Newsletter August 2024

In this newsletter: 

Hot tip of the month

Stop throwing away your money: Make the most of your heat pump

We are well into winter, and most of us will have our heat pumps running. But when were they last cleaned?

Heat pump filters need to be cleaned at least once a year. If you live in a dusty environment, like during a renovation, then clean them more often. Servicing your heat pump will help with draining pipes and clearing blockages, which can decrease its efficiency. The harder your unit needs to work, the more it costs to run.

Set the temperature, put your fan to auto mode, and then leave it running. In an insulated home, it costs less to maintain a temperature than to adjust to changing temperature settings.

Set the louvres to point down to push the warm air down. This clears the cold air as cold air is denser than hot air and sinks lower.

Did you know?

The origin of ‘mortgage’ – don’t let it be your reality!

The word “mortgage” comes from a French term meaning ‘death pledge,’ signifying that the pledge ends (dies) when either the obligation is fulfilled, or the property is taken through foreclosure, or settled as part of a deceased person’s estate.

Working with a financial adviser can help you ensure that the mortgage is not a life-limiting factor or a lifelong responsibility. Whenever you are at a decision point with your mortgage, whether it’s structuring your first mortgage, refixing or refinancing, it’s worthwhile to take the time to update your adviser on your current finances and goals. Financial advisers help you structure and manage your finances to save tens of thousands of dollars. Building on Basics is here to help you get the most out of your mortgage; email elise@bob.kiwi.nz for a consultation.

First-home buyer tips

Think like a good scout and be prepared

Over the last few months, we’ve had clients in situations where the property they rent is suddenly being put on the market. It was a natural point for the clients to find out if they could buy their own home rather than relocate to another rental.

When it came time to review their situation, we found that they had been living the good life. This is not a criticism; life is ideally to be enjoyed. If you are spending within your income, then we can work to show lenders that your spending will be within the new budget that you intend to live by. However, it could mean that you miss out on loan opportunities due to your past spending habits.

So, here are five things to be wary of while still living the good life:

1. Lenders look at your last 90 days’ transactions to see where your money goes.
2. They especially look at your fixed commitments, such as subscriptions to Netflix, Neon, Spotify, insurance, etc., as well as habitual spending on things such as TAB, Lotto, etc.
3. They consider any credit facilities and loans you have—credit cards, after-pay, Lay Buy, student loans, and overdrafts. Keep in mind that they look at the limits, not the balance!
4. They like to see that you are depositing regular savings outside of your KiwiSaver.
5. The lenders have benchmark costs for different household configurations, e.g., couples with no kids or couples with kids. The benchmarks are different for each lender. If you state that your living costs are less than the benchmark costs, the lender will use the benchmark amount.

What are we suggesting? Live your life and make conscious decisions when spending your money. Do your best to limit your credit facilities and save for the good times rather than using credit. Most importantly, live!

Thoughts from Elise

The Olympics are underway, and it’s great to see the incredible efforts of so many athletes. Go, the Kiwis! For so many of the athletes, years of work comes down to 1-5 minutes of performance at their event on the day. To the families, coaches, and supporters who are riding the wave of the games with the athletes: keep up the good work! That support drives and inspires the athletes.

The tax cuts are in effect today, so watch your next pay packet for a slight increase in the funds coming into your account.

I am off to see my mum in Australia for a week and will be working while I’m away. Mandy will have things under control in the office if you need anything.

Property

First-home buyers are still the winners in this market

As predicted, more properties are starting to hit the market. But the interesting thing is that not all of it is investors offloading. First-home buyers are the 2^nd highest purchasers, behind people moving between properties.

Some cashed-up investors are wondering if now is the time to enter the market, while others are looking to offload their properties to finance large tax bills.

In the CoreLogic Monthly Housing Report, CoreLogic reports that national house values are down 11.8% from the peak values. House prices are down 0.8% year-on-year for June but up by 1.8% within the last 12 months. Remember, property is a long game unless you are looking to play the market.

Investments

How to best manage your savings with interest rates on the decline

There is some celebration with inflation coming under control and interest rates beginning to decrease. This will relieve mortgage holders as their loans roll off fixed terms.

On the other hand, those in retirement who are dependent on their investments for a good return are about to go back to the pain of recent times. Banks are beginning to slightly reduce the interest rates for their long-term investments. We’re at the peak of the interest rate market, so if you have funds you don’t need for the next year, now is the time to fix them for 12 months.

However, be cautious and take the time to understand both your financial needs and the investment’s small print. Most fixed-term investments have break fees, and you could lose all the interest gained if you break the investment before maturity.

To get a good return on your funds, you are likely to need diversified investments, as the share markets are showing signs of stabilising and growing.

Chat with us if you want expert advice on how to best use your surplus funds.

Banks

The banks are beginning to compete for your business!

Banks are now in fierce competition with each other in writing loans, and while BNZ is now taking 11 days to assess applications, other lenders are still turning the loans around reasonably quickly. While we have always asked the banks to sharpen their pencil on the rates and what they can offer for a cash-back contribution, we are often finding a little more wiggle room (but unfortunately not always!)

The criteria for assessing your application have mostly stayed the same, even with the new debt-to-income (DTI) rule changes that came in last month, as the banks had already been doing these tests. However, we’re hopeful that as the floating interest rate decreases, the stress-test rate will also come down from 8.9% to closer to 8%. When the stress-test rate falls, the servicing capacityincreases, meaning the lenders will be willing to lend you more.

Of course, we still need to assess your affordability, regardless of whether the lenders say you can afford it! The good news is that common sense is coming back into the CCFA. This will allow the lenders to make sensible decisions, which will really help those who find themselves in financial stress. The rule changes come into effect today, but it may take a while before the lenders’ policies change.

Reserve Bank  

Will we finally see the OCR drop in August?

In July, the Reserve Bank announced the good news that inflation is trending to the target rate. They are still cautious, as some indicators, including rents, are still increasing. However, wholesale rates are dropping, which gives lenders access to cheaper funds. This is partly why we are seeing some reductions in rates.

While many of us are optimistic that the rate will come down in August, the Reserve Bank may continue to hold until September while they wait to see how people use the tax cuts that came into effect on July 31st. At this point, Elise is feeling optimistic that the rate will drop .25 basis points on August 14th.

Business

Stay in business by knowing your gross margins

Your business’s gross margin is your sales revenue less the cost of goods sold. The cost of goods sold can also be called direct costs. These are the costs that directly relate to the sales revenue. For trades, these costs are easy to identify; they include things like subcontractors and materials. It does not include overheads such as vehicle running costs or payroll costs. Some of your staff wages will be overhead, and some will be direct costs.

Each industry or business will have target margins to ensure profitability. Your gross margin needs to be high enough to cover your overhead costs and deliver a profit.

By knowing and watching your numbers you can then tweak the figures by reviewing and reducing your costs where possible and/or increasing your prices to change your margin. A 1% change can significantly improve your results. Talk to us if you want to understand your numbers more.

Insurance

More cover may be cheap!

Okay, this is going to sound a little backward. We were working with a client recently, and all they wanted was some debt-repayment cover for the next ten years. They already had a bank product that was doing this for them. It only covered the specific loan, and as they paid down the loan, the cover would become less relevant to them.

However, we reviewed their full picture, which the bank had not done! We found that by giving the client some life insurance and some disability income cover we could protect their whole lifestyle for just an extra $25pw. We were able to provide the client with comprehensive cover; should one of multiple scenarios occur the insurance would not only cover their debt but also support their rent. That peace of mind is invaluable.

To find out the cover that is best for your circumstances, contact Gordon at gordon@bob.kiwi.nz or 022 503 9094. Gordon will review your existing cover for free.

We are always available for a chat about your situation.
Book a meeting or send us an email.

Until next time,

Elise and the Team