The Current Financial Position Explained – September 2020
Could Aussie Lending Changes Impact Us?
Recently, the Australian government relaxed their lending laws, removing a lot of the red tape from the lending process.
“The rules have long been blamed for overly-conservative lending by the Australian-owned big four lenders. “The [lending code] has forced lenders to use a calculator as the yes or no tool and not considered the liquidity of assets and quality of the clients.” [source]
While New Zealand lenders are still subject to the Responsible Lending Code, brokers are hoping that the Aussie changes may contribute towards a rethink on mortgage lending in NZ.
If changes are adopted, it may mean that borrowers who did not fit inside the lending box previously have more options available to them. So, watch this space!
Economy Performing Better Than Expected
The economic predictions were looking pretty dire at the end of the second quarter. With COVID-19 ravaging the world and lockdowns impacting trade, things were not looking good.
However, the big four banks now believe that NZ will avoid a worst-case scenario.
ASB said, “Back in May, we were bracing ourselves for a recession double the size of that seen in the 2008/09 global financial crisis, and still found ourselves at the more optimistic range of economic forecasters.
“Subsequently, we have found ourselves nudging our GDP forecasts higher – we now expect the economy to shrink around 5% when comparing the end of 2020 with the end of 2019, vs a 6% decline we had previously forecast.” [source]
While we have not hit the worst-case scenario that was predicted, the economy has definitely been impacted in the last 6 months and action will be taken to remedy it. Many economists believe that that the Reserve Bank will still cut the OCR further to allow for lower interest rates in a bid to help families cope with the crisis.
What’s Happening In The Market
There have been a lot of developments in the financial market this month. This is good news as it gives borrowers more options.
Australian non-bank Resimac has issued a $300 million residential mortgage-backed security, providing funding and liquidity to grow its market share in NZ. This will allow it to lend more money in the New Zealand market.
“Resimac’s continued availability and pragmatic approach have fuelled its record growth over the past few months, with large numbers of mortgage advisers making contact and submitting non-bank deals for the first time. It’s been a lightbulb moment for many as they realise Resimac is a prudent prime mortgage solution for their clients,” Resimac’s NZ leader said. [source]
Having non-bank lenders in the market allows borrowers more options. It is particularly useful for non-traditional borrowers. If you are interested to know what options are available to you in this current market, then get in touch with the Mortgage Suite team today for advice you can rely on.
The News Isn’t All Bad
While we are in the midst of a shrinking economy, the news is not all bad.
The decisions that the Reserve Bank made in 2020 have helped to boost buyer confidence in the property market. In fact, “according to the Reserve Bank’s latest figures, lending hit $6.7 billion, up from $5.3 billion in August last year and $5.4 billion in August 2018. Last month’s total marked the highest lending on record for an August, based on RBNZ data going back to 2014.” [source]
The economy may be in a good position to return earlier than first thought. “The central bank noted a strong housing market “may indicate a stronger recovery in consumer spending and residential construction if sustained.” [source]
New research from CoreLogic has indicated that Kiwi households are spending an average of 32% of their income on their home loans. “According to the research firm, New Zealand households were spending 49% of their income on their mortgages in 2007, before the global financial crisis. The long term average is about 34%.” [source]
“CoreLogic’s Kelvin Davidson said: “Generally speaking we can see that affordability has improved/stabilised in recent years.” [source] So, now could be the perfect time to explore your options. Get in touch with the team here at Mortgage Suite to find out what your current financial situation allows.
MORTGAGE BORROWING STRATEGY
Our recommendation of 12-month rates for the last 3 years seems to be working in our favour. Home loan rates are little changed over the past month, with the only perceptible change being the circa 0.15% decline in the average 6-month rate. The 1-year rate remains the “sweet spot” and is still the term that we believe offers the best value. Although we expect the OCR to go lower in April, which is just over six months from now, analysis shows that it is still likely to be cheaper to opt for the 1-year, rather than fix for six months with a view to re-fixing again in six months. That’s simply a reflection of more competition in 1- and 2-year terms. With OCR hikes years away and the RBNZ flagging the introduction of a “funding for lending” programme expressly designed to lower retail interest rates, we see the limited appeal in fixing for more than one year, unless one puts a high value on certainty.
Approval Turn-around Times
Lenders are taking between 8-12 working days just to pick up an application. As Brokers we ensure that all information is provided upfront to get it right first up, otherwise, it can go back to the end of the Queue again.