAs than any other group. These advisers have already invested in training and development; yet under the proposals the AFA status will be removed.

The group is taking a “wait and see” approach, but is “willing to help shoulder some of the burden” of the new reqime.

A big worry is that FAFs, like QFEs before them, will be shouldering “an enormous about of liability on behalf of the advisers.”

Mike Pero Mortgages chief executive Mark Collins says "at this stage we haven't given it a lot of thought."

❝I would love to see the industry work together on this.❞ - Ian Boyce MPM is a franchise model, which would, arguably, make it relatively easy for it to be a FAF with each adviser then becoming an agent.

However, Collins, isn't so sure it is the model he would use. When he was at Sovereign he was involved in setting up Sovereign's QFE and learnt about how much responsibility the company had to take on for its advisers.

He says the FAF model takes the risk away from the people giving advice and moves it to the company.

That would require significant resources around audit and compliance.

Collins also points out many mortgage advisers left the corporate world to be self-employed and to get away from the burdens of corporate compliance. He suggests MPM becoming a FAF would be taking them back to the sort of environment they left.

A curly bank question While there are still many unknown factors, and there are some lessons that can be drawn from what AFAs when through and what fund managers are currently going through to

become licensed under the FMCA, there are also some idiosyncrasies.

One is what changes will lenders make to accreditation rules?

Currently pretty much all mortgage advisers need to belong to a group to write business for the banks. TMM understands some banks, such as ANZ, have been going through their books and removing individual advisers not affiliated to a group.

The banks have been much stricter on accreditation of new brokers in the past couple of years.

Under the what is being proposed there is a question about what banks will require from accredited mortgages advisers in the future. Can they be agents? Will accreditation depend on being a FAF? Will there be restrictions around scope of service?

ASB general manager business banking and retail specialist services Ian Boyce says the question of how banks deal with brokers is a significant issue with the FAA review and also with work being done by the Australian Prudential Regulation Authority (APRA).

The question APRA is asking is how can banks be sure the right conversations are being had with customers when they are using third-party distribution channels like mortgage advisers?

He says the bank is the early stages of working through this process with the FAA review and it is submitting papers to the Australian regulator too While the New Zealand industry hasn’t had a good track record of working together on issues, he thinks this is one where banks should collaborate.

“I would love to see the industry work together on this,” he said.

ANZ head of specialist distribution, Penny Burgess says, “We’ll need to review our current agreements in light of the legislative changes.

"We do not currently accredit individual

Jenny Campbell advisers who are not associated with a dealer group, this is unlikely to change.”

BNZ head of third party distribution Adam Ward said the bank hasn't done too much work on what the proposed changes will mean, however he expects there will be an adaptation of the current accreditation process.

He doesn't expect that it will be too hard for banks to adapt to the FAA changes, however, it is likely "to be a challenge for brokers."

Ward echoes Boyce's comments that banks will be more interested in what mortgage advisers are telling their clients and the advice given.

Overall, he supports the proposed changes and says it will lead to some consolidation in the industry.

"More regulation and higher expectations on brokers is good for the industry," he says.

Save your CPD bucks It appears clear that people who are currently RFAs will have to embrace a continuing professional development plan just like AFAs. AFAs have to prepare a professional development plan each year and identify areas they have weaknesses or want to upskill themselves in. Once they have identified these areas they need to earn relevant CPD points.

Ireland says RFAs shouldn’t rush out and undertake additional professional development at this stage.

They should wait, he says, until it becomes clear what the new requirements will be.

“Preserve your CPD and training dollars,” he says.

In the meantime his advice is that when the exposure draft comes out, take it away over the holidays.

Read it. Work out how it will impact on your business and, most importantly, make submissions.

“If you don’t like something and submit on it you get to take the moral high ground.”

“You can’t be pointing your finger at officialdom if you don’t like something but haven’t said anything,” he says. ✚

019

SALES ADVICE

By Jayden Vecchio

Running customer appointments

LIKE A

BOSS

Whatever the setting, Jayden Vecchio gives these tips on how to be on top of your game when it comes to meeting clients.

A

LRIGHT LET'S BE STRAIGHT - we mortgage brokers are strange creatures! What other lines of work has you going to meet people in their homes after hours talking about their most intimate financial details? You know what I’m talking about – walking through the door into a complete strangers home, pitch black outside, children’s toys all over the floor, TV blaring in the background then you finally make it to the table covered with the plates from dinner where you spend the next 60 minutes helping set up the customers financial future.

Sound familiar?

Ok so when I write it out like that it does sound a little odd but the best part about this whole situation is when you’re sitting at the kitchen table AND you run your customer appointments like a BOSS. You know those

020 WWW.TMMONLINE.NZ

appointments that go like a rocket, flawless execution where the clients are hanging off every word, their eyes are wide with curiosity and basically won’t let you leave unless you sign a binding agreement to be their broker for life!

But why isn’t every appointment like this?

My fiancé and I are in the process of planning a wedding so we’ve had to visit 3 different photographers in their studios (i.e. spare-bedroom in their home) where they had unbridled access to sell their story and spruik their photographic wares. I could not believe how poorly they all presented, their appointments were completely unstructured, they were completely awkward for the first 5-10 minutes, their body language sucked and there was no eye contact. I was shocked but it got me thinking: how many brokers are running every SINGLE customer appointment like a BOSS - And how many are letting them slip like these photographers?

❝Bad posture signals to others that you could lack confidence and have poor self esteem or energy levels❞ TIP 5 The tilt – MY FAVOURITE – I personally use this all the time.

TIP 3 Body language sells.

TIP 1 The five seconds before the five seconds You need to be in the right headspace before you even knock on the front door (or before they arrive in your office) in order to make a great impression. Regardless of the day you’ve had, the deals you’ve won, lost or the credit manager that has tried to beat you down you need to forget everything that happened earlier, you need to go into each new appointment with a clear head ready to find out everything about these new clients and how you can help them today, and ultimately ensure you have made the right impression from the second you meet.

Ok so now you aren’t slouching and you’re leaning forward slightly when your clients are talking, but what about the other nonverbal cues that you are giving to your clients?

These can range from a group of moments with your hands, postures and actions that show on the outside what you’re feeling on the inside.

According to research conducted by Northeaster University, there are four ‘Tell-tale signs’ that people associate with dishonesty and scream ‘watch out’ to prospective clients – so you need to be conscious of these to make sure your clients aren’t subconsciously thinking you’re a crook! These include hand touching, face touching, crossed arms and leaning away so make sure you keep these in mind next interview to win more deals using good body language.

Ok hopefully none of my clients read this but - I personally believe the best technique to show you’re listening is to tilt your head slightly when the client is talking. It’s awesome how this action can show people that you’re paying attention and are interested in what they’re saying.

By tilting your head you’re letting the other person have control of the conversation so when the customer finishes talking don’t rush in with a response. Wait 2 seconds. You’ll be amazed at how many times the client will begin sharing something else because of watching your body language which leads to the next point.

TIP 6 Ask questions. Then ask more questions

TIP 4 Eye contact yes, death stare no.

TIP 2 Don’t slouch... EVER! Come on guys! How many times have you been in a new customer meeting seeing salespeople slouch! It’s terrible and even if you don’t feel this way, bad posture signals to others that you could lack confidence and have poor self esteem or energy levels. Have a coffee!! Stop slouching!! Sit up straight, leaning slightly forward when your clients are talking and keep your shoulders back to make you look more confident and attractive.

Another easy one that the photographers completely sucked at, jeez!! Not making eye contact shows you’re disinterested and aren’t appreciative of the client and their time.

There is no excuse not to give eye contact.

Eye contact should consist of 4 – 6 seconds of eye contact followed by a break. I find a good place to move your eyes in between is to your notes because as I mentioned giving someone eye contact shows you care and are interested in what they’re saying.

Listen more. Get the client involved by asking them a questions and asking more questions.

Keep them talking, because the more you learn about your clients, the more you can help them – like I’ve said on previous articles I know intimate details of my clients down to the protein powders my clients take to their favourite running tracks – which helps them become clients for life.

Ok at the end make sure you seal the deal and leave a great last impression. Obvious, but an essential point you want to walk away from the appointment feeling like a BOSS that nailed it in every aspect and equally you want your clients thinking you added more value than anyone else would – you were completely focused on their requirements, presented confidently, seemed honest, were completely engaged and asked questions to really understand their requirements. ✚ Jayden Vecchio runs Australian website topbroker.com.au

021

SALES & MARKETING LEGAL

By Paul Watkins

The MeMe-Me generation If you want Millennials as clients it pays to get to know them and understand how they think, Paul Watkins writes.

M

illennials – is it impossible for them to buy a home?

Millennials are generally regarded as the generation born between 1980 and 2000, being the children of Baby Boomers. As well as being called Millennials, they are also called the MeMe-Me Generation. This makes them currently aged between school-leaving age and 36.

As such they are first home buyers, but an interesting type of client to attract and service.

If you want them as clients, it pays to know more about them and get inside their heads to understand how they think. Interestingly,

022 WWW.TMMONLINE.NZ

they are currently the biggest single age grouping in the Western World, so as they age, will become your biggest client group.

It therefore pay to know more about them, as their attitudes will no doubt remain as they get older. Just to explain, some of the information in this article is taken from published articles by Time.com, stuff.co.nz and icehouse.co.nz among others, as well as from an article by Andrew King of the New Zealand Property Investors Federation published in the NZ Herald.

To start with, Millennials have not known a world without technology. Even the oldest of them entered school with computers in

many of the classrooms and before they hit their teens, they had their first cell phone and an internet connection. This of course has let them see the instant tech millionaires, the kids who go from zero to $100 million before the age of 25.

They see things that they want NOW! No need to save, it’s easy enough to borrow for whatever they want. Time.com says, “Millennials got so many participation trophies growing up that a recent study showed that 40% believe they should be promoted every two years, regardless of performance. They are fame-obsessed: four times as many girls would pick the role of PA to a famous person

❝ Make sure or a CEO over being the CEO. That’s because it can be achieved quicker and they still get the lifestyle of the rich and famous.”

Did you know that the idea of ‘teenagers’ only came about in the 1920s. Before that most kids were at work by age 13 and hung out with adults. But since school become compulsory in the 1920s, aged 13 to 18, they now they hang out with their own age. Right now there are more of those aged between 18 and 29 living with their parents than with a partner, according to the 2012 Clark University Poll of Emerging Adults. Average age for first marriage in New Zealand is now around 30, compared to it being 22 just 30 years ago.

Millennials spend many hours a day staring at a screen, be it a computer, attached to a gaming console or their phone. They can be insecure, preferring their online friend to real life ones, yet have a high degree of narcissism.

They are in fact ‘brands’ and not people. They embellish their lives to online friends and do this well enough on Instagram, YouTube, Facebook and Twitter to become microcelebrities.

As clients, technology will play a big part in communication. Use text, email and Whatsapp to talk to them. Have a well-designed web site that looks good, contains tips, hints and case studies for them. The first time you talk to them on the phone, you can be guaranteed they will be searching for your web site even as you talk to them.

Their narcissism is apparent in their homes.

Whereas in the 1950s families displayed a wedding photo, one of their parents, a school photo and maybe a military photo in their homes, today the pictures are of themselves on holiday, skiing, skydiving and with mates.

It’s all about them! As they themselves are the most important thing in their lives, make sure any written presentation is highly personalised to them. Use words like “I have an option for you, based on your unique personal circumstances” and similar.

Millennials don’t respect authority, but nor do they resent it. The clue here when you have them as clients is not to lecture them. Involve them by explaining the options. Treat them as equals and not ‘kids’. It will easily offend otherwise. There is some interesting research that concluded parenting has had to become peer-enting, with a lot of family activity achieved by negotiation, rather than normal mum or dad dictates.

Kim Kardashian has a lot to answer for.

Here is a woman with absolutely no known vocational talent, but has managed to make many millions from being famous at being famous. She, among others on TV shows, have built expectations. You will know this already, when first home buyers don’t want the 3-bedroom 100 sq metre house that most of us started out with. They want 4-bedrooms, double off-street garage, two bathrooms and two lounges. This only comes from huge debt and therefore debt servicing commitments.

any written presentation is highly personalised to them. Use words like “I have an option for you, based on your unique personal circumstances” and similar. ❞ Financially, Millennials are terrible savers, but on the bright side, most have KiwiSaver. Many also have huge student debt. I know a married couple, both aged 26, who each carry $25,000 in student debt, along with $8,000 debt on a car and are currently overseas on an unpaid humanitarian mission. I’m sure the mission is making them feel good about themselves, but before they left they talked about how buying a house will be their priority when they get back. They are not really thinking realistically.

Let’s hope they are not typical.

Despite them being quite different in their attitudes to life from the generation that went before them, they must manage four big expectations in the lives. These are their careers (and its associated education), extensive overseas travel, having kids and buying a home. They want them all by 30, however that’s all but impossible. As you know, the trick is the order they choose to do them in. Let’s hope they get it right in light of your services.

So in summary, Millennials may sound like the most undesirable group of clients you could possibly have. But get used to them, they are the future! The keys are good use of technology in communication, offering ideas and not dictating what they should do and making them feel in control. Understanding options and ways to deal with the current LVR rules are no doubt the most popular topics you will encounter when talking to them.

Don’t muck them around, don’t let them down and make sure you meet any deadlines you set for yourself. On the subject of technology, of critical importance is that you do NOT friend them on Facebook! Don’t stalk them on Facebook either and say “Hey I saw your skiing holiday pics.” Even though Facebook is in the public domain, its private to them (Is that weird?) At the very most, link to them on LinkedIn, as that is a business connection.

These millennials are a bit of breed, but worth taking the time to understand. ✚ Paul Watkins writes blog content and newsletters for financial advisers.

023

MY BUSINESS

By Dana Kinita

Working from home, but not alone An adviser who has been his own boss all his life in other spheres is eyeing long-term online success, reports Dana Kinita.

HOW DID YOU GET STARTED? Prior to becoming an adviser, I spent two to three years working in a company that gave people mortgage advice and mortgage debt reduction advice. I was very much in the deep heart of mortgages even though I wasn’t getting them for people. I was working with people who had an existing mortgages and giving them advice around that. That’s probably how I got into the industry. I became quite fascinated by it all. I liked working with mortgages and people. I had always been in people-based industries so this fitted in with what I was used to and what I enjoyed.

WHY MORTGAGE BROKING? It’s a real key area where you can have quite a significant impact on people’s financial lives.

Because most Kiwis want to have a mortgage and if I can help them get a good deal and show them how to structure a pay their mortgage in an effective and efficient way, then I’m saving people significant amounts of money.

The case study which I presented at the [IFA Awards] competition, was a couple I got a mortgage for in January 2015 and they followed my advice and paid off close to 20% of their mortgage in one year. This was a pretty decent size mortgage I’m talking about. It wasn’t until 2016, they created enough equity they could buy an investment property straight away.

024 WWW.TMMONLINE.NZ WWW.TMMO MON NLINE.NZ

It’s about helping people: if you have a love and passion about helping people then this job will suit you.

HOW DID YOU LEARN THE BUSINESS? I was at Craig Pope Mortgages for a year and a half. I learnt the business from Craig and still get on really well with him and his team. I had a lot of fun there and good team meetings as well as business mentoring from Craig.

BEST AND WORST TIMES IN THE BUSINESS? It’s all been pretty good really. I did well from almost the beginning. I was getting good referral business within the first two or three months. I hit the ground running. Because I was able to be confident around mortgages, people could see that I knew what I was talking about and giving good advice. They in turn are confident and refer me to their friends.

The current market is a challenge because in Wellington, there’re not enough houses on the market. You have a lot of pre-approved buyers and they can’t get a house. For some of them, their pre-approval is expired and they have to get pre-approved again. That’s probably been a main challenge. Going out on your own has been a challenge; I wouldn’t say it’s hard, but difficult. You’re running a business which different to just being a team member of another business.

Looking to the future for myself and my family, it was more future proofing for myself. I wanted a model where I have ownership of a company where I could build value and one day be sold. I also wanted ownership of my own trail commission renewable.

BEST AND WORST ADVICE YOU’VE RECEIVED? Best advice, is from one of the BDM’s who said, “The only thing worth paying for in this industry is leads”, and I really agree with that. I wouldn’t give up a percentage of my commission for brands or newsletters or business cards, or some of those extra things that come as being part of another company.

Worst advice? I don’t think there’s been any worst advice.

DID ANYONE DISCOURAGE YOU FROM STEPPING OUT ON YOUR OWN? No, but when I told my parents after it had happened, they were a bit concerned. I said, “Don’t worry, it’ll be fine”. I’ve been selfemployed pretty much my whole life so I’m used to stepping out on my own.

WOULD YOU DO IT ALL AGAIN? Yes, it’s very, very rare when I look at a client’s application and think I’m jealous of their job. I pretty much rather be doing what I’m doing. I wish I had did it earlier, but I think it’s good for me to be part of another company for a while.

But if you want to get ahead and you want to have longevity in the industry, I think you’re better off being the master of your own show.

BEST BUSINESS BOOK? I really like the Simon Sinek book, Start with Why. I’m working through it at the moment. I also really like, the Who Moved my Cheese book (by Spencer Johnson), it’s an amazing book about coping with change.

❝ If you want to get ahead and you want to have longevity in the industry, I think you’re re better off being the master of your own show. ❞ IS THERE A TYPICAL YPICAL WORKING DAY? I often have to get my kids off to school. Then I jump on my laptop ptop and will work until I have appointments and nd then I’m out the door.

I do most of my appointments in the city but will do mostt of my processing and filing applications from m home. When you get really busy, you have to work and if you have to stay up late, you stayy up late but it’s nice to do it from the comfort rt of your home. If I need to look after the kids ds I can do that at the same time.

getting mentored by myself and be skilled to the same level. I’m also interested in getting into affordable housing and housing in general so I have a side project going on there and the two can work side-by-side in the future.

HOW ARE YOU PREPARING FOR REGULATION OF FINANCIAL ADVISERS THIS YEAR AND HOW WILL THIS AFFECT YOUR BUSINESS? I’m gearing myself up mentally to do more studies. On one hand it’s great because it makes onlyy the serious people will stay in the industry but on the other hand, I’m going to have to fit it in my busy life. ✚

JEFF ELIAS Age: 43 Children: Oscar, 12, Jesse, 11, Lily, 9 and Maggie 7 and dog Chase Favourite movie?

I like Apocalypso and Wolf on Wall St. Born?

I was born in Malaysia but been in New Zealand since I was 5. My Mum is Kiwi and my Dad is Malay.

I grew up in Kilbirnie, lived in Lower Hutt and am now in Titahi Bay, Porirua.

Motto?

I often tell myself and I think it’s a name of a book, ‘Don’t sweat the small stuff’ and it’s all small stuff.

TOP TIP? Focus on the advice vice you give your clients. I believe it’s simply ly not enough to get them approved and good ood interest rates. I think we need to give mind-blowing nd-blowing and life changing advice. I think that’s hat’s when we give really good value. Because iff we don’t do that, then there’s not enough reason son in my mind for people to use us.

WHO IS THE INDIVIDUAL NDIVIDUAL THAT HAS MOST INSPIRED RED YOU IN BUSINESS??

I really watch (The he Warehouse founder), Stephen Tindall. I really like the success he he has ha ha had mixed with the humility he continu continues nu ues es to have. Also the angle people. ngle of helping peop ople le.

WHAT IS YOUR UR BIGGEST ST LONG-TERM BUSINESS BUSINE NESS SS S GOAL? I’ve recently decided cided to set up Online Mortgage ortgage Brokers for the long ong term.

I’m trying to create ate a model where I believe brokers will want work nt to w ork or in. Which meanss setting seett ttin ing g up a structure w where heerree brokers will want nt tto o sstay taay long term, with be benefits eneefifts such as part ownership nersh ersh hip of the company and and n having ownership hip of of their own trail and nd

025 02 025

INTEREST RATES Craig Ebert

How come people buy unaffordable houses?

BNZ economist Craig Ebert explains how people can buy houses although they are deemed to be very expensive.

W

e all seem to agree. New Zealand home prices look extremely high. But if they are so grossly unaffordable then how come so many people are willing and able to buy them?

Very low interest rates help square the circle.

This is not to say that such things as record immigration, land supply, lagged construction response and high and rising building costs are not important factors for the eye-watering prices people are paying for property.

The Politics of It Of course, few people involved in the housing market have any cause to argue against unusually low interest rates. Existing homeowners, and investors, obviously prefer the higher prices that low interest rates tend to bring, along with the low mortgage payments entailed. Banks depend on the strong sales turnover that low interest rates stoke. So too do mortgage brokers and real estate agents.

Home buyers, meanwhile, like to be armed with the lowest mortgage rates possible. For these reasons (and a lot more) the government has scant incentive to ever suggest interest rates are “too low”. This also helps explain why the debate about high and rising house prices is looking everywhere but interest rates – for attention, and solutions. If only we could build more houses, or lower the immigration targets, or change the tax treatment of housing, or just outright ban foreign buyers…then houses would become affordable again. The list goes on, and on.

Meanwhile, as home prices soar the government is doing more and more to support local first-home buyers through various means and schemes. Such as allowing people to cash in their Kiwisaver retirement funds for the specific purpose of “investing” in housing.

026 WWW.TMMONLINE.NZ

There are also the HomeStart grants and LVR exemptions for people on low to middle incomes. These policies, while well meaning, ultimately keep feeding the beast of house price inflation.

The Power of Low Interest Rates – Pushing the Envelope While many big forces are colliding in the NZ housing market, what tends to get downplayed in the debate is the basic role of interest rates.

To illustrate the power of low rates, we can imagine what people could “afford” to pay for a house, as a maximum, given a range of weekly accommodation budgets and mortgage rates.

Along with this, assume people have, say, a 20% deposit and take out an interest-only loan.

The results of our simple matrix illuminate the broad points we want to make. It’s not about how much everyone can pay, and borrow, for a house. It’s about what someone can “afford” to pay, providing they meet certain thresholds.

And the main point is that the “affordability” of homes increases exponentially as interest rates become lower and lower. Each one percent fall in mortgage rates gives a greater and greater bang for buck. For example, if mortgage rates fall from 9% to 8% then affordability rises 12.5%. But a drop from 5%, to 4%, causes a rise in house “purchasing power” of 25%, in our simple example.

Consider the example of a 5% mortgage rate coupled with a $600 per week accommodation allowance (which might otherwise be put to

❝As home prices soar the government is doing more and more to support local firsthome buyers ❞

renting). With this, one can “afford” to bid up to $780,000 for a house. But that maximum bid limit drops to about $557,000 if the mortgage rate goes up to 7% (arguably what New Zealanders had become accustomed to, on average, pre GFC). That’s a purchasing power correction of almost 30%, for what would appear to be a moderate rise in mortgage rates, of 2 per cent.

A Fundamental Force Of course, we’ve heard it said that the interest rate argument fails to explain New Zealand’s house price inflation, in that it has had a regional pecking order to it. If the common problem was low interest rates then it should have affected all markets about the same, so the story goes.

However, this overlooks a few things. First is the fact that regional housing markets have had differing real pressures bearing upon them.

Auckland, for instance, has experienced stronger population growth and arguably a greater lack of building in proportion to this. This is valid reason for house prices there to have gone up (to some extent). At the other end of the spectrum some smaller NZ cities and towns have struggled economically, including via structural stagnation/loss of population. This would normally have entailed falling-to-low house prices (as part of a relative price shift).

The stimulus of lower interest rates can thus be thought of as inflaming house price inflation in areas of genuine pressure, while obviating house price falls in areas where economic fundamentals have otherwise demanded it.

For good or bad, New Zealand didn’t have a major house price reset as a result of its 2008/09 recession and GFC, of the sort most other major economies did. The 575 basis points reduction in the OCR during that time played no small role in this.

In any case, what we’re seeing now is house price inflation picking up right across the

country. Anyone doubting the role of low interest rates in this is clearly not listening to what real estate agents are saying. And to think interest rates are not a significant driver of the housing market would be to assume a shift back up in mortgage rates of, say 2%, would not have much effect. We suggest that such a move would send a significant chill through the housing market.

Investors – Who Can Blame Them?

What about the role of investors in the house price pressure? This group has obviously copped a lot of flak, as supposed central protagonists – even demonized by some. They have undoubtedly attracted the attention of the Reserve Bank, which has imposed the greatest credit controls on this group of buyers.

However, one could argue that many investors have simply been behaving in a rational manner, rather than a speculative one. They have certainly done well not to believe the Reserve Bank’s regular forecasts of soon-falling house price inflation.

In this regard, it’s worth noting that between its June and August Monetary Policy Statements the RBNZ yet again pushed out its foreseen house price inflation moderation.

This means for a 25% increase in prices over the next few years now, rather than 15%. With this, along with the Reserve Bank’s maintained rhetoric about further interest rate cuts, can we blame anyone for wanting to put funds into the housing market? In this respect, the Bank’s forward guidance has worked only too well – sustaining quite strong inflation expectations in the general populace, regarding house prices.

This process is reinforced by the fact that collapsed deposit rates, partly on the back of low OCR settings, are forcing people to look at alternative places to park their money.

“Investors” are no different in this regard.

Central Bank Responsibility To be fair, the Reserve Bank has increasingly admitted the role that low interest rates are playing in the housing market inflation.

However, when push has come to shove, the Bank has also tended to downplay the relative importance of this – viewing house prices as principally a supply-side issue, out of its orbit of control. The big fish, when it comes to inflation, is seen by the RBNZ to be the Consumers Price Index.

To be sure, the NZ housing market has had all manner of major forces bearing upon it – some more difficult to foresee than others. Few predicted the relatively sudden surge in net immigration to all-time highs, for example. Nonetheless, the reality is that the Reserve Bank has to work with whatever may have a material bearing on inflation and/or financial stability, however helpful or unhelpful those factors might be.

Presently, there are a number of significant global forces that the Bank is taking as given.

A major demand-supply imbalance in the local housing market also needs to be treated as macro-economically important.

We don’t mean from this that the NZ central bank should be leaning against this latest asset price inflation. Ultimately, the cash rate is a blunt tool, which, yes, can sometimes put upward pressure on the currency and has a global context to work within. No-one is arguing for a stiff cash rate, even a more neutral-looking one. What we are doing, however, is questioning the amount of fuel the Bank is pouring on the housing market fire, with its policy choice of exceptionally low interest rates.

Perhaps an overcooking in asset prices is the rat we have had to swallow in order to support the broader economy and its CPI pulse? If so it seems like an awfully big rat.

A Bit Rich What seems reasonably clear, however, is that low interest rates have been affecting asset prices, via quite traditional channels.

Indeed, if you had asked someone 10 years ago what you’d get if the NZ economy was in reasonable shape and mortgage rates were dropped to about 4%, we’re pretty sure the answer would be house prices going nuts.

It also bears mentioning that central banks have so desired the strength in asset prices we’re witnessing, as a deliberate transmission mechanism of their super-easy policy measures. So it would be disingenuous for any central bank to then turn around and dissociate itself from the resultant richness in asset prices.

In truth, central banks, globally, are going out of their way to engender very low and relatively flat interest rate curves. Granted, some of this shape echoes slow economic growth and low inflation – and expectations that this will persist. However, there is also a lot of distortion being imparted by central banks.

Housing Affordability – Let’s Be Honest Let’s imagine, however, that NZ homes do become “more affordable”. What does this really mean? Does it imply, for example, that Auckland’s house prices will reverse the near-70% they have risen since 2012? This is essentially what’s suggested by economic fundamentals – such as incomes, rents, even construction costs – if historical trends and metrics are to be respected. But how would a drop of that size even begin to be stomached by everyone concerned?

The local banking system would be robust, according to RBNZ stress tests, even to a severe house price correction. This fortitude is being aided by the equity buffers inherent to the Reserve Bank’s LVR policy. However, this is not to say that homeowners’ equity would be invulnerable. The LVR policy might just mean a chunkier amount of equity to lose, for latecomers to the house price party. This could, in effect, be their retirement (KiwiSaver) funds, or parents’ money, going down the dunny.

This is especially so, if a house price correction feeds back into the real economy, hitting construction in particular and jobs more generally (as typically becomes the process). It would be a deflationary force in more ways than one, in other words – one that the RBNZ can and should genuinely worry about.

All that we have really seen to date, however, is that the moment someone suggests house prices should best come back a bit, especially in Auckland, it becomes a political football.

The default position appears to be that so long as house price inflation slows, even goes flat, then we can grow into these over-sized house prices. Practically, however, this means scant change in the affordability of home prices as we know it, for a very long time. This is not opinion so much as schoolboy mathematics.

But the problem with NZ house prices is not even a prospective one. The real issue is the heights to which they are already ascending.

It stands out like the proverbial, as much as mortgage rates do to the downside – amid an economy that is otherwise looking normal. So even if some of the broader demand forces in the housing market abate, and supply factors respond, people will still be able to “afford” to pay very high prices for homes while interest rates stay this low. However, to the extent that interest rates go back up… ✚ Craig Ebert is an economist at BNZ

027

PAA LEGAL

Moving with the market How do shifts in the housing market impact your advice business? We spoke to PAA Board Member, Karen Tatterson about changes in the housing market and lending, and how they relate to mortgage advice.

A LONGER BUYING PROCESS The shortage of properties seems to be a national issue. There’s also still a lot of unrealistic vendor expectations around pricing at the moment – there appears to be quite a disparity between what people are prepared to pay and what people are prepared to sell for.

From the advice perspective, this having quite an impact. We’re getting people preapproved but they are missing out – for the usual reasons such a competing home buyer has more money, or it’s not the right property, or they can’t find a property etc. So we either have to find the purchaser more money, or the purchaser has to go and find another property. Of course this means having to get pre-approvals redone and, more importantly, spending time with clients to manage expectations and helping them through what can be quite a frustrating process.

While we’d love to help, thinking you can get finance on a Friday for an auction on Sunday is recipe for disappointment. We’re talking to people now who won’t be in before Christmas – I think that we’re back to it being a more extrapolated process, as opposed to the short turn around that we’ve experienced over the past few years.

SETTING CLIENT EXPECTATIONS At all times, but especially with market conditions as they are currently, it’s really important to make sure clients understand the process; to talk through the potential that they may miss out on two or three properties before they secure one; that we may have to extend pre-approvals or go back and increase

028 WWW.TMMONLINE.NZ

pre-approval values should they need to apply for a higher amount.

As long as clients are ready for all of that and they know how to be best prepared for the auction or purchase process, they can manage the experience a lot more easily, and hopefully with less stress.

AUCKLAND INVESTORS An Auckland specific shift we have seen, is investors looking to move out of Auckland due to the cost to purchase and yields. Certainly for the investors I work with, they are more astute about what they’re buying, because they know they are not going to get the same short term capital growth out of Auckland, and are now looking for yield as opposed to short term capital growth.

SEEKING ADVICE I’ve certainly noticed that there’s an increase in people coming to advisers. I think in large part that’s due to the banks being really hard and fast about the 20 per cent deposit for owner occupied, and 40 per cent deposit for investment. So they’re seeing the value of working with an adviser to better understand their options – how to leverage one property off another; the lending requirements for new builds; and all the many other ways advisers can help borrowers understand what they can do, and how to do it.

BUYING AND SELLING Something I have not seen for long time but am starting to see more commonly again, is people taking the risk and actually buying

unconditionally without finance, before they sell. So, they’re coming to us and saying – we’ve bought, now we need to sell and sort our finance.

It’s incredibly difficult to get open bridge finance these days, so this puts extreme pressure on the process because the clients are on the clock to sell. This might not seem difficult at the outset, but what they expect to sell for and what they actually sell for can be quite different (especially due to the time pressure). It is really important that people get good advice in this area; to understand the process and understand the risks.

LOW INTEREST RATES AND PAYING THE MORTGAGE OFF FASTER With lower interest rates creating the ability to pay debt down faster, we’ve taken a proactive approach with clients in this area. However, I have not had a lot of clients coming to us and asking how they can benefit from the lower interest rate environment to pay off their mortgage faster. It’s one of those continual education pieces – taking an active role in helping clients think about strategies to pay of their mortgage faster.

When clients are re-fixing and moving to a lower rate, we’re advising them to keep their repayments at the current level so that they can dig into their principal faster. It makes no change to their lifestyle because they are used to that level of repayment, but can have a significant upside in helping to reduce debt faster. ✚

Upcoming dates: Upcoming Upcomingdates: dates:

Mortgage Lending for New Mortgage MortgageLending Lendingfor forNew New Advisers Course Advisers AdvisersCourse Course

New New to to mortgage mortgage advice? advice?

26 - 29 September 2016 26 26- --29 29September September2016 2016 12 16 December 2016 12 12 16 16 December December 2016 2016 23 - 27 January 2016 23 23- February -27 27January January 2016 2017 27 - 32016 March 27 27February February- -3 3March March2017 2017

Mortgage MortgageLending Lendingfor forNew New Advisers AdvisersWorkshop Workshop

Find Findout outabout aboutthe theProfessional ProfessionalAdvisers Advisers Association AssociationMortgage MortgageLending LendingCourse Course (five (fivedays), days),and andRefresher RefresherWorkshop Workshop(one (one day) day)for fornew newadvisers. advisers.

Mortgage MortgageLending Lendingfor forNew NewAdvisers Advisers ––Course Course Preparation Preparationfor forregulatory regulatory requirements, requirements,working workingwith withlenders, lenders, meeting meetingclient clientneeds needsand andthe the practicalities practicalitiesofofrunning runningaamortgage mortgage advice advicebusiness business Businessand andspecialist specialistlending lending Business

17 17November November2016 2016 15 15February February2016 2016 These Thesedates datesare aresubject subjecttotochange. change.

“Certainly “Certainlyone oneofofthe thebest best courses coursesI’ve I’veattended attendedininyears.” years.”

foundthis thiscourse courseextremely extremely “I“Ifound valuableininhelping helpingme metotoget getstarted started valuable mortgageadvising. advising.AAgreat greattutor tutor ininmortgage withlots lotsofofhelpful helpfuladvice adviceand and with professionalknowledge.” knowledge.” professional

Businessdevelopment development Business management management

Mortgage MortgageLending Lendingfor forNew New Advisers Advisers––Refresher RefresherWorkshop Workshop

“Very “Verygood goodintroduction introductiontotothe the fundamentals fundamentalsofofthe the mortgage/finance mortgage/financeindustry. industry.

Covers Coversthe thematerial materialinina a practical practicaland andinteresting interestingway.” way.”

Primary Primarylegislative legislativeobligations, obligations,including including the theResponsible ResponsibleLending LendingCode Code BestPractice Practicedocumentation documentation Best Practicalfeedback feedbackon onaaclient clientfile file Practical (withinPrivacy PrivacyAct ActDisclosure) Disclosure) (within

“I“Ifound foundJohn’s John’sindustry industry experience experienceinvaluable, invaluable,sighting sighting actual actualcases casesand andanecdotes anecdotesput put the thetheory theoryinto intopractice.” practice.”

ToToregister registerfor forthe theMortgage MortgageLending Lendingfor forNew NewAdviser Advisertraining trainingplease pleasecontact contact To register for theGotts Mortgage Lending for New Adviser training please contact Jodie Jodie Gottson on0909 600 6005174 5174 oror jodie.gotts@paa.co.nz. jodie.gotts@paa.co.nz.

Jodie Gotts on 09 600 5174 or jodie.gotts@paa.co.nz.

INSURANCE

By Steve Wright

Dicing with death and insurance cover Terminal Illness: a significant risk that should be insured separately, writes Steve Wright.

N

ot all death comes quickly.

The unfortunate truth is that a very large proportion of death is preceded by a period of terminal illness. As insurance advisers we are usually pretty good at calculating the financial loss that happens on death, particularly to families.

The biggest is the loss of the deceased’s income, which is completely lost forever (well until they would likely have retired anyway) and there are often additional expenses.

Sufficient amounts of life cover protect against this financial loss, meaning that while the family still have to cope with the emotional loss of losing a loved one, at least they don’t have to worry about where the money will come from.

REDUCED LIFE EXPECTANCY But what about terminal illness? By terminal illness I mean a diagnosis of illness from which recovery is unlikely and where life expectancy is dramatically reduced, typically no more than 12 months. Terminal illness often brings a

030 WWW.TMMONLINE.NZ

host of unforeseen expenses and lost income: • There may be expensive and unfunded medical treatment, perhaps overseas, that may not be covered by medical insurance because it is experimental or not conventional, for example. These costs, including travel and accommodation, can easily reach six figures.

• Then there is loss of income, if the terminally ill client has income cover that might start paying something but it won’t pay for their spouse to stay away from work. Frankly, if any member of my family was terminally ill and only had a limited time, the last thing I’d want to be thinking about is work.

• The terminally ill client may have life goals they want to accelerate, the so-called ‘bucket list’. Money will be needed immediately to satisfy these.

Few would be prepared to deny a terminally ill person the best care available.

I don’t know a single parent, for example, who would not use up their last dollar, go into significant debt, to fund medical

treatment that might prolong or make more comfortable, their terminally ill child’s life. Terminal illness, particularly of a child, can result in the family losing their home.

SECURITY FOR FAMILY Many good life cover policies will also pay the full sum insured on terminal Illness but here is the problem: life cover is mostly used to provide financial security to the family after the death of the client. If a significant chunk or even all of their life cover is used to fund a period of terminal illness, death might yet see the family financially destitute. This means the life cover you have put in place for them does not do its job. Also, meaningful amounts of life cover are simply not available for children under 10 (it is against the law for insurance companies to pay more than $2,000 plus a return of premiums on the death of children under 10 years of age).

I believe terminal illness is a risk separate from death and as advisers we should be aware of its financial implications. Terminal illness as a risk should be specifically

❝ Terminal illness is a risk separate from death and as advisers we should be aware of its financial implications. ❞

identified, the financial risk quantified and suitable protection recommended. Advisers can simply add the terminal illness risk to the life cover sum insured (make sure the product you select will actually pay on terminal illness) but this is very inefficient because the client is forced to pay also for additional money payable on death that they don’t need. While a large proportion of deaths is preceded by terminal illness, not all deaths are, so terminal illness cover by itself should cost much less than full Life Cover.

COVERING RISKS Fortunately, a number of products are available to allow you to recommend extra insurance to cover the risks of terminal illness which do not require the client also to pay for cover on death.

Some life cover products include a ‘terminal illness booster’, which pays an additional sum insured on terminal illness and a standalone terminal illness cover is now also available.

Standalone terminal illness cover is especially useful for those clients who don’t

need lots of Life Cover but who would still need financial protection against terminal illness, for instance: • Retired people, who may have a decent retirement nest egg and as such have no need for life cover (because the financial impact of a death is small, some funeral costs only). However, terminal illness and its associated costs represent a significant risk.

Terminal illness of the client or their spouse could completely derail their happy retirement plans if their retirement funds are plundered by terminal illness. Suitable insurance can provide funds to cover the costs of terminal illness so that the retirement nest egg remains available to fund retirement. Terminal illness cover, like many other life disability and medical covers, are important and valuable for protecting assets, too.

• Young adults, just starting out in life with no dependents, are another potential client with limited need for life cover but who may want the choices a large lump-sum can give if they become terminally ill.

• Then there are the children for whom life cover in sufficient amounts is not available. The terminal illness of a child represents a very big financial risk to their parents. Fortunately terminal illness cover is very inexpensive for children because the risk is quite low. This relatively low risk does not mean we should ignore the risk because the consequences if the risk does occur are very large. Parents don’t need to lose their home and all their assets because they are unfortunate enough to have a child terminally ill – there is an inexpensive protection solution.

Treating terminal illness as a risk separate from death will allow you to better protect your clients against a very significant financial risk and improve the quality of your advice.

• Steve Wright has qualifications in law, economics, tax and financial planning and is general manager product at Partners Life. . ✚ Steve Wright is general manager product at Partners Life.

031

LEGAL

By Jonathan Flaws

Making your mark in a digital world Electronic transactions are becoming slowly in vogue.

Should we remain wary?

T

here seems to be a gathering clamour for the greater use of electronic commerce, particularly in the finance industry, to speed up the time from contact to consummation and to make the process of dealing with customers at a distance safer and more efficient.

A few weeks ago I attended an Australasian banking law conference at which a very senior and well respected Australian banking lawyer made a strong statement in support of the use of electronic signing. He had been shown a system by a large digital signing company that persuaded him that it was probably about time things were signed electronically.

Although the Electronic Transactions Act has been in place now for over 14 years in

032 WWW.TMMONLINE.NZ

New Zealand, there has been very little uptake and use of digital signing. People have been sceptical and concerned that documents electronically signed will not be upheld and enforced by a court.

The biggest impediment to the use of electronic signatures has been, in my view, misunderstanding about what it all means and the reluctance of lawyers to take the time to find out about it.

IT’S NOT IT, IT’S PROCESS I have had an involvement with the issue for some years now. In 2010 one of my banking clients deployed a process that I was involved in helping create. This allowed customers who had been approved a home loan for refinancing to log in to the bank’s

internet banking site, receive disclosure of the electronic documents and then place a digital certificate that had been assigned to them and issued via a Verisign process to the loan agreement and other documents.

Remarkably, the conversion rate for settlements using this process rose from around 70% in the paper environment to over 97%. If that doesn’t demonstrate the benefit of an all electronic transaction then I’m not sure what else would.

This process was about as robust and secure as you could probably make it.

ELECTRONIC TRANSACTION When discussing technology is always good to get the language correct.

The Act is called the Electronic Transactions

❝Outside of

documents relating to disposition of estates or interests in land, guarantees, powers of attorney and deeds most contracts do not need to be in writing❞ by the parties. The documents are then converted back into electronic documents by scanning. The scanned documents are sent back to the bank and settlement occurs. The bank does not require the original signed copies back and relies entirely on the scanned copies.

To be fair, they are also heavily relying upon the scanned copy of the solicitor’s certificate signed by a partner of the law firm confirming they are safe to rely upon. But this, too, is an electronic document for which they never receive the signed paper copy.

So this bank sends out electronic documents and received back and relies upon electronic documents that contain an image of the signatures. They do not have the original “wet signed” signature documents.

As far as I can tell they are operating in an entirely electronic world and relying on an electronic signature – albeit it a scanned copy of the actual signature. And yet no one is asking or questioning whether these documents are legally binding and enforceable as electronic documents or whether the signatures will stand up in court as electronic signatures.

There is no special technology involved other than the use of emails and scanners. That sounds to me like it very technology neutral.

Act because it is about making electronic commerce legally effective and binding and efficient. The Act doesn’t talk about any specific IT system.

It is designed to be IT neutral so that a process that is functionally equivalent in the electronic world to the same process in the paper worlds is given legal effect to.

Perhaps a good example of what this means is that one of our largest mortgage lenders is actually already using processes that rely on what might best be described as electronic transactions for home loans.

The bank sends an email to the solicitor with pdf files. Until the files are printed by the lawyer they only exist electronically.

The lawyer prints the documents, has them signed and, if required, witnessed

ONLY EVIDENTIAL...

Interestingly, this process doesn’t really rely on the operation of the Electronic Transaction Act to establish that the customer is legally bound by the contents of the documents.

The Act only really relates to documents that by law are “required to be in writing”. Outside of documents relating to disposition of estates or interests in land, guarantees, powers of attorney and deeds most contracts do not need to be in writing. We all enter into contracts on a daily basis that are not in writing but these are valid binding and enforceable nonetheless.

It all comes down to whether there is evidence to confirm the contract.

Taking the above example of the bank’s entirely electronic transaction, the bank has

more than enough evidence to produce to a court for it to uphold the contracts and bind the banks’ customers to them. If you look at most court proceedings these days you will rarely see any original documents. The discovery process results in bundles of printed photocopies or scans.

A number of cases in recent years confirm the establishment of contracts by emails and electronic communications. There have also been cases that confirm that a “signature” can comprise a stamp, typewritten name, mark or even a tick in a checkbox.

So why bother with an expensive electronic signature IT system or with an Electronic Transactions Act anyway?

The reason for this is in the first sub heading – it’s not the IT but the process. The Electronic Transactions Act sets out the business processes that need to be checked off to confirm that the transaction is enforceable.

The first and most obvious is that the parties have to consent to the transaction being an electronic transaction and agree the mean of communication. Both parties – not just one. So the first process is one of establishing consent. The Act says that this can be taken from the circumstances.

LINKING INFORMATION Another process is that the parties need to be identified. This is done in most financing transactions for the purposes of AML and also for mortgage registration.

Then the process of linking the person to be bound to the information and the document that contains the information must be able to be linked to them – and to them only. This is where technology comes in. Although going back to the example given above, this process is one of the bank relying on the solicitor to certify that the solicitor saw the parties and it is this act of connection between the solicitor and the client that covers off this business process.

The Act is helpful in that it says that these processes need only be as secure as is appropriate for the circumstances.

A final process is that the transaction information (including, if required, the signature or confirming mark placed by the party to be bound and indicating the intention to be bound) must be maintained and made readily accessible for future access in a way that shows that any tampering can be detected.

SUMMARY There is no magic or mystery in electronic transactions or electronic signing. The magic, if it exists, is in making sure that all of the essential business processes are in place and are as reliable as is appropriate for the circumstances. The key process being obtaining and recording the consent of the parties to transact electronically. . ✚ Jonathan Flaws is a partner at legal firm Sanderson Weir.

033

Intelligence

What a Kiwi property investor looks like ANZ and the NZ Property Investors Federation have just completed their annual survey of property investors.

Here is a snapshot of what they look like.

31% OF INVESTORS SAY

BIGGEST

RISK - meth damage 57 % OF AUCKLAND INVESTORS plan to buy again within 2 YEARS

SOLD

that the limits on High Loan-to-Value ratio lending have significantly impacted on their strategy

18% OF INVESTORS have an

LVR over

75%

MOST OF THE COUNTRY expect rental income to

INCREASE OR HOLD STEADY over the next year (95%).

MOST CANTERBURY INVESTORS however Source

expect rental income to

HOLD OR DECLINE 034 WWW.TMMONLINE.NZ

over the next year (55%).

TMM has built a new website make sure you get the best and latest news quickly. To keep up to date with all the latest mortgage adviser news visit TMMOnline.nz today