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           Client News - April 2012

 Welcome to April’s Property Gazette.

This month has seen the completion of Advanced Mortgage Solutions Facebook page. Feel free to have a look around our page by clicking here – please remember to push the “like” button as this helps us get found!

Interest Rate Outlook

We could be excused from feeling like it is a case of “last one out turn out the lights” with the outflow of migration being the highest it has been in NZ since 2001. Yes, there is an outpouring to the perceived ‘lucky country’ in Australia, with some 38,000 leaving our shores last year, however this is offset somewhat by the inflow of 35,000 from other parts of the world, creating only a slight migration deficit - which is nowhere as bad as it may appear.

The outflow of Kiwis to Australia is certainly contributing to the stalling of our economy but the reality is nowhere near as bad as the perception. Of course, one of the things that our Kiwi cousins need to consider is the higher cost of property and living on the other side of the ditch, and while employment opportunities may be more plentiful the cost of getting into property can offset this benefit.

So we have immigration working against us and there is still a focus from Kiwis on deleveraging their balance sheet (or in layman’s terms repaying debt before entering into new purchases) which together with a continued lack of housing stock attributes to holding our growth back.

However, the stock that is hitting the Real Estate market is certainly moving quickly, particularly in Auckland and Christchurch, where average days to sell in both areas is now under 30, which is the lowest in over 2 years.

In relation to interest rates, we continue to enjoy historic lows which are helping with mortgage affordability. There is currently little to no difference between floating and 2 year fixed money and it is only if clients look to fix for longer than 2 years that there is an increase in interest rates carrying a small cost for the extra certainty of a long term fixed rate.

So what to do? It really depends on your personal circumstances, however we do see great value in being able to lock in low-to-mid 5% rates for 2 to 3 years. The only caveat is that you need to be 100% certain that you are not looking to sell your house or make large lump sum principal reductions during the fixed period.

Please contact me to go over your personal circumstances as interest rates have never been lower and are not likely to become lower than they are today.


Authorised v Registered

You may be aware that the financial services industry is now regulated - which is a great thing for you the consumer as it is all about protecting your rights.

There are two categories of Advisers, Authorised & Registered. Essentially, the main difference between the two is that only Authorised Advisers can give you advice in relation to Investment products while both Authorised & Registered Advisers can provide advice in the areas of Mortgages, debt and Insurance.

The most important thing to know is I am fully registered with the Government, (it is illegal to operate and not be registered). To check this out just go to www.fspr.org.nz  and type in Scott Miller. This will quickly confirm that I am able to approach New Zealand lenders on your behalf.

Reduce Payments or Keep Them the Same?

This message is definitely getting through, and more and more of our clients now enlist us to negotiate with their bank on expiry of their fixed interest rate. It is part of our on-going service and costs you absolutely nothing - in fact, the opposite applies in that we are able to negotiate the very best rate for you from your bank.

A question asked of us regularly when a client’s interest rate reduces is “should I reduce my payments or keep them the same?” If you can afford to keep them the same this is definitely a wise thing to do. Let’s look at a simple example to illustrate this.

We have a client with a $200,000.00 mortgage over a 30 year term currently on an interest rate of 6.50%, paying $1264.00 per month. If this rate expires today it is safe to assume we could re-fix in for at least 5.50%. This could drop the payments to $1135.00 per month -or if we kept the payments the same at $1264.00 this would reduce the term from 30 years to just over 24 years and save $51,921.00 in interest – not a bad option for most of us!

As mentioned above please contact me while interest rates are low.

Does a Line of Credit Work?

We are often asked by our clients whether a line of credit loan is a good option for them with their mortgage. Of course the answer is that it does depend on your own set of circumstances.

The main benefit of using a line of credit is that it allows you to run your income through your mortgage (while not losing access to the funds) and because banks calculate interest on a daily balance, any time funds offset your mortgage balance (as an example in the form of your wages) it will save you interest.

Often, the better option is to have only a portion of your mortgage on line of credit, with the balance on a standard principal & interest loan. This provides the flexibility many clients want, the benefit of being able to run your income through your loan, and the ability to enjoy the very sharp fixed rates that are currently available for principal & interest loans.

You are best to talk to me to understand the benefits of a line of credit and whether or not this option is best for your own circumstances.     

 

Please find my new look Property Gazette below. As always I have tried to deliver only the relevant market and policy information to help you keep up to date. I appreciate the monthly feed back and questions that arise from each newsletter and I'm sure this will be no different.

 

Interest Rate Outlook

Current Interest Rates

Rates offered are the best of standard, carded interest rates available and do not reflect any discounts your Advisor may be able to obtain for your client. Rates correct as at 01/2/11.

Variable            6.10%

6 Month Fixed   6.10%

1 Year Fixed      6.19%

2 Year Fixed      6.45%

3 Year Fixed      6.85%

5 Year Fixed      7.50%

 

Captain, we need more power! The New Zealand economy is currently like an overloaded Jet Plane trying to take off, we have a full load and our momentum is pushing us down the runway slowly gathering speed but we just need to lighten the load slightly by releasing some of the burdening economic constraints holding us down or consumers need to start spending more to give us the extra power to take off!

 

You can feel that it will not take much of a push to get us off the ground but where exactly will this push come from? While housing still remains subdued it is showing signs of recovering with activity continuing right up to Christmas in 2010 and we get the feel the traditional slow Kiwi start to the year has not been as sluggish as historically, the question is how long will the momentum take and will it be strong enough to lift us off the ground (where we have been for some time now)....

 

From Advanced Mortgage Solutions view point, the reality is that New Zealand & globally we have had to go through a sustained period of balance sheet recovery as consumers 'pull their heads in' and readjust to actually living within their means as opposed to the debt fuelled, false economic growth through the first 8 years of this century. This readjustment has been good for us and New Zealand has stood up to the readjustment better than most. The basket case economies of the US & Europe with particular disasters in Ireland, Spain & Portugal have not eventuated here & as subdued as we have been we are very lucky to have actually not sunken to the terrible lows felt across the aforementioned countries.

 

The back half of 2011 will be strong for us as the influx of money spent through the economy from RWC & Earthquake recovery starts to lubricate the pistons of our plane faster, perhaps lifting us off the runway! In terms of a borrowing strategy in these sluggish times we still suggest that with an expected increase in interest rates in the back half of 2011 we favour looking at the well priced 1-2 year fixed option as giving better value than a floating rate (which is sure to rise by 0.50-1% through this year).

 

The difference between floating and 1 year fixed is only 0.25% and to 2 years fixed 0.45%, as such the basic maths suggests that either of these rates offers better value than the floating rate which we believe will be sitting at around 6.95% by the year's end. However fixing past 2 years doesn't make a lot of sense as the 3 year plus rates start @ 7.10% & increase out to 7.70% long term with the price difference making them too expensive, unless of course you want to guarantee certainty for the a sustained period in which case you have to be prepared to pay a premium.

 

What's Hot

Some of the banks! The Christmas break has been kind to some of the grumpy old men who sit in senior credit positions within our banks and we are seeing a continuing trend of slowly but surely banks starting to release the shackles credit wise. This is the lubrication our economy needs and we are now getting clients set that we couldn't 12 months ago. Help your clients, refer them to us for advice.

 

Deal of the Month

With January traditionally being our slowest month of the year we didn't have anything spectacularly unusual jump out of the box but we do continue to help numerous clients finance themselves into properties with as little as 5% deposit from genuine savings. - Call us we deliver!

 

 

       Another busy month has gone by and we are only a month and a half away from entering a new year. October saw interest rates remain unchanged by the Reserve Bank Official Cash rate announcement in the last week of the month. This was widely tipped to happen so no real surprises there. We did however get a bit of a surprise in the unemployment figures which dropped by .5%. This is a good result and has been accompanied by many of green arrow stories, with the one acceptation being the Kiwi fruit PSA canker disease.

New Zealand lenders have continued to relax their lending criteria’s around owner occupied purchases. This is great news for first home buyers or people looking to upgrade or down size their existing homes. What is a little disappointing is these improvements have not flowed through to their rental and property investment policies yet, with most lenders still wanting a 20% deposit for standalone rental property purchasers. This of course can be circumvented by using your own home as security bringing the required deposit down to 10%.

Interest Rate Outlook

I believe there is now a light at the end of the tunnel and I’m pretty sure it is not an oncoming train. While economic conditions currently remain subdued, there is a lot that points toward a strong recovery in 2011.

While we are in a period of reasonably flat growth at the moment, many of the important variables required to stimulate market activity are lining up. Firstly, interest rate have stabilised and is giving the market some confidence, for the first time in over two years we are now seeing banks loosen their lending criteria and return with an appetite to lend new money.

With money well priced and the banks keen to again lend I can see that 2011 will provide the right environment for further recovery as the property market looks to rebound from the depressed period of the past two years. Overall households have focussed on clearing debt during this period and many will see the above conditions as ideal to release some of their frustration and take advantage of their improved overall position to move back into property investment, particularly as lenders relax their lending criteria around investment property.

The Reserve Bank has given every indication that interest rates will be held at their current low levels for the immediate future and I do not expect to see any increases in the OCR until March or April 2011. Given current rates have stabilised, it makes choosing the best interest rate option a little more tricky, variable rates are stable and the difference between variable and mid -term fixed rates such as 2 years are around 0.45% with variable rates the cheaper. This makes it a 50/50 call on what decisions is best to take, with people often finding the answer by aligning their personal circumstances with the best interest rate structure available.

 

 September was quite a month.

Christchurch was hit by a magnitude 7.1earthquake, Southland had the worst snow storms for decades, Wellington witnessed a head-on train crash, and the scariest thing of all.... I had my 42nd birthday. But despite these life changing events there was not a single loss of life, and in fact, it appears something good will come out of all of these events. Along with an already busy month there have been significant changes to New Zealand's lending landscape.

After a long absence it looks as though the old 'bank wars' are back. Over the last month we have seen a number of 'spring' promotions which have resulted in seeing lenders relaxing their existing lending policies and we now have the real possibility of receiving huge contributions to legals when purchasing a property.

Owner Occupied Property

New Zealand lenders are now looking at property  being purchase for home ownership (owner occupied property) to need as little as a 10% deposit (up to 90% loan to value ratio), allowing first time buyers and people looking to upgrade their existing homes an opportunity to place as little as 10% of the purchase price as a deposit. Lenders policy at this level of LVR is still a little more stringent, but when you think that as little as 10 months ago there was only 2 lenders seriously looking at 90% deals (and on a case by case basis) you can see how much change their has been in lenders thinking.

Rental Property

There has also been some relaxing around purchasing rental property. With one lender in New Zealand they will now look at lending up to 90% on standalone rental purchases - Please contact Advanced Mortgage Solutions here to find out more. This is just one example of improved lending criteria. Almost all lenders have shown improvements in their appetite for rental purchases with many now looking at 80%+ LVR's on a case by case basis.

Contributions to legals

To add more good news to the story all the mainstream lenders are now offering contributions to legal costs for people looking to purchase property up to $1,000.00, and in Christchurch as a sign of good faith this is increased to $1,500.00, to help cover structural engineering costs. In all my time as a Mortgage Broker I have never seen so many incentives given in order to attract customers.

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As always I am here to workshop deals with you. If you are looking to purchase a house for yourself or looking to purchase a rental property I firmly believe now is a very good time to buy. House prices are low and it appears we are at the bottom of another property cycle, this coupled with low interest rates and a bank war provides the perfect time to purchase property. Please also let me know if you have a home loan coming up for renewal so I can contact the bank and organise a range of discounted rates for you to choose from.


Kind regards

Scott Miller

P.s Find a number of short video's to help with better understanding bank policies, what interest rates are doing and a brief look into some of the different strategies available when looking to invest. Please click on the link below to have a look.

  In this month's edition of the AMS Gazette I would like to begin by saying thank you to all the support and well wishes I have received since the earthquake on 4th September. It was a shock to we woken up at 4.30 in the morning to what sounded like a Boeing 747 landing in my driveway while being shaken so hard I thought my fillings would fall out. Thankfully my wife Barbora who is employed by Air New Zealand was working out of Rotorua and missed the original earthquake. Maddison however, our four year old Fox Terrier has not stopped shaking and is ready pack her bags and move to another city.
As the earthquake has mainly affected the Canterbury region I am going to cover some of the things Cantabrians should consider doing in regards to their mortgages and home loans.

So what to do next if you live in Canterbury.

Many of you will have already done the right thing and contacted the EQC to lodge a claim. Don't worry if you have not already done this as the EQC have come out and said you have 3 months from the 4th September to contact them. Just remember that once you have made your claim you cannot add further damage at a later date. So make sure you have a good look around your properties, so when the assessor arrives to look around your properties you can show him/her all the earthquake damage.

Mortgage Holidays - If you feel you need a mortgage holiday contact me and I will help with organising it. I have heard directly from all the major lenders and am fully briefed on how to make an application.

NB - You do not have to have lost your job or have extensive damage to your family home to get a Mortgage Repayment Holiday, if you want one you can have one. Each lender has slight differences in the processes of applying for a repayment holiday. There are also slight differences in the available structures you can use depending on which lender you have your mortgage with. Some for example will allow your mortgages maturity date to be moved out so when you return to paying your mortgage there is no change to amount you pay, other lenders unfortunately do not have this option. Please contact Advanced Mortgage Solutions here to get assistance with your application. Alternatively feel free to call me on 980 4541.

Please be aware these facilities are only available for people who live or have property in Canterbury - outside of this region it is (as far as the banks concerned) business as usual.

News Outside of Canterbury

Interest Rates - This Thursday's Official Cash Rate announcement is expected to see interest rates remain unchanged. With recent world events, namely the speed, or the lack of speed in which the world is recovering from the recession, it is believed interest rates will not go up again this year. There is in fact a good chance of medium to long term interest rates to fall slightly - Watch this space.

House Prices - House prices around New Zealand appear to have come down a little over the last month or so. The number of houses for sale are lower than anticipated for this time of year, with commentators arguing that many people are now holding off to take advantage of the 2011 Rugby World Cup. This is a hard one to call - personally I think if we have a long warm summer we could see house prices recover and feed nicely into the World Cup frenzy. Like with interest rates above time will tell.

As I sign off I would like to wish all of those affected by last week’s earthquake the best of health and wellbeing - if I can be of any assistance please feel free to contact me.

Kind regards

Scott Miller

P.s Find a number of short video's to help with better understanding bank policies, what interest rates are doing and a brief look into some of the different strategies available when looking to invest. Please click on the link below to have a look.



* Please note that at this time this service is only available from landlines.

This publication has been provided for general information only. Although every effort has been made to ensure this publication is accurate the contents should not be relied upon or used as a basis for entering into any products described in this publication.

There is a good chance you will be thinking - How does the 2010 budget affect me?

In this newsletter I will cover off some of the affects Thursday's budget will have in relation to owning property, both for owner occupiers and for investment property portfolio owners.

The Budget and what does it mean for property owners?

Owner Occupiers:

Basically not a lot has changed if you own your own home. Because home owners are exempt from claiming things like depreciation on their homes, losses against personal income, and don't usually derive an income from their home, most of the changes will not influence your day to day expenses (excluding things like the increase in GST etc).

The IRD still have their task force looking into owners who have placed their ‘principle place of residence’ (their own home) in an LAQC and are claiming loses as an expenses. This is illegal and the IRD/Government is taking this form of tax evasion very seriously. If you find yourself in this position I recommend you seek advice from an accountant immediately - putting one's head in the sand will not make it go away.

Investment Property:

In contrast there have been a number of changes (as expected) for those of us who own an investment property portfolio. However these changes are less dramatic than most of the pre-budget hype, speculation, and downright irresponsible dribble that was being circulated. So let’s cover of the main facts.

1)Depreciation on buildings has been removed unless the building’s life expectancy from new is less than 50 years. A list of such buildings is being made available and an application process for people who believe they fall under this criteria is being established. Personally when talking about residential property I cannot think of a reason where I would want to construct a property that would only last for 50 years. Its resale value for one would not be particularly high. There may be areas where sleep outs or minor dwellings are popular allowing for this kind of building and subsequent depreciation may take place?

2) One of the more annoying ‘the world is coming to an end’ forecasts around the changes to take place in the 2010 budget included ring fencing of losses within an LAQC. This would have meant that any losses incurred through owning a negatively geared property portfolio held in a LAQC could no longer be offset against your personal income tax. Although there has been some suggested changes (this is not law yet and is subject to change) to LAQC’s for the majority of us it will have no effect. This is due to the lenders of New Zealand making it compulsory for the directors of an LAQC to give personal guarantees for the loan the LAQC is being structured over.

 

The following is from Matthew Gilligan of Gilligan Rowe and Associates - one of New Zealand’s leading property accounting firms.

 Paragraph 5.11 states a member's interest (in the proposed new LAQC regime) would extend to include in the definition of equity the share of any debt guaranteed by the shareholder.

This means that if you are a guarantor, you get to claim losses up to the extent of your equity invested PLUS your guarantee. As shareholders will guarantee (most of the time) all of the debt, the structure will get full flow through of losses up to

100% of the value of the amount of debt they have guaranteed, or cash injected - the higher of the two.

 Therefore effectively existing LAQC users will get the benefit of losses flowing through, provided they are guarantors to the debt.

 Remember this is all subject to submission and not law yet.

The other major change regarding LAQC’s is around the tax paid when an LAQC starts making a profit. At present if you make a profit in an LAQC the maximum tax rate you will incur is 30% (company tax rate). However proposed changes will see this rate change to match your personal tax rate. So if you (under the new tax rate affective in October) earn $70,000.00+ you will be taxed at 33% and so will your profits from your LAQC. This is seen as making the tax system more fare and will limit tax avoidance through LAQC structures.

Please feel free to contact me if you have any questions or thoughts on what I have written above.

I would like to take this opportunity to welcome all those clients who have joined the AMS team from what was Paul Kerr Mortgages. Paul has decided to leave the mortgage industry and we wish him all the best of luck with his future business ventures.

The last two months have seen many interesting developments in regards to property and of course this years budget is just around the corner.

The Budget

 

 

 

 

The first quarter of 2010 has seen the growth of late 2009 slow quite markedly. The issue is understanding why and how long this slowdown will last.

House prices have flattened this year adding weight to the concept that the growth of late 2009 was driven predominantly by lack of stock on the market not an economic rebound. While this continues to be the case the 'fear' that John Key has generated in the residential investment market due to his proposed tax changes to residential investment property has had a ‘lead weight' effect on property investment.

Our belief is that until budget 2010 is released in May and it is clearly understood what changes are being made to the tax laws around residential investment property most investors are sitting on their hands (and their cash) which will continue to hold the momentum the market had in late 2009 back. As such the average days to sell a property has lengthened to its highest level since June 2009 and is quite indicative of the true state of the housing market.

One highlight was today's unemployment figures announcement. There was an unprecedented 1%+ drop in the unemployment levels in New Zealand for the month of April. This has increased the possibility of an interest rate rise in June 2010 instead of the more widely predicted July increase. However Dr Bollard has indicated that he believes interest rates will rise at a much slower rate in similar situations in the past. I personally don't see this so much as a negative influence as much as I see this as a necessary part of the property sectors recovery.

Kiwis continue to deleverage their asset position (repay debt while interest rates are low) and this puts us in a good position for growth in the not too distant future (as in 2011) as pent up desire to invest and grow will at some stage be unleashed stimulating the economy. We cannot help but believe that the 2011 Ruby World Cup will be a strong catalyst for our 'real' rebound.

Our recommended borrowing strategy has not changed greatly in the past 6 months and at the risk of repeating ourselves we cannot recommend anything else other than floating rates or six - twelve month fixed as a preferred option. Variable rates remain at record lows, while most fixed rates have fallen in the past month they remain very high in relation to floating rates and this is more a sign of the market ‘overpricing' long term rates in the back half of 2009 which was driven by the price war the banks created for term deposits and not improvement in market conditions. Stick with the shorter term funding but keep your payments above the minimum required to repay, perhaps assuming rates of 1% higher than today.

Please find this useful link below and make your vote - it is best your voice is heard.

Do you support tax changes to investment property?        

YES  /   NO

Interest Rates

So with the new unemployment figures and the direction in which they are heading together with the contents of the Budget (which is due to released on 20th May), will impact the Reserve Bank’s review of the Official Cash Rate early next month. The consensus is now that the Reserve Bank will start increasing rates as early as June. Increases are expected to be in small increments of around quarter of a percent.  How many we have will depend on how strong our economic recovery is. 

As mentioned above a drop in unemployment is a strong indication that the economy is improving. The other significant event that is severely affecting the international financial markets, is the debt crisis in Greece and Portugal and whether it will extend to other larger European countries such as Spain, UK and Italy. This crisis has been the cause of the rapid appreciation of our currency particularly against the Euro which is now up over 10% over the past month to 0.56.  This has had a major effect on world equity markets which are wobbling - some are down over 3% this week. Two years ago, as the global financial crisis was unfolding, individual governments were sorting out the banking system. Now the world bankers will have to focus their attention on sorting out some individual countries.

Tip of the month:

 

 

 

 

 

{tag_recipientfirstname} if your home loans are on floating I believe it is time to look at your fixing options. Interest rates are going to go up and although Dr Bollards intention is to increase them slowly you never know what might happen. Feel free to contact me or email me to go over the best interest rate solutions for your needs.