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Mortgage Advice Blog

Get the latest news and tips about mortgage finance and the property market. Scott Miller, mortgage broker from Advanced Mortgage Solutions comments on housing and lending.

~January’s Property Newsletter

Published by Scott Miller on Wednesday, January 13, 2010 in
Blog

All the crew at Advanced Mortgage Solutions you like to wish you a Happy New Year.

I can optimistically say I look forward to an improving local and world economy, and with any luck transform into happier times for 2010.

I often receive enquiries from clients regarding points of interest, or law changes that relate to property in New Zealand. I would like to start this newsletter with a question sent to me by my client, Matt. Matt works in Australia and has a small but growing property portfolio in New Zealand.

Matt’s question:

I look forward to hearing from you in Feb, I will also look forward to your next property commentary. Will you be commenting on the recent taxation proposals and their implications for investors? Recent chatter on the propertytalk website has caused quite a stir!

For those who are interested Matt is referring to this thread on Propertytalk.

The outlined changes to the current tax laws within the threads centres around a proposal being put forward where people with negatively geared rental portfolios placed in LAQC (Loss Attributing Qualifying Company) would lose the ability to claim their associated loses within their portfolio against other forms of income – for most of us this relates to our wage or salary.

The ‘Tax Working Group’ has stated the IRD are missing out on hundreds of millions of dollars from wealthy New Zealanders who legally use current tax benefits enjoyed by offsetting their negatively geared property portfolio’s loses by using an LAQC. It appears the TWG’s beef centres around so called ‘rich people’ finding a way to minimise their tax loses.

So where does it currently stand? – At this stage the committee set up to look at the impact of New Zealand’s love affair with property and the implication this love affair has on our economy is in deliberation. Some in the industry think changes are not only required but are imminent, others believe this is merely the present government allowing it to be seen as ‘taking action’ but has no real plans to implement any major changes. The latter has some weight behind it when one looks at the demographic of voters who put the National party into power in the first place.

My thoughts? – I think that once again property is taking an unfair hit for the economic problems we have recently injured. LAQC’s and their benefits help many New Zealand’s find a way forward in life, often this comes in the form of helping set up a nest egg for retirement, particularly important as our ageing ‘cradle to grave’ system is being eroded by government every year. To abolish the benefits of an LAQC will not only see rents rapidly rise to cover the costs a vendor now has to foot alone, but it could trigger a large reduction in the value of house prices in New Zealand.

In my opinion this would have a catastrophic effect on home owners as in many cases lenders would hold larger mortgages against a property than the property is worth, forcing them to ‘call up’ these mortgages in order to balance their books. As always time will tell, but be prepared to wait through a long drawn out process.

Tip of the month:

On a lighter note – please remember to contact me with any loan roll overs you have coming up. It is more important now than at any time to have the right structure and fixed terms in place, particularly as the next 2-3 years are likely to be bumpy in regards to interest rates.

We have an OCR (Official Cash Rate) announcement on January 28th and another on March 11th. The expectation is ‘no change’ in the OCR on these announcements; however this is by no means set in concrete.

Adele, now is a good time to buy houses, it doesn’t matter if it’s for yourself or to add to your portfolio. Interest rates and house prices are low, this coupled with the fact that we are at the start of another capital growth cycle means we are in exciting times. As always please feel free to contact me with your questions as I would love to help you with your property plans.


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