Winter has arrived with a hiss and a roar, with snow throughout the country on top of the flooding in southern Canterbury area earlier in June. It was a busy month for the team at Building on Basics as well.
Bron and Elise went to Invercargill to continue the work with the Colombian MAR Trust, providing financial literacy training. We had a very full on time, running a number of workshops and talking and working with many within the community to help them understand their KiwiSaver and to take advantage of the Government Contribution.
Since March 2021 Financial Advisers have been required to meet the new licencing rules which in some cases has increased the amount of paperwork and compliance required to complete simple transactions. On 1st October the new CCCFA rules will come into play, and this is expected to further increase the compliance responsibilities to ensure that Lenders are providing responsible lending.
These legislative changes have been put in place to protect the consumer, so while they may require us to do a little more paperwork the important thing is that they are there to protect you.
The new KiwiSaver year has started and if you want to make it easy to ensure that you are getting the full KiwiSaver Government Contribution then make sure you are putting at least $20.06 per week into your KiwiSaver. You can do this either through your wage KiwiSaver deductions (through your employer) or through voluntary deductions. By putting a regular amount into your KiwiSaver rather than a one-off payment at the end of the KiwiSaver year, your KiwiSaver fund will have the opportunity to receive compound returns on the funds that you are investing.
The Government Contribution for 2020-2021 will be landing in your KiwiSaver account in the next few weeks. You don’t need to do anything else to receive it.
Send us an email for KiwiSaver help, or book a meeting (face to face, or Zoom) at the Calendly link at the bottom of the page.
It’s now three months since the Government’s housing policy announcement on March 23, and new analysis by CoreLogic indicates that the changes are yet to have much noticeable impact on the market. There is a lot going on which could have an effect – the Brightline test extension, interest deductibility, higher deposits required. At this stage it is difficult to ascertain what changes in the market can be attributed to which change in policy!
CoreLogic’s Head of Research Nick Goodall says “Overall, our data and analysis shows the tax changes on their own haven’t had any real impact so far. But it’s really important to reiterate that it’s hard to isolate the effects of one rule from another. It’s also early days, and we think the tax changes will in fact bite harder as time goes by.”
More analysis from CoreLogic shows that the market upswing in the last year has not been restricted to the main centres. Property prices right across the country have risen – in fact more than 50% in Manunui (in the Ruapehu district)! The top growth suburbs in many of the main centres have seen median house values up by around 20%– 30%.
In summary, CoreLogic Chief Property Economist Kelvin Davidson says, “It’s been a hectic first half of the year for the property market, but nothing lasts forever. We have always been expecting a slowdown in both sales volumes and property value growth in the second half of 2021 and into 2022, and that remains on track – especially now that fixed mortgage rates, or those on longer terms, are rising. In other words, it looks likely to us that the market is now very close to (or at) the peak of this upswing. That said, with population growth having generally outpaced property supply increases over a period of several years, we’re anticipating a slowdown, not an outright downturn.”
So, we wait and see. In the meantime, properties are selling fast, banks are asking lots of questions about debt servicing ability, and we are here to help! If you’re looking to buy, you will need to have all your ducks in a line. Make sure you have a really clear idea of your income and outgoings, lenders are showing a lot of interest in the details!
Banks and Finance
We mentioned above that lenders are taking a close look at debt servicing ability when processing loan applications. This is part of their responsible lending obligations. It does mean that getting finance confirmed can take longer than you might hope, as the banks are often coming back to us asking for more information about a client’s servicing abilities. As expected, interest rates are slowly rising. Interest.co.nz has a useful chart with all the current lending rates.
The banks are tightening their responsible lending policies in preparation for the CCCFA (that’s the Credit Contract and Consumer Finance Act) changes coming through on 1 October. In the past a simple refix just required you to provide us with a current authority to act on your behalf. We are now being required to do a lot more. We wrote a blog about the Act a month or so ago, have a read if you would like to better understand the changes coming through. One recent change to the Act means that lenders can no longer charge a total of more than twice the amount of the original loan. The point of the CCCFA is to ensure that you, the borrower, are making informed choices and know what you are agreeing to, and to ensure that the lender is acting responsibly.
Email us to make an appointment, or book at the button at the bottom of the page – we are happy to discuss your situation and make a plan with you.
The Reserve bank made a few more announcements regarding tools for the management of lending. Have a read here, the RBNZ article about the debt serviceability restrictions, and one here about some new rules for format of banking rules. We blogged about debt serviceability restrictions here a couple of weeks ago.
These tools are important when it comes to the responsible lending rules and keeping consumers safe from taking on more debt than they can handle, a possibility with interest rates on the long-term beginning to rise and with the expected inflation increases.
Economist Tony Alexander says “The Reserve Bank is projecting that from the September quarter of next year they will raise their cash rate by 1.5% over a two-year period. Note that they cut the official cash rate by 1.5% in a ten-month period from May 2019 to March 2020 so do be aware that big interest rate changes can happen quickly.” .. “The results of a new survey I have up and running and which will be coming out shortly, show that the banks are placing an increasing emphasis on debt servicing ability. This is through means such as implementation of debt-to-income limitations well in advance of the Reserve Bank one day making them mandatory.”
An update from us
As well as the Invercargill trip (and making plans to continue to work with the community from afar) we are also in preparation for working with Plains FM to do a series of workshops on financial literacy. These workshops will be converted to shows for Plains FM to air. When we have details of that we will let you know.
Elise is managing to fit in a bit of a break later this month, with a trip to Wellington to watch some hockey. No doubt she will also manage to see a few clients while she is there. Bron and Eroica will be holding down the fort in the office, with Theo standing in as office manager.
We look forward to hearing from you if there is anything we can help you with and do keep an eye on our Facebook and blog for useful information and tips.
Until next time,
Elise and the Team