Author: mortgage_admin

Three Good Reasons to Invest in Commercial Properties

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The New Zealand real estate market is going uphill in a low-interest-rate environment for both residential and commercial properties. In a time when house prices are skyrocketing, more and more investors are looking at commercial properties as an investment opportunity for long-term and big returns. They offer several advantages over residential properties in terms of better upkeep and higher incomes in your portfolio.

Commercial property investment is very different from investing in residential properties. One needs to look at zoning laws, risk profiles, tax regulations, and return possibilities before investing in a commercial place. However, there are plenty of lenders ready to help and support investors with commercial property loans in New Zealand. It creates a strong investor interest and trust to drive the market upside.

Although there are several reasons to think twice before making an investment call, here’re some good reasons why investing in a commercial property can be a good bet for you.

Long-term investment

Commercial properties come with a lease agreement for a longer duration, which makes it a more profitable choice over residential properties. Over time, commercial properties are also bound to appreciate better given the growth and development in the neighborhood and local market. Commercial properties are a good choice to make a strong investment portfolio to accumulate wealth over the years.

Better income levels than average

Commercial properties perform better than residential rental properties in terms of returns. They have a higher income potential than any other real estate investment. According to a commercial housing market report, commercial properties provide an average ROI between 5 to 5.5 percent, whereas a residential rental property returns around 3 percent on the investment. Although these returns may vary on various factors, commercial properties provide a better average income to investors than any other rental property. 

A plethora of options for ownership structure

Investors can choose from a plethora of options depending on the budget and ownership structure they want to possess. The New Zealand commercial property investment market allows investors to team up with other investors to get into the playfield with lower risk. There are mainly five types of commercial property ownership entities in New Zealand to give investors more flexibility:

  • Individuals
  • Companies
  • Trusts
  • Partnerships
  • Syndicates

All commercial property ventures have different risk profiles, financial obligations, accountability, and tax regulations for long-term commitments.

In addition to these advantages, investors can get commercial property loans in New Zealand for a variety of investment opportunities to run a business. However, every commercial property has its financial obligations and investors need to conduct a proper assessment of property valuation, lease terms, exit strategy, and loan eligibility before making an investment decision. Commercial mortgage brokers at Mortgage Suite can help you through your commercial property loan assessment process to invest in the right investment property for long-term returns. Give us a call to discuss your requirements.

Top Tips for Obtaining Small Business Loans

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Today, small company loans are available from several traditional and unconventional lenders. These loans can help your organization expand, improve sales and marketing activities, and allow you to hire new employees, among other things.

To begin, you must research several business loans in New Zealand. Getting a loan approved can be difficult if the lender isn’t confident in your ability to repay it. There are also a few frequent blunders that many business owners make when applying for their loans.

Before you fill out your business loan application, there are a few things you should know.

  1. Determine the Purpose of Your Loan

Lenders want to know how you plan to spend the funds, as this information helps them assess the viability of your business loan application. Make a comprehensive loan proposal.

Your loan proposal should include the following information:

• The amount of money you’ll require
• The way your business will use the money
• How you plan to repay the loan
• What you will do if your business fails to repay the loan

Purchasing new equipment or extra inventory, hiring experienced labor, or expanding your business are some of the best options to use a small business loan.

  1. Apply for business financing early.

Applying for your loan as soon as possible might assist speed up the process and ensure that you are not left waiting for funds.

Your lender will want to view your company accounts, so having current trading information can help you get approved faster.

  1. Your personal credit score is crucial.

When it comes to obtaining a company loan, one of the most common mistakes small business owners make is overlooking their personal credit score.

Lenders will use your personal credit score to analyze your track record of routinely satisfying financial obligations if your business credit score isn’t good.

Even if you aren’t planning on taking out a loan, you should keep an eye on your credit score to maintain it healthy.

  1. Prepare yourself to answer questions.

If you want to acquire a business loan, you must be willing to give extensive information and documentation regarding your company.

Lenders may also want to examine your financial statements and accounting records.
Before filling out the papers, double-check that you have all of your business details. The following are some of the documents you should have ready:

• Financial statements
• Enterprise and personal income tax returns
• Your company’s tax identification number
• Your company’s permit

  1. Find a suitable lender.

All banks and lenders are not created equal. Talk to the lenders before applying for a small business loan.

Since you can access different lenders and loan options with just one application, a lending marketplace is a great place to begin.

The Bottom Line

Obtaining a small business loan in New Zealand might be difficult. However, with the assistance of a business loan advisor, you can make the process of acquiring working capital considerably easier.

Is The Property Market Finally Trending Down?

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Is The Property Market Finally Trending Down?

Mortgage Rates Look Set To Keep Rising

We have seen ANZ raise mortgage rates again this month, and the other big banks are likely to follow suit. Most of the rate changes have been related to fixed mortgage rates. That means you aren’t likely to be affected until you have to re-fix your mortgage.

But, it’s good to be mindful of the changes now so that you know what is coming up.

“The latest changes from ANZ aren’t major – a small step in what could be a long relentless climb over the next few months…For those watching financial markets closely, these ANZ rises aren’t a surprise. They start new pushes higher that will clearly put fast-rising pressure on household budgets that include mortgage repayments. And they will pressure landlords.” [source]

If your fixed rate mortgage is up for renewal soon, it might be worth shopping around to see if another lender can offer you a better rate. If you are fixed for another few years, then you might want to assess your situation. It is possible to break a fixed term mortgage to swap to another one, but there is usually a fee involved. However, that may be cost-effective to get a better deal now, rather than risk even higher rates when you come to re-fix in a few years.

Advice from a mortgage broker, like the team here at Mortgage Suite, will be invaluable when making decisions about fixed term mortgages.

Trouble Getting Mortgages Approved?

Those changes to the lending laws are rearing their ugly heads again! New research shows that changes to the Credit Contracts and Consumer Finance Act have not done much to protect vulnerable people against taking on debt but are affecting people with solid applications.

The report from credit agency, Centrix, says low-risk applications have been affected. Loan conversion rates had dropped for people with credit scores above 700 (a good score), but there had not been much change in approvals for people with credit scores below 500 (low to average score).

The report says that lenders would typically have more discretion over lending, but the new Act has taken some of that discretion away.

“Where there used to be a lot of discretion, brokers would say, that if you take out this mortgage we know you would cut back on some of that discretionary spending, and therefore we are OK with this. They would say, you have had three loans in the past and you have met all your obligations and we have never had a problem with you. So there used to be an element of discretion, whereas under the CCCFA, you look at the income and then the expenditure and if there is not a surplus, you cannot issue the loan.” [source]

If you are thinking about taking out a mortgage, you need to make sure your finances are in good shape and have a good idea of all your income and outgoings. You may need to get rid of some discretionary expenditure like subscriptions to streaming services or eating out before making your mortgage application.

If you’d like to talk more about your situation and your mortgage options, get in touch with the Mortgage Suite team.

Undoing The CCCFA Blunders

We’ve just finished saying that it has been harder for people with good credit scores to get loans approved, but hopefully that could all be a thing of the past now!

Further changes to the CCCFA have been announced on 11 March due to intense criticism of the act. Here’s the lowdown:

“The changes include removing regular ‘savings’ and ‘investments’ as examples of outgoings that lenders need to enquire into when assessing the borrower’s future expenses.

They also clarify that when borrowers provide a detailed breakdown of their future living expenses, and these are benchmarked against robust statistical data, there is no need to also enquire into their current living expenses from recent bank transactions.

They also say that where lenders choose to estimate future expenses from recent bank transaction records, they are permitted to obtain information about how their current expenses are likely to change once the contract is entered into.

And they say that the requirement to obtain information in ‘sufficient detail’ only relates to information provided by borrowers directly, rather than relating to information from bank transaction records.

They provide further guidance on when a lender needs to allow for a ‘reasonable surplus’ and how lenders should set surplus requirement.

And the changes provide alternative guidance and examples for when it is ‘obvious’ that a loan is affordable. In cases like that, a full income and expense assessment will not be required.” [source]

What does it all mean? Well, hopefully these changes will make it more viable for many families to access lending. But, only time will tell if these changes have the impact we are looking for.

Want to know more about your current financial position? Then, reach out to the team here at Mortgage Suite. We can help you understand your borrowing potential, refix mortgage rates, discuss investment options, and answer your general questions. So, don’t hesitate to reach out to us today.

Property Prices Might Finally Be On The Way Down

The latest Quotable Value (QV) House Price Index figures show that house values may have started declining.

According to the Index, the average value of all homes throughout New Zealand was down to $1,053,483 at the end of February from $1,068,765 at the end of January. That’s down $10,282 for the month. There were falls in both Auckland and Wellington as well as other regions like Dunedin and Queenstown-Lakes.

QV General Manager David Nagel says while some of the changes might be down to Covid, it is also a sign of a changing market.

“There are less buyers out there now, with the tightened credit rules and rising interest rates taking a number of first home buyers and investors out of the market altogether. Increased listings from both new builds and existing homes are providing the dwindling buyer pool with ample choice and this is putting downward pressure on prices.

It’s taking a lot longer to sell a house this year, with open home attendance and auction clearance rates significantly impacted. While part of this may be attributed to Covid-19, primarily we’re seeing a residential property market that has peaked and is searching for the new equilibrium.” [source]

What does that mean if you are planning to buy or sell? Well, of course this won’t have much impact if you are buying and selling in the same market. However, if you are buying and selling in different markets, it’s definitely worth seeking advice from a mortgage broker to see what your options are.

But Confidence In The Market Is Down Too

ASB’s latest Housing Confidence Survey paints quite a gloomy picture. The survey, conducted over three months to the end of January, found 28% more people thought it was NOT a good time to buy. This is the lowest level of confidence in the survey’s 26-year history.

So, what does it all mean?

While lower property prices could be good news for people looking to get onto the property ladder, higher interest rates and tight lending criteria could still be barriers. Lower property prices are not such good news for people looking to sell, especially if they were hoping to release equity by downsizing or moving to a cheaper area.

However, for people looking to buy a second property to act as a rental investment, it may open the market up. So, depending on your situation, it is always best to seek advice from a mortgage broker to ensure you are making the right more for your individual situation.

 

Are You Eligible for First Home Buyers Loan in New Zealand?

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Homeownership can be challenging, especially when you are buying your first home. Buying your first home takes careful planning, research, and serious budgeting to meet certain financial and legal criteria. It is often the biggest financial decision one will make in his entire life, and with the right help and mortgage assistance, it is not impossible.

When you are planning to buy your first home, there are several lending options available to fulfill your dream of homeownership. Understanding how the whole process works and what are specific lending criteria for your specific situation is the key to planning successfully for the total cost of home buying. Saving for a house deposit should be your first step in order to get your first home buyer’s loan in NZ. These days, you can be eligible to borrow with a deposit of just 10% in some cases. The lower deposits come with bigger risks for both lenders and borrowers, however, it can help you get a mortgage with a little saving.

Meeting the lending criteria is the key to sorting your finances in the first place. You will need to save for a deposit and sufficient income to be eligible and financially able to make monthly repayments. The CCCF criteria is hindering a lot of the first home buyers in getting over the line. The Lenders now have a responsibility to ensure every expense is taken into consideration when assessing an application. Costs such as gym fees, streaming costs, spending on takeaways and alcohol, regular purchases of Lotto etc are now factored into Debt Servicing. We can guide you prepare for a home loan well in advance so that you don’t get caught with unnecessary expenses.

For Home Loans with low deposit, you will also need to meet the specific lending criteria defined by your lender or bank for first home buyers’ loans in NZ. The lending criteria of your lender may also include your credit history, level of debt, and ability to repay the loan. The criteria are listed below that you need to meet additionally to be eligible for a first home loan in New Zealand:

  • You must live in the home for which you are getting your first home loan.
  • Borrowers also need to pay a Mortgage Insurance (LMI) premium of the loan account.
  • You must be a New Zealand citizen, permanent resident, or a resident visa holder to be eligible for a home loan in New Zealand.
  • The applicant should be a minimum of 18 years of age.

Each region has a house price cap, and the maximum loan amount you can borrow depends on where you are purchasing your first home. At Mortgage Suite, we can help you check your eligibility and apply for a first home buyers loan in NZ as per your specific situation. Contact us for more details.

Is It Harder To Get A Mortgage?

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Is It Harder To Get A Mortgage?

Is it harder to get a mortgage in 2022?

For many, it feels like it is harder than ever before!

There have been numerous reports of people’s applications being declined for buying lotto tickets, coffees, and too many takeaways.

There was one particularly memorable story about a lady unable to get a mortgage top up for urgent house repairs due to a $187 Christmas shopping trip to Kmart.

So, is it really harder to borrow right now? And what’s causing it?

Let’s look into these questions now and explore what else is going on in the world of property and finance right now.

 

Is It Harder To Get A Mortgage?

Would-be borrowers are not being declined for the fun of it. The number of mortgages getting the green light are decreasing due to a new regulation called the CCCFA. In fact, due to the new rules introduced, application approval rates fell by 20% at the end of 2021.

Why is that?

Well, before approving your mortgage, the bank want to ensure that you’ll be able to make the repayments even if interest rates were to rise and your repayments potentially increased. In order to do that, they need to review the funds coming into your account and what goes out. Makes sense, right?

But, the CCCFA has made the process more complicated. Previously, the banks would have asked for a draft budget on your monthly expenses. If interest rates increased, they would have expected you to cut your expenses to maintain your mortgage repayments.

Currently, they want to see your ACTUAL expenses. That means they will see every coffee, every takeaway and every splurge purchase you make. They want to ensure you are already living as if interest rates were at 6-7% even though they are only 3-4% right now.

 

What Does The CCCFA Mean For Mortgage Applications?

While it is not impossible to get a mortgage right now, you need to ensure your application looks attractive to a lender. The first step in doing this is talking to the team here at Mortgage Suite. We will be able to take a look at your current spending in relation to what you earn and advise on whether you need to cut back a lot, a little, or not at all.

If you do need to cut back, we’d advise removing anything termed as luxury spending, like Netflix, Sky Sport, coffees, meals out or other entertainment costs.

Once you have completed 3 months of good spending habits, then we would be able to lodge any borrowing applications with major lenders. Once you have received your funds, you are then able to return to more normal spending habits if your budget allows.

So, take the first step and chat with us about your current financial position now!

 

Will This Be A Long Term Thing?

The CCCFA is legislation that is in force currently. However, it has not had the impact that was intended. Initially, the legislation was brought in to prevent high interest providers from lending to people who couldn’t really afford to borrow.

But the impact has been more far-reaching, impacting everyday families just trying to buy a home or complete renovations. The regulations around the CCCFA have made borrowing expectations quite unrealistic.

Many finance professionals agree that the regulations are not realistic. So, there is currently a parliamentary petition in place (which Mortgage Suite are a part of), to get the government to review and address this law.

The government have approved an enquiry in the CCCFA which will look into the intended and unintended consequences, as well as considering the impact of external factors like the global economic situation [source].

We’ll keep you posted on any updates that arise from this. And in the meantime, if you have any questions about your borrowing potential, get in touch with the Mortgage Suite team today.

 

In Other Financial News:

Property Prices Reach Record Highs

Trade Me Property Price Index shows the national average asking price jumped by a quarter year-on-year, to reach a new high of $956,150 in December – the biggest on record [source]. While selling may seem attractive, it is important to check whether you are in a financial position to take the next step! Make sure you seek sound advice before making any decisions.

Private Landlords Could Face More Changes

Private landlords could be faced with further restrictions on running their properties as a business. Associate Housing Minister Poto Williams has asked her officials to look at rent controls and rental indexing as a way to help renters struggling with the cost of accommodation [source]. The best advice is to ensure that landlords are charging market rate for rent now, as they could be impacted by potential changes in the not too distant future.

Inflation Likely To Continue

Economists are predicting that inflation will continue to rise throughout 2022. The comments follow last week’s announcement that the Consumers Price Index (CPI) increased 5.9% in the year to December. This was aided by a 1.4% rise in the December quarter, and is the highest annual rate since 1990 [source]. Inflation impacts the cost of everything, so it’s vital to get a handle on your current financial position so that you are able to make informed decisions going forward.

 

If you have questions about any of the ideas raised here or just want financial advice you can trust, get in touch with the Mortgage Suite team today.

Property Market 2022: Our Predictions

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Property Market 2022: Our Predictions

2022 is here! Happy New Year.

We hope you had a wonderful summer break with your friends and family.

While we might have been taking it easy with some time off, the finance and property markets never stop! So, there has been plenty happening while we’ve all been at the beach.

The major changes to the Credits Contracts and Consumer Finance Act are heavily impacting the lending scene, so is it harder to get a loan now?

And what will 2022 have in store for us when it comes to all things finance?

Finally, could the winds in the property market be changing and shifting to a buyer’s market?

We answer all those questions in this month’s blog. You can read it here:

 

Is It Too Hard To Get A Loan Now?

Responsible lending is a vital consideration for all finance providers. No one wants to see people end up in financial trouble because they have too much debt to deal with. So, with the best intentions, major changes to the Credits Contracts and Consumer Finance Act (CCCFA) came into force on 1st December 2021 to create more regulations around responsible lending.

Unfortunately, the legislation hasn’t quite had the intended effect. While it has generated positive results for high interest “payday” lending, the wider repercussions are impacting everyday people wanting to borrow for mortgages and other legitimate reasons.

The impact of the legislation changes are starting to snowball. As a result, Financial Advice NZ is seeking an urgent meeting with the Minister of Commerce and Consumer Affairs to discuss the fall out.

“The detailed information on spending habits demanded of would-be borrowers is backfiring, the organisation says. It says borrowers who could previously obtain finance and service those payments for their home are often locked out of obtaining finance in the future.” [source]

The biggest lesson we can take is that it is important to speak to a Mortgage Broker as soon as you feel you might want to borrow. That way, you can receive strong advice on how to make your application look attractive to a lender while meeting the new regulations. So, if you are considering borrowing in the near future, get in touch with us for advice you can trust.

 

What’s Ahead For 2022?

The Westpac economists have released their predictions for what will happen in 2022 finance-wise.

“Westpac is forecasting a significant upswing in demands for high wages in the coming year. It says this will help push the Official Cash Rate to 3% as the Reserve Bank tries to hold inflation in check.

On the housing market, Westpac expects house price growth to slow substantially in the coming months, but start to slip back towards the end of the year.

Inflation has surged to 4.9% by the September quarter, and most economists expect it to go higher. Westpac says there was some debate about how long lasting this would be.

“We now recognise that the monetary stimulus put in place in response to Covid will need to be withdrawn – and beyond to the point where monetary policy is outright tight.”

But the bank qualifies this by saying the 3% cash rate expected by 2023 will probably not be permanent but will represent a temporary peak in the cycle, in order to cool demand back down to a more sustainable level.” [source]

What does all this mean?

If Westpac economists proves to be correct, then Interest rates are going to rise further, so now is the best time for a review of your current and any future lending. The cost of living may rise along with mortgage rates, so you need to make sure you can still service your financial commitments. And, as we mentioned earlier, rules and regulations around finance have changed significantly, so taking advice is vital before making any decisions.

 

Is It Becoming A Buyer’s Market?

It’s no secret that the property market has been in favour of sellers in recent years. But, could that all be changing?

“In its latest Market Pulse report, CoreLogic says already there are signs the number of listings are firmly climbing, although total supply across the country is fairly tight.

More choice for buyers can only mean reduced price pressures in due course, and a switch to a buyer’s market – albeit they’ll have to work harder to get the finance in the first place.

Next year a buyer’s market might emerge for the first time in a few years, but it’s important to note a reduction in vendors’ power may not necessarily equate to outright falls in house prices.” [source]

Right now, the market is in a unique position. With a number of listings to choose from the buyers have a bit more power to play with. Yet, housing prices are still high which will benefit the seller. It is good news on both sides of the equation now.

But, that could all change if the predictions come true and the market swings in favour of the buyers. So, it can be handy to know what kind of a financial position you are in to be able to make informed decisions. If you would like to discuss this, reach out to the Mortgage Suite team today.

 

Interest Rates Are Rising But Are Property Values?

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As 2021 enters its final weeks, there is no shortage of financial news and property developments.

We know that interest rates are on the rise. But are property prices still going up too?

And is it still a good time to fix your mortgage rates?

Well, it’s time to answer all those questions and more in this month’s write up of what is happening in the world of property and finance.

Let’s jump in!

Is Long Term The Way To Go?

For a long time, the trend has been to have a portion of your mortgage fixed at a 1 year term as that is usually where the cheapest interest rates are offered. With rates being fairly static and often trending downwards, many people have adopted this tactic.

But are times changing?

In recent months, the shorter term rates have begun to climb from low 2% figures to mid 3% figures. So, is it time to change tactics?

Due to the combined factors of an increased OCR and the havoc that the Omicron variant is playing on the global economy, the financial situation feels quite volatile. We are seeing a lot more people erring on the side of caution and locking in two and three year rates for financial certainty [source].

Long-term mortgage holders have paid much higher interest rates in the past, upwards of 6%. So, the feeling is to lock in a rate that is only at the 4% mark now. Some families are choosing to pay more in the short term to give themselves certainty on their repayments in the coming years.

However, there are two schools of thought at the moment.

ANZ Bank economists think you may have missed the boat if you are looking to fix long term. They believe you may be better off securing the 12 month fixed rate at and even if you see annual incremental increases, you can save money by not paying a higher amount from the start.

If you have a portion of your mortgage due to be refixed or you want to discuss your current structure, then now is the time to do it. We aren’t sure what further impact the Omicron strain will have on the market going forward.

Temporary Clamp Down On Low-Deposit Loans

Is it getting even harder for first home buyers to enter the market? Possibly.

Several of the major banks have put a temporary freeze on approving low-deposit loans unless they fall in the new build category. It doesn’t apply to existing home loan approvals or pre approvals either.

This move follows the rules recently set by the Reserve Bank which dictates that only 10% of a bank’s lending portfolio could be made up of high LVR mortgage – those with less than 20% equity.

“ANZ Managing Director for Personal Banking Ben Kelleher says the move is needed to help the bank meet the new rules, which came into effect on Nov 1.” [source]

But, this is not the end of the road for low deposit loans. The freeze is only temporary and individuals with good assets and income will have their opportunities once the banks ensure they are adhering to the Reserve Bank rules. The best thing to do is to be prepared for when that happens by getting solid financial advice about your situation now.

The Impact Of FOMO

FOMO, or fear of missing out, has been a huge driver for pushing house prices up. Ever since New Zealand’s first lockdown in April 2020, buyers have been scared of missing out on a property, so have been paying whatever they need to secure it. Often, those figures have been in excess of what the home should technically sell for.

“In a survey of real estate agents carried out in conjunction with the Real Estate Institute, it was found on average a gross 69% of agents each month indicated they were seeing FOMO on the part of buyers. In last month’s survey only 39% report such buyer angst. This is the lowest reading since April 2020 when 35% claimed they were seeing FOMO.” [source]

So, what will this decline in FOMO mean for house prices?

Well, there is less urgency in the market. This could largely be down to other contributing factors like buyers experiencing difficulty obtaining finance due to debt to income ratios, expenses being scrutinised via the Credit Contracts and Consumer Finance Act, and the temporary freeze on low deposit lending that we mentioned earlier.

Couple all of this with the rising interest rates and we are likely to see less upward pressure on house prices. But of course, only time will tell what actually happens.

Are The Figures Skewed?

It is no secret that the average house price has risen markedly in recent years. The national average is now over $1 million. But, is that an accurate depiction of what houses are really selling for?

Realtors are seeing an increased demand for higher priced houses. So, the already expensive houses are selling for more, while there is actually an overall easing of the real estate market.

“Real estate agents are reporting a significant upswing in listings, while open home attendance rates are falling. Some properties are being passed in at auctions, which was unheard of a few months ago.” Nagel blamed this on rising interest rates, tougher rules on LVRs last month and a further tightening of credit rules with the CCCFA from December. [source]

While the national average home value has increased by 6.9% nationally, much of that is limited to the top 25% of properties by value.

So, what does it mean? Well, essentially it means that not all house prices are increasing at an alarming rate. There are still some affordable options available.

So, if you are considering purchasing, it is worthwhile exploring what your budget could be. Reach out to the team at Mortgage Suite today to discover what your buying potential could be.

The Holidays Are Coming

From all of us here at Mortgage Suite, we want to wish you a very happy holidays! We hope you get the chance to spend some quality time with your friends and family and enjoy some of the beautiful places here in Aotearoa.

We will be taking a short break from 23rd December and will be back on 17th January, 2022 to help with all your finance and property advice needs.

Have a Merry Christmas and a Happy New Year!

Are Increased Inflation Rates On The Way?

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Are Increased Inflation Rates On The Way?

Even if you don’t have your ear to the wall in the finance and property world, you’ll have heard whispers about the state of the economy in New Zealand lately.

It’s hard to avoid, with inflation rates soaring, mortgage rates continuing to increase month by month, and the long-awaited loosening of restrictions bringing hope of economic recovery.

This month’s hiking inflation rates bring trickle-down effects to mortgage rates and attempts by the RBNZ to balance that booming housing market.

So, what does it all mean for you?

Let’s take a look at the most important things you need to know this month.

Inflation Rates Are Forecast To Rise Dramatically

So far this month, business news has been focused on the rapidly rising rate of inflation in the country. The biggest banks in the country are all predicting significant increases over the next six months, and forecasting additional hikes to the OCR.

ANZ predicts inflation will hit 5.8% before March next year and estimates an OCR increase to 2% or higher. [source]

What does it all mean? How does a rise in inflation rates actually impact you?

Well, things start to cost more. Kiwis are feeling the pressures of the inflation rates rises already, with costs for construction, petrol, food, and consumer goods soaring over the last six months.

But brace yourself as economists are saying the worst may be yet to come.

ASB estimates a peak inflation rate of up to 6% by the end of this year. If we hit this number, it will be the highest annual rate the country has seen in over 30 years. [source]

While ASB predict the OCR to rise to 2%, Westpac is forecasting an even higher number of 3%, saying that a 2% OCR will not be enough to balance the inflationary pressures. [source]

If the economists prove to be correct, as consumers, we need to start making adjustments to our daily spending habits now. Older generation may have lived through higher mortgage rates but those that have bought homes in the last 5 years have not. They may find the going tough if their spending habits are not changed.

It’s time to be mindful of the fact that the cost of everyday living items is rising. So, make considered decisions whenever your finances are concerned. If you need some advice in this area, then reach out to the Mortgage Suite team today.

Mortgage Rates Increase Again

With rising inflation rates come higher mortgage interest rates.

Westpac followed up last month’s increases with further bumps to their six month fixed rate and 3 to 4 year carded rates. [source] ANZ upped fixed mortgage rates by 10-30 basis points, and ASB followed suit. They made news by bringing back a two year rate of 4.15% – the first time a two year rate has topped 4% since March 2019.

Kiwibank later followed, hiking their three year fixed rate to 4.49%, the highest of any bank for that term. [source]

What does that mean for the housing market? Most likely, further mortgage rate increases. “Many households are highly indebted after taking on massive mortgages during a year where house prices rose more than 30%, so even a small increase in interest rates will have a significant impact for those households,” says ANZ chief economist Sharon Zollner. [source]

While you might be feeling some concern as a mortgage holder, it’s important to note that the effects may not be felt immediately. Research from the RBNZ indicates that the real impacts of the OCR increases may not be felt for at least another six months as lenders roll off their fixed mortgage rates. So, there is time to act now.

If you are already feeling stretched by your debt, then there may be a way that we can restructure your lending. We are still able to secure discounts off most of these rates, so reach out to us today for a no obligation chat.

Debt-To-Income Limits On The Horizon

We just mentioned that interest rates are on the rise. So, in an attempt to mitigate the effects of faster than expected rises, the Reserve Bank is considering debt serviceability restrictions in the coming months.

Later this month, it will begin consulting with lending institutes about debt to income (DTI) limits on loans. These measures limit the amount of money people can borrow under a debt to income ratio.

Although Loan to Value (LVR) tools are already in use and are currently being tightened up, DTIs are another tool that can be used to balance the risks to the market.

“DSRs complement current restrictions on housing lending at high LVRs and would provide an additional way for us to address financial stability risks related to the housing market,” said RBNZ.

“LVR limits lower the likelihood that a borrower would be in negative equity following a house price decline, while DSRs build borrowers’ buffers against serviceability shocks, such as a rise in interest rates.” [source]

While implementing a DTI limit may take up to six months, some banks already use them, such as ASB, and more recently, BNZ. Earlier this month, BNZ set its DTI limit at six times the amount of money that is earned by a borrower. [source]

If you are concerned about how this might impact your plans for future lending, then we can help you determine what you may be eligible for. Get in touch with us to find out more.

Will The Housing Market Crash?

Although the housing market has experienced rocket-like growth over the last year, and continues to increase, economists are warning of a substantial slowing of the growth in the months ahead, with house prices declining significantly in the second half of 2022. [source]

“As mortgage rates rise, we expect to see a substantial slowing in house price growth over the coming months, turning to modest price declines by the second half of 2022,” says Westpac acting chief economist Michael Gordon.

“Even then, the recent rate of increase has been so dramatic that, on our forecasts, it could take a few years just to get house prices back to where they were at the start of this year.” [source]

While a crash is unlikely, there are plenty of pressures on the economy right now. Experts are warning investors not to put all their investment eggs into the housing market basket.

On the flipside, we are having lots of Kiwis returning home currently. Them wanting to buy property is putting pressure on the housing shortage that we are already experiencing. This will keep the demand for houses high, and ensure property remains a good investment option.

So, if you are considering an investment right now, reach out to us for some honest advice you can trust.

What does the OCR increase mean for you?

Posted on by mortgage_admin
Official Cash Rate Raised

What’s Happening In Finance and Property Right Now?

Amidst the rollercoaster of lockdowns and the ongoing restrictions in our largest city, life goes on in the world of finance and property!

Overall, it appears that the economy is strengthening despite the hardships suffered by many businesses – especially those hit hard by the Auckland lockdown.

There have been some significant updates in the last four weeks, most notably, the predicted increase of the official cash rate.

Over the last quarter, the slowdown of growth in property prices has turned around, with prices experiencing significant increases throughout September and October.

Let’s take a closer look at some of the recent financial and property news from the last few weeks.

Official Cash Rate Raised

We knew that an OCR increase was in the pipeline, although many assumed that the recent lockdowns might delay the decision a little longer.

However, the Reserve Bank (RBNZ) were confident in their reasoning and raised the Official Cash Rate (OCR) for the first time since 2014 – doubling it from 0.25% to 0.50%.

The increase came with a name change, too. Instead of being called the OCR, it’s now referred to as the Monetary Policy Review (MPR).

The RBNZ’s Monetary Policy Committee cited strong economic growth, full employment, and rapidly increasing inflation as reasons for the increase.
“While the economy contracted sharply during the recent nationwide health-related lockdown, household and business balance sheet strength, ongoing fiscal policy support, and a strong terms of trade provide confidence that economic activity will recover quickly as alert level restrictions ease. Recent economic indicators support this picture.” [source]

Economists predict this will be the first of several increases to occur over the next six months, bringing the MPR up to 1.5%. The Reserve Bank confirmed that more rates rises were on the way but gave no details.

Banks Increased Floating Mortgage Rates

As expected following the announcement of the rise of the OCR, banks throughout New Zealand hiked up mortgage and term deposit rates. [source]

ANZ increased its floating rate by 15 basis points and raised some savings accounts rates by up to 10 basis points.

In an effort to support struggling businesses, ASB announced its “committed to holding its base business interest rate through to the end of 2021.”

Their home lending rate remains the same at 4.45%, but they are increasing the rates on savings plus and headstart savings accounts.

Kiwibank was next to announce increases to mortgage and savings rates, with many lending rates increasing by up to 25 basis points. They are also raising term deposit rates for terms between four months and five years.

Westpac has added the full 25 basis point rise to its floating mortgage rates and is increasing some savings rates at the same time. [source]

Fixed Mortgage Rates

Prior to the change in the OCR, we had seen fixed term rates begin to creep up. So, it is probably time to wave goodbye to the ultra low rates we have enjoyed to date.

Chief economists are predicting that the rise in the MPR “could push retail rates that are currently 2% to 4% to between 4% and 6%. That could be a shock to people who were new to home ownership and had never lived through a rate hiking cycle.

“The era of ultra low interest rates is definitely behind us.”  [source]

Slowly but surely, we are seeing the rates increase. Since September, ANZ have raised their one-year special rate from 2.55% to 2.79%, their two-year rate from 2.95% to 3.49%, and their three-year fixed term rate from 3.25% to 3.49%. The other banks have all made similar changes.

So, what does that mean for mortgage holders? Well, it confirms that now is the time to review your current mortgage structure to see if it is right for you.

 Rates will continue to rise, so it may be the right time to lock in some interest rates.

But, this should not be done without the right advice. So, reach out to us today for a no-obligation chat about your financial situation.

House Prices Are Rising Again

According to Quotable Value, house prices are on the rise again. [source]

From June to July, the property market saw a slight levelling in growth, leading experts to believe that the unprecedented growth was slowing down.

But the latest figures reveal otherwise.

The national average house price is now $977,456.
In Auckland, the average is $1,391,598.

That’s an increase of $14,410 in just one month. Since January this year, the average value of all NZ homes has increased by $138,826. [source]

David Nagel, general manager of QV, attributes the recent rises to the Covid lockdown in Auckland.

“Ongoing lockdowns are continuing to impact the number of fresh listings, particularly in Auckland, and this has possibly contributed to another strong month of value growth, with buyers continuing to vie for limited stock.”

But the increases are not only limited to Auckland. Queenstown Lakes saw the biggest value gain of 9.4%, followed by Christchurch at 7.7%. While no urban area experienced a decline, some of the increases were less significant, with Rotorua having the lowest growth rate of 0.8%.

In spite of these figures, experts still predict that things will slow down over the next six months, particularly as lockdowns are eased and life returns to “normal.”

What Does The Latest Finance And Property News Mean For You?

For some people, the OCR rise is good news, while others may be feeling the pressure.

We understand that everyone has different financial needs and goals, and we are here to help you make the best plan for your future according to what’s happening now.

If you’d like some advice on what the latest news means for your finances and investments, contact us at Mortgage Suite today.

What’s Happening In Finance And Property Right Now?

Posted on by mortgage_admin

 

There has been lots of news about how the property market is going crazy.

House prices are rapidly rising, by as much as 20% in a year.

And there are mixed messages in the market with some interest rates being cut and some being pushed up.

So, what does it all mean for you?

Let’s take a look at what is currently going on in the world of finance and property…

 

Record Low Rates

It has long been known that New Zealand has a supply and demand issue when it comes to housing. Basically, there just aren’t enough houses available for those that need them.

ANZ has introduced a new interest rate to encourage their borrowers to build new homes. The lowest mortgage rate in New Zealand has hit the market – a 1.68% floating rate for new build homes.

“ANZ’s new build rate comes in cheaper than ASB’s “Back My Build” rate at 1.79%. Both loans are significantly cheaper than the standard variable rates available to borrowers, with Kiwibank at 3.4% and the rest of the major banks above 4.4%.

There are no plans from BNZ or Westpac to match these kinds of deals to date.

If you are considering whether building is the right option for your family, then reach out to me for a no obligation discussion on whether it will work with your current financial situation.

 

Rising OCR?

On the one hand, some banks are markedly lowering interest rates. But on the other, they are warning about a rise in interest rates due to a potential OCR hike come November.

“Westpac’s acting chief economist Michael Gordon said “a string of strong activity indicators”, such as the soaring housing market, had defied restraining measures. This, he said, could lead to a tightening of monetary policy this year.

“Having just recently brought forward our forecast of the first OCR hike to August 2022, we’re now questioning whether the RBNZ has even that much time on its side. We now expect the first OCR hike to occur in November this year, with follow-ups in February and May next year, and a further gradual tightening over the following years.” [source]

So, what does this mean for you?

Well, we have already seen longer term rates begin to edge up this year. Shorter term rates could do the same. Now is the time to review your current mortgage to see if you are on the right interest rates and whether you are fixed for a correct term.

If your fixed rates are expiring within the next 7-12 months and you are worried you may end up with a higher interest rate at your review date, it may be worthwhile to let us to do some costings for you now. Then, you can make the best decision for how you want to proceed.

 

Are Property Prices Still On The Rise?

It is no secret that property prices have skyrocketed recently. In fact, the average property value across the country has just surpassed $900,000! [source] The national average asking price has climbed by 20.2% in a year, and to top it all off, there are 33.3% less properties on the market compared to June last year. [source]

Kiwi homes are costing nearly $150,000 more than they did this time last year [source]. But, is the market starting to cool? Or will prices continue to rise more and more?

Well, there is a small amount of evidence to say that the frenzy is starting to cool down. “CoreLogic’s House Price Index (HPI), says house prices rose by just 1.8% over June, slightly down from 2.2% in May. Research head Nick Goodall says this is evidence of a gentle drop in market momentum.

Goodall says the exceptional growth displayed during the past year was not sustainable, particularly with increased deposit requirements, market uncertainty driven by Government regulation and the prospect of higher interest rates.” [source]

If you are considering buying or selling property in the current market, the best course of action is to seek advice on your individual financial situation. That way, you will know exactly what you can afford to do and establish your risk appetite.

 

Fix Or Float?

With interest rates at record low levels, it has been tempting for some borrowers to float portions of their mortgage. But, is now the time to consider fixing?

We have already discussed that economists are predicting an interest rate rise as early as November 2021. So, you might want to consider your options when it comes to fixing your mortgage.

We have enjoyed an extended period of low rates, but they cannot continue forever. Upward movement has already happened on longer term rates, so if you are looking for long term certainty on your mortgage costs, now is the time to look at those rates.

80% of all mortgages are currently fixed for 1 year or less. While rates are low, choosing shorter term periods is often the best strategy. “However, there is a growing risk that rates could rise faster and higher than expected, impacting borrowers following this strategy.” [source]

If you aren’t sure which strategy is best for you, then reach out to me today and we can discuss how to structure your mortgage to best suit your situation.

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