Saving Kiwis Spring Newsletter (2019)

2019 has been another interesting year so far, with a couple of big surprises in the form of much lower interest rates and plans for the controversial capital gains tax scrapped entirely.   These factors have helped support the softening property market, especially in Auckland,  which has been hard hit by the offshore buyer ban, fewer sales and tighter credit conditions.  Price growth in the other cities and regions has slowed as well, with the New Zealand property market excluding Auckland up 6% for the last year compared to closer to 10% in recent years.
Housing market continues to soften, especially in Auckland

Auckland has been surprisingly resilient, with the median sale price at $830,000 to the end of July – the same as July 2018 – and has basically been flat now for over two years (source: REINZ ).  On paper, this looks like the soft landing we had been hoping for, although anecdotally there have been falls of 10% or more, particularly in the higher-priced property range ($1.5m-$2m+).  There are still headwinds pushing Auckland prices lower: Sales volumes remain low (down 20% on a couple of years ago)
44 days to sell in Auckland – 10 days above the 10-year average
Inventory continues to increase –  that’s all the properties available in the market to sell 
Global and domestic economic growth forecasts looking soft
Business confidence in New Zealand  the lowest in 10 years

All of these factors suggest continued price falls, although nothing alarming is expected at this time.  However, after two significant housing booms in the last 15 years with little downward adjustment, this period of property market weakness in Auckland is necessary and will likely continue for a year or two yet.
Low and lower interest rates
On the bright side, the Reserve Bank governor Adrian Orr acted decisively by cutting the OCR by 0.50% to a record low of 1% and has indicated more drops to come.  Orr’s position was that he would rather have an inflation problem in a couple of years’ time (i.e. cut rates too much and people start spending) than not cut enough when the economy was already slow, potentially letting us drop into recession.  On the balance of things, I agree. The housing market is well under control and the wider economy needs a boost.

Rates have been sitting around the 3.50% mark for 1 year and are likely to be closer to 3.00% within the next 12 months, which is great news for new and existing homeowners.  More good news is that these low rates are here to stay for a number of years, so we won’t be jumping back up to the 6, 7 or 8 percents for a very long time yet.  The RBNZ is telling banks they will need to hold more capital, which will make them more resilient to economic shocks, but it will force up the cost of borrowing in NZ, although it remains to see what this will equate to.  Some of the banks are saying it could add 1% to the cost, but this is likely to be overstated and typical banking rhetoric to block something they don’t want to happen.  I am guessing it might cost the borrowers 0.25%-0.50%, which might wipe out the OCR cuts, but we’ll just have to wait and see how it all plays out as things are changing quickly at the moment.

Recommendation to borrowers

When you come off a rate over 4% from a year or two ago and re-fix in the mid-3%s, keep your repayments the same and repay more debt.  Periods of low-interest rates are a great opportunity to turn your 30-year mortgage into a 20-year one and save yourself thousands in interest.
Non-bank lending on the rise
The relatively new Responsible Lending Code has made the borrowing world a much more challenging space by increasing the banks’ requirement to lend responsibly and reducing the amount of deals banks can do.  This is opening the door to the non-bank lending sector, which was heavily affected by the Global Financial Crisis (GFC) and is starting to grow.  Non-bank lending now accounts for 1.5% of all lending, compared to 5% prior to the GFC, and looks like becoming a viable alternative when the bank says no.
Bluestone has recently introduced a new product called Select, with rates a little above prime (i.e. the normal bank rates), and no hefty fees or hooks.  Australian lender Pepper is launching later in the year, so it will be good to have more reasonably-priced near-bank lenders in the market.
New guy on the team Kurt Rains is the inhouse specialist, so feel free to drop him an email  [email protected] if you have loans the banks won’t do.
A problem with KiwiSaver
At a recent conference, something interesting came to my attention about KiwiSaver that I wasn’t aware of.  If you have the wrong tax rates noted and you have overpaid, then you cannot get the tax back.  This is important, as if you’ve auto-enrolled you go straight onto the maximum 28%.  If you are earning under $48,000 then you are paying too much tax.
This can catch people out in all sorts of ways when changes occur e.g. reducing hours, taking maternity leave, becoming self-employed, going studying or heading off for your OE.  It’s been this way since 2007 and it’s clearly not a good or fair system.  Rachelle Bland has started a petition that I have signed. If you agree with me, then you can sign too:
Spring Referral Competition
It’s that time of year again. We are pleased to announce our Spring Referral Competition (with a prize of $1000), which runs from 1st September to 30th November 2019.  Hopefully you can win it and have some extra spending money for Christmas!

If you use our services or refer a friend during this time you go in the draw – it’s as easy as that.
New website coming soon
Thanks to Kurt, we will shortly be launching a shiny new website. Watch this space!

Kind regards

Nick McCorkindale
Mortgage Advisor
(09) 5353 620    0274 404 230

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