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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.

February’s Property Newsletter

Published by Scott Miller on Friday, February 12, 2010 in
Blog

Well hasn’t a lot happened in the space of one month, we have had a power packed month of news and announcements. I have listed a few I think are worth looking at in a little more detail.
1) AMS releases it’s highly anticipated referral scheme
2) John Key outlining tax reform
3) Please read a little light humour on how the new tax system will work.
4) New housing data from QV
Let’s have a look at these points of interest.

AMS releases it’s highly anticipated referral scheme!!!

We have had a number of referral schemes ideas over the years, and though all of them were good, somehow they lacked in clarity and ease of understanding.

But now we are pleased to announce that Advanced Mortgage Solutions Ltd is offering a referral scheme that is second to none and is open to all those who refer business to us.

Starting this month if you refer family, friends, or work colleagues to Advanced Mortgage Solutions and they settle a loan no matter how big or small you receive 10% of our commission. All you have to do is introduce us to people who you think can benefit from our wealth of experience and we will do the rest.

One of our referrers has already referred 2 clients to us this month and although she doesn’t know it yet is up for a commission cheque of $581.00!!!!!!

This is a great opportunity to enjoy a little extra bonus every now and then, whilst knowing the person you referred is in the best possible hands.

We look forward to hearing from you and helping with you referees needs.

If you would like to know more or have someone who needs our help please click HERE.

John Key outlining tax reform

This week John Key outlined guidelines on what he thinks the National party are likely to announce at this year’s budget on May 20th. I have summarised how this will affect home owners and property investors below.

Proposed Tax Changes for Homeowners

Those with their own homes (and those planning to buy), can breathe a sigh of relief that the proposed tax changes will not affect owner occupied properties. A land tax has been ruled out. This would have been levied in much the same way as rates - a blunt form of tax, hitting hard all those that own their homes as opposed to those who rent. A land tax would have had a negative impact on those on lower incomes, our farming sectors and property owning charities. A capital gains tax has similarly been rejected. A rise in GST is negative for homeowners as any alterations and improvements will cost more. There will be relief from lower marginal tax rates.

Likely Tax Changes for Investment Properties

The big news in the Government’s opening parliamentary speech is the comments about trying to extract extra revenue from the residential property sector, which they believe, unfairly is not paying its way. After ruling out capital gains, land taxes and the notional return, the two areas the Government is likely to target is depreciation and how much in the way of losses can be claimed. There are two types of depreciation, one on buildings or improvements and the other for chattels The change, we understand, will only apply to buildings or improvements. The second change, hinted at, may be ring fencing losses to a certain level or restricting their offset to property income. The Government must be careful in changing of the rules regarding property investment as many people have their only form of superannuation tied up in this sector. Secondly the Government should be encouraging the landlords to continue improving their properties and so improving our housing stock. These changes will not do this. If this sector is made unattractive to invest in, there will be fewer investors - this may well lead to a rental accommodation shortage and hence higher rents, not to mention the real chance of properties devaluing.

Is it a Good Time to Buy?

The property market was quieter in January and agents have put this down to two factors- the number of people on holiday and the uncertainty regarding new property taxes. For potential owner occupiers, this has been removed and they can now consider whether it is a good time to buy. This is always a difficult decision but there are a number of positives out there. We are still in a recession with higher than anticipated unemployment figures being released last month. It can be assumed that interest rates will remain lower for longer. If GST goes up this will cause an increase in the costs of new houses may cause existing stock to rise in price as well. Properties still tend to be priced below their 2007 peaks - it is cheaper to buy today than three years ago. Due to tax anticipated tax changes with residential investments we may see a few more rental properties coming onto the market, which in the short term will increase available supply which is always good for potential home buyers.

Please read a little light humour on how the new tax system will work.

The tax system explained in layman’s terms; explained in beer.

Suppose that every day, ten men go out for beer and the bill for all ten comes to$100.

If they paid their bill the way we pay our taxes, it would go something like this…

  • * The first four men (the poorest) would pay nothing.
  • * The fifth would pay $1.
  • * The sixth would pay $3.
  • * The seventh would pay $7.
  • * The eighth would pay $12.
  • * The ninth would pay $18.
  • * The tenth man (the richest) would pay$59.

So, that’s what they decided to do.

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve.

“Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20.” Drinks for the ten now cost just$80.

The group still wanted to pay their bill the way we pay our taxes.

So the first four men were unaffected.

They would still drink for free.

But what about the other six men? The paying customers?

How could they divide the$20 windfall so that everyone would get his fair share?

They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer.

So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so the fifth man, like the first four, now paid nothing (100% savings)

  • * The sixth now paid $2 instead of $3 (33% savings).
  • * The seventh now pay $5 instead of $7 (28% savings).
  • * The eighth now paid $9 instead of $12 (25% savings).
  • * The ninth now paid $14 instead of $18 (22% savings).
  • * The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.

“I only got a dollar out of the $20,”declared the sixth man.

He pointed to the tenth man,” but he got $10!”

“Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar too. It’s unfair that he got ten times more than I!”

“That’s true!!” shouted the seventh man. “Why should he get $10 back when I got only two? The wealthy get all the breaks!”

“Wait a minute,” yelled the first four men in unison. “We didn’t get anything at all. The system exploits the poor!”

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works.

The people who pay the highest taxes get the most benefit from a tax reduction.

Tax them too much, attack them for being wealthy, and they just may not show up anymore.

In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

David R. Kamerschen, Ph.D.

Professor of Economics.

New housing data from QV

Property values have increased further according to the QV residential property indices for January released today. Nationally, values are 4.4 percent above the same time last year, and 4.3 percent below the peak of the market in late 2007.

NZ MAIN AREAS

SIGN UP TO YOUR AREA

Auckland Region

7.3%

$549,028

 

Hamilton

3.5%

$350,722

 

New Plymouth

7.1%

$337,719

 

Palmerston Nth

5.6%

$290,709

 

Christchurch

6.3%

$380,268

 

Queenstown

0.5%

$607,245

 

Invercargill

4.6%

$208,128

Whangarei

-3.9%

$330,076

Tauranga

0.6%

$422,226

Rotorua

3.3%

$268,690

Napier

5.1%

$321,551

Hastings

2.6%

$327,341

Wellington Rgn

5.7%

$460,638

Nelson

3.6%

$340,782

Dunedin

5.0%

$279,101

New Zealand

4.4%

$409,807


Annual Property Value Change
Average Sales Price

View FAQs on the Property ValueMap

The average sales price across New Zealand also increased to $409,807 in January, up from the $404,671 in December. However, the average sales price is a less reliable measure of value change than the QV index as the average can be skewed depending on which part of the market is active.

Glenda Whitehead of QV Valuations said “market activity in January appears to have been patchy. Overall, activity was lower than expected, although our valuers are seeing an increase in activity in some sectors of the market and a decrease in others. While it is normal for sales activity to be at its lowest over the Christmas period, there is usually an increase in listings activity in January leading into the busiest time of the year in February and March. This January the expected increase appears to be absent”.

Whitehead said “this lower level of market activity in January could be due to more people being forced to take additional leave this Christmas, and only recently returned from holidays. There are also signs of increasing indecision in the market, fuelled by uncertainty over interest rates, employment, which direction property prices are likely to move, and the recently announced tax working group recommendations”.

“The majority of the market activity, particularly in the main centres, is being driven more by existing homeowners and first home buyers rather than investors. Those currently entering the market appear to be taking a cautious approach to their decisions, and are doing their research thoroughly. Some of the frantic market activity of 2009, when there were multiple buyers competing for a property, appears to have eased, at least for the time being” said Whitehead.

“It is still too early in the year to conclude the likely pace of the market in the coming months. There is increasing debate around the likely impact of the options put forward by the tax working group, but movements in property market are driven by a combination of factors, and while any tax changes implemented will impact, that change will be alongside other market factors such as interest rates, employment security, and bank lending policies prevalent at the time any of those tax changes come into effect” said Whitehead.

Values in most of the main centres have continued to increase in recent months and are now all above the same time last year. Values in the Auckland Region are now 7.3 percent up, the Wellington Area is 5.7 percent up, and Christchurch 6.3 percent up. Values in the other main centres have fluctuated in recent months, but still remain above last year by 3.5 percent in Hamilton, 0.6 percent in Tauranga, and 5.0 percent in Dunedin.

In the provincial centres values have been more variable over recent months. However, values in nearly all areas are now above the same time last year. Rotorua is 3.3 percent up, Napier 5.1, New Plymouth 7.1, Wanganui 0.1, Palmerston North 5.6, Nelson 3.6, and Invercargill 4.6 percent. Whangarei is the only centre still below last year at 3.9 percent. Queenstown Lakes is 0.5 percent above last year and this is the first time it has shown year on year growth since May 2008. This is due to an increase in values in the last few months after a relatively flat 2009.

We trust you have found this information to be helpful and at times humours. As always we love to hear your feed back and look forward to hearing your thoughts and observations.

~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.

~December’s Newsletter

Published by Scott Miller on Thursday, December 10, 2009 in
Blog

Welcome to my festive season’s newsletter.

I wish you and your family a very Merry Christmas and a Happy New Year.

Colin, I thought I would take this opportunity to recap on events that have taken place over the last year, if you are anything like me I just cannot work out how the year went by so quickly.

2009 - A random review
The big events of 2009 are usually well covered in the Christmas newspapers. I have picked a few which may not make the papers. 

  • The All Whites secured their place at the World Cup in South Africa in 2010. Brilliant!
  • It turns out that most investors lost money without the help of financial advisers. 
  • The housing market held firm in the face of some dire predictions.
  • The Silver Ferns won the inaugural World Netball Series in Manchester, beating Jamaica in the final.
  • The Spring Boks took the Tri Nations but we held on to the Bledisloe Cup.
  • Michael Jackson passed away.
  • The associated persons ruling came into effect.
  • Dr Bollard held his nerve and the OCR remains at record low levels and, for the first time in many years, New Zealand has a normal interest rates yield curve. 
  • BNZ got rid of it’s mobile mortgage managers, encouraging its customers to return to its branches.
  • Water was found on the moon.
  • I became an uncle for the first time.

There is no doubt that 2009 was a hard year, and most of hardship was a result of the world’s financial meltdown. This placed huge pressure on employers, lenders, government, and the family unit. Although some pain remains, there are signs that the worst is behind us and nowhere can this be seen more graphically than in the housing market. In New Zealand purchasing houses remains the single biggest ticket item. On average most of us only do this 2-4 times in our lives.

Recently house prices have made a remarkable recovery in their value. The last peak in house prices was in November 2007 and has been used as the benchmark to measure house prices ever since. Part of the reason for these increases in house prices have of course been the low mortgage interest rates we have enjoyed in 2009. Although the longer term rates (3, 4, 5 year) have ballooned above their 10 year averages, short term rates remain low. Today’s announcement from Dr Bollard came as no surprise when he left the OCR unchanged.

Bank

Term

%

ANZ

6 Mths

5.99

ASB

6 Mths

6.00

BNZ

6 Mths

5.75

Kiwibank

6 Mths

5.75

National

6 Mths

5.70

Westpac

6 Mths

5.49

 What will 2010 bring?

  • · The OCR is expected to remain unchanged until the middle of 2010.
  • · House prices will continue to improve but perhaps at a slower rate.
  • · Interest rates will continue to increase.
  • · Mortgagee sales will remain at higher than normal levels.
  • · New Zealand’s economy will continue to recover.
  • · Worldwide economic improvement.

Tip of the Month

AMS is open over the festive season so please feel free to contact me over the break with any of your finance needs or questions.

Look out for my January newsletter as it will have a major announcement. AMS is going through a number of existing changes that I cannot wait to share with you.

~November’s Property Newsletter

Published by Scott Miller on Thursday, November 12, 2009 in
Blog

Welcome to November’s newsletter.

This month has seen it fair share of property related news.

  • · NZ’s Official Cash Rate remains unchanged
  • · Australia’s Official Cash Rate increases for the second time running
  • · Associated person’s ruling comes into effect
  • · Debate of capital gains tax continues
  • · House prices continue to improve
  • · Mortgage interest rates continue to increase

New Zealand Official Cash Rate (OCR) has remained unchanged for the 4th six week period in a row, and Dr Bollard has repeated his intentions of leaving it unchanged until late 2010. Some economists were predicting that New Zealand would follow Australia’s lead and increase the OCR to offset any inflationary pressures due to the improved outlook of New Zealand’s economy. The reality is that Australia came through the recession in much better shape than New Zealand and it will take some time for the improvements in our economy to show through in any real terms of growth.

This unchanged status in the OCR however has not stopped mortgage interest rates from increasing. One factor (and there are many) attributing to these interest rate increases is lenders in New Zealand have been under increased pressure from the Reserve Bank to limit the amount of offshore borrowing secured for mortgage purposes, and to increase their local deposit funds to cover any shortfalls. This has lead to lenders around New Zealand offering better rates on term deposits thus pushing up mortgage rates to cover costs of the accumulating interest on these term deposits.

In fact the 3, 4, and 5 year rates are now above their ten year averages, making these rates undesirable to fix in unless under particular circumstances. I.e. parking an estate or your property portfolio’s cashflow allows.

Please contact me here if you have a fixed term roll over coming up for renewal as it is very important to have the best interest rate structure in place bearing in mind how volatile interest rates are at the moment.

Associated Peron’s Ruling

The associated persons ruling came into effect on 6th October 2009. This will have far reaching repercussions for those people who have both buy and hold and trading portfolios. The ruling (in basic terms) states that if you are trading property, it is deemed that you are a ‘trader’ and that this is how you go about making a living. So even if your intention when purchasing a property is to buy and hold, if you sell this property within 10 years of purchasing it, the property is tainted under this new ruling and you will have to pay income tax on any profits.

More importantly though, because you are considered a trader you will have to have claimed GST after purchasing the property and as such will have to pay GST back to the IRD when selling the property. This is very important to remember as it will make a big difference in your calculations when purchasing a potential property.

The old structures of setting up a buy and hold company or trust for buy and holds, and a separate company or trust for trades will no longer protect you from becoming tainted.

There are however a couple of things to keep in mind.

1) The ruling only takes effect on property purchased at the time of acquisition. So all property purchased before the 6th October is not tainted by this ruling even if you sell the property before owning it for 10 years.

2) If you do not trade property or sell a property within ten years of purchasing it (after 6 Oct 2009) you will not be considered a trader and as such will remain untainted.

House Prices

House prices continue to rise across the nation. The strongest growth continues to be in the major city centres however this is filtering down to smaller areas of population. With fears that strong house prices will ultimately cause another recession down the line there has been a lot of talk of introducing a capital gains tax to dissuade people from investing in property.

You might think I am bias but I think this is very short sighted and the long term effects of such a tax has not been thought completely through. Property investment has always been a large part of New Zealand’s economic landscape and to attribute the cause of the recent recession solely on property is ridiculous. To introduce a capital gains tax in order to reduce the pace of increasing house prices and making it more affordable for the average consumer makes little sense to me.

If the government increases the tax payable on petrol or cigarettes (or any other items) then it’s not the shop owner that bears the brunt of this increase in total cost of purchasing this item to sell. The extra expense incurred by increasing the tax levy is pasted onto the consumer, therefore allowing the shop owner to retain his margin. This type of on-flow effect will also take place if a capital gains tax is introduced on property. The net result in my opinion will be higher property prices (hindering the average first time buyer), resulting in less people owning their own home and more people settling for the rental option. Which in turn fuels the price of houses and further tilts the balance of home ownership in favour of the property investor, which I believe to be the exact opposite of what the intentions of bringing in a capital gains tax is suppose to achieve. Watch this space!

Summary

Gareth, a lot has happened in property over the last month. I have summaries the most important factors that may affect you. I do however strongly urge you to contact me directly if you are thinking about completeing any property transactions. My services and advice are largely free and I would hate to see any part of your property portfolio compromised.

~October’s property newsletter

Published by Scott Miller on Friday, October 23, 2009 in
Blog

Interest rates

The Reserve Bank cash rate has remained at 2.5% for some time now. The next OCR announcement is set for 29th October 2009 and the expectation from the mainstream bank’s chief economist is there will be no change. However there is underlying pressures for the OCR to go up, and it is widely picked that the original comments from Dr Bollard that the OCR will remain unchanged until late 2010 is being overly optimistic. Just last week Nick Tuffley from ASB predicted that we will see a .5% increase in the OCR in March next year.

What would I do if I was looking to fix a loan?

I still believe there is merit in leaving your loan on the floating rate as we are some way off seeing the OCR rise. I also believe that long term interest rates (3 – 5 years) are no longer attractive as they are now higher than their 10 year averages. If you did want to fix your home loan I would suggest a maximum of 2 years and would consider the option of splitting your loan to reduce your exposure at the end of your next refix period. I offer free advice on fixing home loans and are happy to help you with your decision making. Please contact me here if you would like me to access your options.

Housing Market update

House prices continue to improve with September being the fourth straight month of property price increases. It is believed this is largely due to there being a high demand for property coupled with reasonable low levels of supply. A unseasonably warm end to winter also saw long periods of warm weather enhancing the warm fuzzy feeling around property procurement. This however has been tempered slightly by less than average weather for spring.

As is typical with property lead recoveries it is the major metropolitan centres that are experiencing the best capital growth.

This was evident in the resent QV report out on October 10th.

Lastly I would like to comment on population growth within New Zealand.

Population fluctuations are a well known contributor to the direction of house prices. We have seen a dramatic increase in the numbers of New Zealander’s returning to our shores and it will slowly filter through to the numbers of people either looking to rent or purchase a house. To give you an idea of immigration numbers 17,043 people have registered as permanent or long term returners to New Zealander to September 2009. This is a huge number and there is no sign of it slowing down.

Tip of the month

Be sure of the consequences of your decisions before re-fixing your home loan as it will play a large part in how things will unfold at your next loan roll over. Try and avoid getting advice from someone that works at the bank. Generally these people hold multi-roles that demand they do more than one job and are not specialists in mortgage lending.

As always please feel free to contact me for free independent advice on all things property.

~Property comments from the BNZ

Published by Scott Miller on Thursday, August 20, 2009 in
Blog

I am pleased to report that the housing market continues to improve. Not only are the traditional well informed property investors in the market but the long awaited return of first home buyers is making a real difference to the numbers of properties being purchased, if anything the problem facing the market at the moment is not having enough stock to go around. This in turn is one of the reasons why we are seeing house prices increase.

 The mainstream banks are slowly beginning to relax their lending policies, and although these policies are not reaching the relaxed levels we witnessed in 2007, they are certainly better an 6 months ago.

 A number of mainstream lenders will now consider lending above 80% LVR for the right kind of property and applicant. This however is still bettered by the 95% LVR products that is available to Advanced Mortgage Solutions clients that fit criteria.

 As always if you would like to know more please click here to enquire further.

 TIP OF THE MONTH:

 This month’s tips come courtesy of recent comment released by Tony Alexander from BNZ. Please read on to hear his thoughts on interest rates and where he sees the housing market going.

INTEREST RATES

Given the way the data have fallen over the past week it remains reasonable to continue to expect
wholesale interest rates to slowly drift higher in coming months.

 Early this week we learnt two important things. First, as discussed in depth in our Housing section, house prices are now officially rising again in New Zealand. They gained 1% in July and 2.2% in the three months to July. The time taken to sell a dwelling is now the best compared with average since late-2007, and anecdotes continue to bespeak of listings shortages. This means prices are likely to continue to creep up.

This development is important because we Kiwis pay close attention to house price movements and the gains in prices fairly much wipe out concerns some will have been having about rising unemployment being the key determinant of house price changes and everything else in the economy. As we have pointed out, the labour market lags the economy, it does not lead it. That means if you forecast the economy on the basis of what the labour market is doing you are actually looking backward rather than forward.

The other large piece of news was retail spending growing in seasonally adjusted volume terms by 0.4% during the June quarter This is still a weak result by historical standards but better than the 0.2% decline expected in the markets and the strongest result since the March quarter of 2007 (when sales ballistically soared 3.7%!).

 The data come in a week when we have also learnt that the EU economy shrank only 0.1% during the June quarter with France and Germany each growing by 0.3%. Japan also grew 0.9% during the June quarter. The results add up to further support for the global recovery story therefore further upward pressure on share prices, growth and risky currencies like the NZD and AUD, and of course interest rates. But rate rises will not be linear. There will be substantial reversals at times as doubts occasionally appear about the strength of the economic recovery. In particular one must be wary of the impact which the unwinding of unsustainably stimulatory fiscal and monetary policies will have next year and through 2011. In fact those concerns have dominated this week with the result that after initially jumping skyward wholesale interest rates have finished today down very slightly from where they were a week ago.

 Key Forecasts

• No more monetary policy easing this cycle.

 • Medium to long term housing rates have seen their multi-year lows – stop-start rises now lie ahead. Speed unclear.

If I Were a Borrower What Would I Do?

First one needs to recognise that in these still very uncertain times one cannot take a reasonable stab at where fixed rates will be in one, two, and three years time. That means it would be risky to base one’s decision upon what to do at the moment on someone’s forecast of where things will go in the future. Just because we called it right with regard to catching the low-point for fixed rates in March does not mean we can reasonably say where those rates will be while the global crisis continues to unfold.

 The upshot of recognising such uncertainty is that one should be prepared to pay a premium for certainty in the form of a higher rate for fixing long term than short term. The question is however whether the current premium for fixing three years and beyond, when mixed with an assumption of higher rates in the future, justifies fixing medium to long term.

 First, would I take the five year fixed housing rate at 8.3%? No I would not. It is 0.2% above the average for that rate over the past five years and although we think fixed rates will average higher over the next five years than the past five, the rate looks expensive.

 Would I fix three years at 7.45%? Three weeks ago when this rate was 6.99% my answer was yes I would. But at 7.45% one is paying quite a premium above floating at 5.89% under the Total Money package, fixing 18 months at 6.09%, or fixing one year at 5.99%. For an above average risk averse person fixing at 7.45% for three years looks good in the current environment. But I would not.

95% product available

Published by Scott Miller on Tuesday, July 28, 2009 in
Blog

I am happy to announce that Advanced Mortgage Solutions has secured a new funding line that allows clients to refinance at 95%.

 This product allows you to refinance existing lending on owner occupied or rental properties. Like other recently released 95% products there are some guidelines. These include having a property portfolio with less than 5 properties, having a clean credit history, low consumer debt, and good account conduct. If you think this is you and you would like to know more please feel free to contact me.

 Further to comments I made last month I believe best time to buy property is now! This does not mean that you have to break your neck to purchase one this week, instead I believe prices will remain low over the winter period and leading up to Christmas. I would suggest that house prices will make a recovery in early 2010 and continue to increase throughout the year. This is important as rental yields generally do not make us rich, it’s capital gain that drives property portfolio’s.

 To return to AMS’s home page click here

~Property news for July

Published by Scott Miller on Tuesday, July 28, 2009 in
Blog

Welcome to my newsletter for July 2009.

Internationally:

 There has been a lot of positive news out in the market at the moment. World stock exchanges have had 10%+ rallies over the last two weeks, noticeably the Dow Jones sneaking past the imaginary 9000 point barrier and the NZX 50 passing the 3000 point mark. This is good news and long may it continue. I suggested in my May commentary that if the northern hemisphere had a good long summer with positive financial news that it would filter down to the New Zealand economy, and it certainly has been positive so far.

Locally:

 The OCR announcement this Thursday is expected to bring up no surprises with most economist’s predicting a hold on the cash rate at 2.5%. What does this mean? Well for the short term rates (6 months and 1 year), I expect there will be very little change if the rates stay the same. If rates do fall I would imagine only a small flow-on from the lenders would take place. The promised bank war on rates has not eventuated, although don’t count this out from happening in the near future as competition for customer retention is heating up. There is continued pressure for longer term rates (18 months, 2, 3, 4, and 5 year rates) to increase, albeit slowly. If your home loan(s) is coming up for renewal within the next 60 days please contact me here and I will approach your lender to ascertain any potential discounts available for you.

 On another local matter there is good news for first home buyers with little or no deposit.

 The following is an update on the current Welcome Home Loan product.

“Welcome Home” loan lending limits look set to increase

Lending limits for “Welcome Home” loans for first home buyers look set to increase next month, opening the scheme up to low-income home-buyers in parts of New Zealand for the first time in several years. Housing Minister Phil Heatley has told Parliament’s social services select committee that the current $280,000 loan limit for the scheme could be raised by the Cabinet on August 3 to between $320,000 and $350,000.A spokesman for Housing Minister Phil Heatley has said there were no plans to change the income limit of $85,000 for a household of one or two people, but it was clear that the loan limit had fallen behind property values, especially in Auckland.

NZ Housing Foundation director Brian Donnelly said the new loan limit could make the scheme useful in Auckland if it was extended to cover shared equity arrangements where first home buyers buy only 75 or 80 per cent of the value of a home, with the rest owned by a joint owner such as the Housing Foundation.

Welcome Home loans:

 Loans up to $280,000 for first home buyers.

  • Household income must be under $85,000 for one or two borrowers, or $120,000 for three or more borrowers.
  • 15 per cent deposit required for loans above $200,000.
  • Proposed loan limit increase to $320,000 or $350,000 would finance homes worth up to $376,470 or $411,765 if borrowers can find the required deposits.

This product is available through Advanced Mortgage Solutions and if you would like more information please click Here.

Tip of the month:

House prices seem to have found their low point.

If you are in a position to hold onto your current property portfolio without it causing an undue financial strain then do so. Don’t misunderstand me; if you have a particular property that is not behaving itself by all means sell it. However with net migration breaking all sorts of records, the economy being as bad as it has for so long, and continued historically low interest rates house prices are going to make a comeback. The time where capital growth was the reason for owning property although still a while off, is returning, and from the bottom it can only go up.

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~Interest rates

Published by Scott Miller on Monday, July 06, 2009 in
Blog

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 03/07/09.
Variable 6.30%
6 Month Fixed 5.39%
1 Year Fixed 5.49%
2 Year Fixed 6.20%
3 Year Fixed 6.89%
5 Year Fixed 7.90%

The economy is stabilising, and this should see an end to the easing of interest rates much further, provided we do not see any more turmoil in overseas markets.

We are seeing a continuing strengthening of net migration into NZ with another month of in excess of 2,000 more people into our beautiful country, on an annual basis our population has increased by more than 9,000 which is more than double a year ago, this is predominantly being driven by a sharp decline in the number of Kiwi’s jumping the ‘ditch’ which is now down to record lows not seen since 2006. The strong net migration together with strong housing data supports the theory that the easing of interest rates has almost finished.

Much improved household affordability is being driven by the lower interest rates we now enjoy and the average number of days to sell a house is now down to 41 which is just a touch over the historical average of 39 days and seasonally adjusted sales last month were over 5,700 more than 50% above the trough in November 2008. There is clearly a stock shortage in Real Estate with a lot of people preferring to sit tight in the current climate due to concerns around employment prospects and the continuing conservative approach to lending from banks who all have liquidity concerns and are in a massive arm wrestle for term deposits.

The Reserve Bank has reiterated that it expects to keep the Official Cash Rate low right through to late 2010 and while business confidence has been restored the economy is still hampered by the strengthening of the kiwi dollar due to a continuing depressed global environment, which is undermining the rural and export sectors.

Mortgage rates continue to be influenced by contrasting forces, at one end of the scale you have continued upward pressure on long term rates (3-5 year) due to upward pressure on term deposit rates as banks scramble for term deposits. At the other end of the scale we see the message being reinforced that short term rates will be held low for at least the next 18 months. These forces are seeing a lot of tension in the mortgage market with consumers confused or contrasting in their opinions. Our current strategy still remains unchanged though, be patient and take advantage of the low 6 month or 1 year fixed rates with over 2% difference to 5 year rates, the other option is to consider a hybrid of the two.

What’s Hot
We have been able to extend our very popular 95% LVR product out to refinance clients now. Previously restricted solely for purchasers, we can report many happy clients last month were able to consolidate their debts into one loan, saving them thousands of dollars in interest and reducing their monthly commitments-Help your clients, refer them to us!

My property commentary

Published by Scott Miller on Tuesday, May 26, 2009 in

Well summer has definitely gone and winter has arrived, but despite the weathers best efforts there is plenty happening in the property market.

First I would like to go over some of the thought I have on where the property market is going.

I believe that the seasonal changes we are experiencing could not have come at a better time. In the last three months of summer we saw a rebound in the property market. Sales numbers were up, days taken to sell were down, and in April we even saw a small increase in the median houses price throughout New Zealand.

Traditionally winter always brings a lull to the market. Daylight viewing hours are less, the cold inhospitable weather lessens people enthusiasm for house hunting, and properties don’t look so good with leafless tress and muddy grounds.

BUT THAT’S IN NEW ZEALAND!

It pays to remember that in the big scheme of things New Zealand really is only a cork floating on the sea of international change, and we as a country don’t have that much financial clout. As New Zealand moves deeper into winter the northern hemisphere arrives into their summer and all the nice things about life returns to those who live north of the equator. As far as the weather is concerned the good times are back. (I was speaking with a client in London yesterday and it was 25 degrees, his kids were outside playing in the garden, happy days)

So the good feelings are back - but what about the global recession, how’s that coming along?

Well financially, stock and monetary markets have been making a slow but steady recovery, making up some of the lost ground they have experienced over the last year or so. Wall Street has seen a 19% increase in its markets since its lows in Dec/Jan, as have many of the European stock and monetary exchanges.

The implementation of recession busting government policies is also starting to have effect. TARP and similar schemes have gone a long way to oiling the wheels of finance, allowing companies, and individuals to lend money again. This combined with a reduction in interest rates for almost all countries has made accessible fund more affordable.

Now I am not saying that the world (or New Zealand) is out of the woods yet, but what I am leading to is that given the direction the markets and monetary policy is heading, we should be well placed to see some real change as we come into our spring. The feel good factor in the northern hemisphere coupled with rejuvenated business confidence will surely flow and bob the cork that is New Zealand. Expect to see unemployment reduce, net migration continue to increase, and house prices slowly rise as our summer takes hold.

As I mentioned at the start, personally the timing of the seasons

could not be better.

Tip of the Month:

Please be aware the new 95% product is going well with over 2/3being approved. If you find yourself looking to make that next purchase or simply want to know how you are placed to move forward please don’t hesitate to contact me.

Below I have added the latest commentary from the NBNZ.

Please read on as it makes great reading.

The month in review

Lower mortgage rates have given the property market a shot in the arm, although it has the feel of a statistical rebound from very low levels. The number of new homes being built remains weak. The Reserve Bank has committed to keeping rates low until the latter part of 2010, which will provide borrowers with a greater degree of certainty.

» Building Consents – March. Residential building consents remain very weak. Following an 11.7 percent increase in February, consent issuance fell 4.6 percent in March (-30 percent annually). Stripping out volatile apartment issuance, consents fell 1.3 percent following a 0.2 percent increase last month. The level remains near historical lows.

» Net Migration – March. NZ gained a net 1,720 people in the month of March, taking the annual gain to 7,482 (compared to 4,678 a year ago). In the March quarter, net migration was running at an annualised rate of 16,520 people, equivalent to 0.4 percent of the population.

» Mortgage Lending – March. Household credit growth rose by only 0.1  percent - despite all that frenzied mortgage fixing and increased housing market activity.

» REINZ housing data – April. Nationwide house sales recorded an impressive 19.6 percent seasonally adjusted increase in April, and are now up 39 percent on a year ago. The median length of time to sell a house improved to 44 days in seasonally adjusted terms in the month. This is down from 48 days in March and a peak of 57 days in July last year, although it remains slightly above the historical average of 39 days. House prices also continue to surprise, although composition issues with the REINZ data means that some caution should be taken. Nevertheless, the median house price rose $5000 in the month to $340,000 and is only down 1.4 percent on a year ago.

» RBNZ April OCR Review. The RBNZ delivered a clear message in its latest assessment of the economic situation by cutting the Official Cash rate (OCR) by 50 basis points and committing to keeping rates low until late 2010. In so far as central bank communication is concerned, the message was clear cut: if you are a borrower, don’t panic and rush to fix

for a long-term.

» Household Labour Force – March. In seasonally adjusted terms, employment fell by 1.1 percent in the March quarter – the biggest quarterly contraction since the March 1989 quarter. However, volatility in the employment growth measure of late almost makes the quarter-on-quarter movements redundant. We instead prefer to focus on the more stable unemployment rate, and while it rose 0.3 percentage points to 5.0 percent, judging by leading indicators it is set to rise further.

Assessment

The month saw further signs of encouragement in so far as housing related indicators are concerned. However, the level of activity still remains well down on the peak. Recovering house sales look to be leading the way and should start to flow into building consent figures in H2 2009 (which having hit 1960’s lows is simply unsustainable relative to natural population and

migration growth). But going forward we need to differentiate between the change and the base. The change is welcome but recovery means climbing out of a very deep hole. The big uncertainties are impetus from migration versus fewer jobs.


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