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Spring 2007. My goodness how things change.
Credit Crunch
Over the past month the financial landscape has changed. What we are seeing is a classic credit crunch, where liquidity or cash is in short supply. This is due to falling levels of foreign money coming into this country, investors not renewing their debenture investments with finance companies and people and the banks holding on to their cash. The immediate effect is a drop in cash inflows into the likes of finance companies (is that 8 now in receivership past 16 months?), mortgage trusts and the increasing difficulty for corporates to fund their corporate notes and bonds. In the medium term, credit standards will toughen up and it will become more difficult to get mortgage and hire purchase finance. The cost of hire purchase will rise. Already it is affecting the level of retail sales and jobs in the finance and retail sectors.
Housing Market is Cooling
One of the factors that has kept our housing market firm over the past five years has been inward migration. This is changing. In July of this year we had a net gain of only 440 new immigrants, well down on 1,400 over the same period last year. If this trend continues we will expect to see around 5,500 new arrivals for the year, well down on 9,450 last year. Our peak year for migration, over the past ten years, was 2003, when 42,500 net new arrivals came to this country. Our lower migration is largely due to an increase in the number of Kiwis going to Australia. The positive aspect of lower migration is that it takes the pressure off the housing market - which in time may lead to lower mortgage rates. The negative aspect is we do have a skills shortage in a number of areas -lower immigration will make this worse. New Housing ANZ Economics View: Key points
NBNZ Business Confidence Survey
Selling your Home? Keep in mind to give us a call when you are contemplating selling. There will be many things to consider and may need advice about regarding your existing (and future ) mortgage loan; break fees, transportability, bridging finance, buying power, perhaps debt consolidation, best structure and pricing available ; most of which your mortgage provider could not possibly advise upon as they have a conflict of interest. Keep you options open and minds open to good advice. Don’t be trapped by your present mortgage provider.
Top 10 questions to ask agents when selling
Source: The Ultimate Guide to Real Estate, by John McGrath
A great tip when making an offer Conditional Offer Purchasers often include special conditions such as those for finance, subject to sale of home, LIM report and / or and solicitors approval in sale & purchase agreements. Some recent cases tested in the High Court have found these to be somewhat limited when invoked. It may be preferable to provide more flexibility for the potential purchaser to use a due diligence clause. Here’s a beauty: “This agreement is subject to and conditional upon the purchaser advising on or before 10 working days from the date of this agreement that the purchaser is satisfied with the results of all due diligence investigations that the purchase deems necessary or desirable in respect of the property. This condition is for the sole benefit of the purchaser and may be waived by the purchaser. The decision as to confirmation or otherwise of this condition is in the sole discretion of the purchaser, and the purchaser shall not be required to give reasons.” !!!!!!
This was put together by Garth Melville of Company Solutions Limited and NZ Securities Limited. Unconditional Offer Of course, there are times when including such a clause, or any condition, will make your offer inferior to a competitive offer or just simply unattractive to the vendor. It may be that you could get away with a “cheeky” offer if it was unconditional. That is where seeking advise from a good mortgage adviser and broker can be invaluable. We can advise on some of the due diligence you can undertake before making an offer, and importantly get you pre approved as to finance. So often folks underestimate their borrowing power, are unaware of funding options, and are limited by the lack of options or advice available at their present mortgage provider. Seeing us could be worth $$$thousands to you and the difference in realizing your home ownership and lifestyle aspirations.
I'd love to finish by wishing you luck - but I don't believe in it,
Until next time, have a wonderful spring, and our very best regards to you
Oh, and be sure to refer your friends, family and workmates to us if you think they could use some mortgage advice the way it should be.
….to help them achieve their lifestyle goals.
I thought that rather than the usual commentary about interest rates (yes they’re staying up for a while yet), mortgage products enhancements (plenty- always changing), fee discounts (yep!), housing market (hmmm!) and so on, that I’d let you know about some of the more interesting mortgage deals written recently. These illustrate the added value that we as mortgage advisers bring to the mortgage market, setting us apart from say, the banks, who are concerned only about selling the mortgages through lowest price, thus endeavouring to commodotise the biggest purchase in one’s life. That seems rather contemptible to me. An old finance friend of mine referred to them as “renters”. The very nature of selling only their own product means they can’t give advice, which means their clients can’t possibly know if they are getting the right mortgage loan for them. Yes, we can get best price too, but we offer more and surely this is where the “rubber meets the road”. It is the advice giving, structure and creative thinking that sets brokers apart. Perhaps we haven’t “blown our trumpets” enough, so here’s a bit of a brag sheet!
Some of the loans we have done
100% on First Home Immigrants from South Africa who have spent what little they were allowed to come with, plus $40,000 in short term high interest debt, rebuilding household chattels, cars etc. Good jobs, combined incomes, $150,000. Their bank said “no”. Recommended to me by mutual friends, we arranged 100% mortgage loan $460,000 on prime terms, discounted interest rate, nil application fee, Low Equity Premium waived; and an unsecured personal loan $40,000 at 12.95% p.a. to consolidate their other debt; significantly reducing repayments and interest costs, and ensuring debt repaid within 5 years. They move into their new home shortly and have already recommended us to his brother and other friends.
Commercial Property Seasoned commercial property investor and developer, successful with offer on prime commercial in Kapiti. Cost $1.7 m. Interest X cover 1.2X, with potential to increase short term. We obtained a first mortgage loan of $1m., 5 years interest only, 9.20% p.a. @ .25% fee. Blew trading banks away who thought they would easily get the deal at 9.75%, plus .5%-1% fee.
Rescue and debt consolidation Solo mum, 5 children, Property Law Act Notice because of loan arrears on $125,000 mortgage, falling due within week, facing mortgagee sale on property value $300,000. Also had rates arrears, $12,000 of other short term high interest debt, and matrimonial settlement $53,000. We worked with incumbent mortgagee and other lenders to defer action till we arranged one first mortgage loan to cover all, at 9.75% p.a. and 2% fee, 2 years interest only, when we’d look to refinance her back on prime terms. Enabling her to keep family home, consolidate debt and significantly reducing interest costs, and enhancing cash flow.
Subdivision /Development Finance No financial information available to prove debt servicing / history, good credit, good location. 2 titles subject to subdivision; to build 5 units on one (no pre sales), which had 2 existing rentals; the other bare land. Bank said “no”. We obtained $570,000 Line of Credit, secured by property value $1.067m. 11% p.a. Fee 2% enabling client to comfortably progress with development.
Horror Story Another broker, inexperienced, not a member of NZMBA, had arranged a second mortgage for 6 mths. from a third tier finance company to consolidate short term debt, high interest, with right of roll over, subject to additional exorbitant fees (including to broker). The first 6 mths. fell due on Xmas day!!! There was no way they could arrange a refinance or rollover at this time. Moreover the repayments being debited to their account were higher than disclosed in loan agreement. The clients came to us desperate as felt had not received good advice, were being fleeced (they were), were going downhill fast and facing mortgagee sale as couldn’t meet the commitments, which were higher than disclosed to them. The broker was unsympathetic. It was outrageous and certainly “Fair Go” stuff and clients had little recourse. We refinanced / consolidated all debt to one manageable mortgage loan on reasonable terms with a credible specialist lender, despite the house not quite being “up to scratch”. Clients have a future of home ownership and discretionary income now. Lesson, deal only with brokers who have an established track record and are NZMBA brokers. 100% Loan on Investment Property Clients wanting to purchase two residential investment properties on one title who required 100% finance. The banks had said "No" to the client. Obtained approval to a 95% 1st mortgage and secured the remaining 5% on a second mortgage.
Equity Release A 75 y/old retiree popped into office wanting finance to repair leaky roof, re carpet and obtain cash so wife could have cataract operation. Faced with selling home at under market (o/a repairs required) to raise the cash for operation. We arranged a home equity release loan $25,000 which meant they didn’t have to sell family home and move further up coast to cheaper less comfortable property away from friends, family, medical centre and other services. And they had enough to upgrade car. They retained ownership, could access more cash if required, no repayments required until house sold. The joy of they being able to retain independence, network and dignity was shared by us all.
Credit Issues for Business Investor Client wanted to refinance his rental property to purchase a business. However there were four credit issues and four missed mortgage payments. The missed payments were due to a slow paying tenant. He qualified for a non-conforming loan to 90% LVR. Self Employed Recent Migrants Recently an application for recent immigrants who had only been in the country for a couple of months. They were self employed and required 80% of purchase price. Solution was 70% as a first mortgage, and 10% as a second mortgage for two years interest only.
Tideover A long standing client had opportunity to purchase privately her dream home on waterfront at $450,000 provided she could act quickly, or it would go to market. She had no time to sell one of 2 properties in order to qualify for finance at her bank. We advised her to make unconditional offer, in the knowledge that should she be unable to arrange an unconditional contract on one of the other properties in time (she should be ok as both eminently saleable), we had access to a lender who would provide open ended bridging finance on prime interest rates, capitalised interest, no fees for up to 12 months. She is a very happy lady.
Debt Consolidation Improves Servicing A couple wanted to purchase a property and had no deposit and $10,000 of personal debt. The 100% mortgage did not service, so a second mortgage acquired to consolidate the debt to a lower interest rate and increase the repayment term to 5 years hence reducing the monthly outgoings. They were then able to purchase the property.
Making the most of investment property Client, married, 3 children, one “average” income owns home-no mortgage; plus rental property, value $370,000, mortgage loan $174,000, rent $300 pwk. Rental is ex. own home and left in own name. Paying c $3,000 p.a. in tax as interest on loan not deductible. Requested $10,000 to consolidate some short term debt. We advised to sell the rental to LAQC, the LAQC to borrow $184,000 from lender; balance to market value c. $190,000 as a loan from them to LAQC . Interest on loan therefore becomes tax deductible, creating a loss, transferable to personal income. Result, a $6,000 gain to net income, and that is without becoming taxation “aggressive” with the loan from them to company. Another $6,000 p.a. is greatly appreciated by a young family.
So as you see, we can do some pretty neat things using our experience, skill, creativity and resources. It is not just about lowest rates and fees. We get those too! And of course most of our mortgage loans are “run of the mill” 10% / 20% deposit, top ups, upgrades, investment properties, clean credit, verified income, which we ensure clients get on very best terms available-yet should be structured to suit circumstances. Do the banks do that? Well, they can’t give advice, consequently their clients will never know if they have the right mortgage for them.
Perhaps you have friends, family, workmates, clients who you would be comfortable referring to us for Mortgage Advice The Way It Should Be.
I'd love to finish by wishing you luck - but I don't believe in it,
Until next time, our very best regards to you
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