Thoughts from Elise
The start of the new financial year and, for many, the chance for a fresh start.
Recovery efforts in the North Island began, and as expected, there are significant decisions to be made in the planning and recovery. There are many lessons from the Christchurch quakes that are being taken into the recovery, with new lessons to learn given the wide area of damage as opposed to the localised Canterbury quakes.
7th March was Census Day and over 4 million individual forms were completed. There is still time to complete a form if you have not done so. While some do not like the government to collect data about them, the Census is the tool used by the government to distribute funding and plan resources. The better the data, the more chance there is of a fair distribution of the funds to where they are needed. This the chance for those in vulnerable positions to be counted so that funding can be allocated to them.
The new licencing regime for financial advisers and finance organisations such as lenders, investment, and insurance companies were finalised on March 16th. This was a massive process for many advisers and companies. The benefit to you all is the certainty when dealing with a financial adviser and financial companies that the people involved all now have a minimum standard of training and solid systems and processes to support you.
I have had a holiday in Brisbane catching up with friends and am now in Batemans Bay, NSW, visiting my mum, who has had a fall and is now recovering. We get her arm out of a cast in a few days, which will be a major step in her recovery. Thanks to those that have sent me well wishes for her recovery. Sarah has had 4.5 weeks in Alaska skijoring, working with dogs and experiencing the northern lights.
Wishing you a safe and restful Easter. I will spend the long weekend focusing on finishing my drainage project, which is 90% complete.
We love helping people buy their first home, next home, or investment property that will set them up for the future. But while finding finance is a core part of the service we provide our mortgage clients, it’s not the only important one.
CoreLogic reported the lowest number of sales since 1981 for the month of February. This tells us that that the market is slow. House values throughout New Zealand are for the main part still above pre-covid values; this is only important if you are selling or seeking to access the equity in your property.
CoreLogic’s Kelvin Davidson is attributing the slow down to tighter lending rules and higher interest rates. Cash buyers are still sitting on the side lines as they are expecting further price drops as more investors seek to put their properties on the market in the coming 6-12 months. The up-coming election has some property players waiting to hear what is going to happen with the property investment tax rules.
In the property investment space, rents are continuing upwards in most areas and the availability of quality affordable rental properties is still an issue for tenants.
If your property has dropped in value since you purchased it and your debt level is now over the 80% LVR threshold you may find that you are not eligible for special rates, but this is only important if you have loan accounts coming off fixed terms.
KiwiSaver providers have put out their results to the end of the December quarter. Overall, the results seem to be ahead of the revenue expectations, but with some active fund managers underperforming during the quarter.
Generate have joined with NZ Super Fund and invested via Movac, a Venture Capital (VC) company. The investment has been put towards Movac’s Growth 6, a later stage VC fund for private Kiwi tech companies needing to grow.
If you have lending and are affected by the flooding or cyclone, please reach out if you haven’t already as the banks have options available to support you.
The banks stress-test rates are up around 8.6-8.95% which is reducing affordability for many. However, ANZ has indicated that they’re relaxing some of the constraints for how they evaluate income and property expenses, which will help some borrowers.
Banks are continuing to compete for the business and the long-term rates are sitting between 6.4-7.3% with the main banks. Economist Tony Alexander believes “…with regard to bank fixed mortgage rates the track from here will be downward but at a very slow pace…”.
The next OCR date is 5 April and the banks have already anticipated an increase of 0.25%.
The Reserve Bank has been monitoring the impact of the small number of distressed international banks on our banks. They noted that the New Zealand banks operate different models to those banks that have had the stability issues. New Zealand registered banks must monitor and control their material risks, including the interest rates. The RBNZ noted, “Our rigorous stress testing has shown that they are well-placed to deal with far more adverse situations than what we are currently experiencing.”
This month we are going to talk about income targets. An income target needs to take into account:
- How much you want to earn from your business (salary)
- Profit you want to make to re-invest in growing the business
- Your operating costs
- Tax and ACC payments
When you know what the above are you can then identify the income that you need to generate. If you are a contractor this will tell you how many hours you need to do at your rate. If the number of hours you need to do is not realistic, consider putting up your rate; consider doing that anyway! Be aware that when you increase your rate you may lose some business but you may gain a different type of client.
If you are a widget seller, then your income target will let you know how many widgets you need to sell. If you have multiple streams of income, then identify what percentage of your business comes from each stream and the gross profit generated by each stream (be that product or service). If one stream is more profitable than another this will drive your marketing plan.
Without knowing your income targets it’s difficult to plan to achieve the required income and to measure how you’re tracking. The risk is that you pull more from the business than the business can sustain.
This month we dedicated an entire blog to the importance of health insurance. While we are fortunate to have a public health system, the service is by no means ideal or comprehensive.
In New Zealand, health insurance can:
- Get you diagnosed and treated sooner
- Give you access to more treatment options
- Give you access to quality care
- Support good health.
For more information, check out our blog: Is Health Insurance Worth It?
Hot tip of the month
What happens if you become incapacitated? Who can act on your behalf? An Enduring Power of Attorney (EPoA) document will enable someone to act on your behalf.
There are 2 primary types, with lots of variations.
- Power of Attorney – Personal care and welfare – enables one person to make decisions about your healthcare and treatments if you are unable to.
- Power of Attorney – Property – enables one or more people to make decisions and act for you with regards money and property – this enables someone to sell your assets, access your bank accounts and pay your bills.
You need to appoint an attorney who is trusted and knows your wishes. If you have an accident or medical event without having EPoAs in place it can be expensive and time-consuming to get someone appointed via applying to the Family Court.
Did you know?
If you pay an extra $20 per week off a $100K loan which was on a 25 year term, with an interest rate of 6.49%, you will take 5 years off your loan term and save yourself $27,957 in interest costs. You can then use those 5 years to invest towards your retirement.
Sometimes it’s not about finding the extra $20 per week, but the way we structure the loan to save the same amount.
First Home Buyer Tips
Lenders use the purchase price or the registered valuation (whichever is the lower), to determine if you meet the 20% deposit threshold. If you have less than a 20% deposit when you purchase a home, the lenders will charge fees or add a margin to the interest rates.
The fees are commonly called LMI – Lenders Mortgage Insurance. This is a one-off fee that the lender can add to your loan (note that you pay interest on this additional lending) and is typically calculated as a percentage of the lending. The percentage differs by lender.
Other lenders charge a LEM – Low Equity Margin. This is an additional 0.1-0.5% on top of the special rates offered. For example, if the special one year rate is 6.35%, then the LEM rate could be 6.85%.