Fix Now or Wait Till Rock Bottom?

The downward spiral of interest rates remains and is set to continue into 2021. So how should we make the most of these attractive rates? Fix now or wait till they’re at rock bottom?

There is without doubt some attractive fixed rates on offer at the moment. We are seeing 1-year rates of 2.39%, however, what is making your home loan refix decision harder is that we are also seeing 18-month and 2-year rates at similar levels.

The Predictions

There is almost unanimous agreement amongst commentators and economists that home loan interest rates will continue to drop in the near term. (I heard one bank predict a 1-year fixed rate of 1.75% by April 2021 in the last few weeks.) Never has it been made clearer than when Adrian Orr, Governor of the Reserve Bank, announced in early November that they were in effect going to offer “cheap money” to the banks to ensure rates continued to drop.

On the surface that seems like an astounding thing for the Reserve Bank to do, given the runaway housing market at the moment. The Reserve Bank reminded the country that their primary concern (rightly or wrongly) is to keep inflation and unemployment within certain acceptable bands, hence the need to stimulate the economy … house prices be damned! (Or they would argue the issue is actually a supply side problem that needs Government policy to resolve.)

So, what should you do with your home loans?

It would be difficult to argue anything rather than put most of your home loan on the 1-year rate. I would add my regular two addendums to this:

1) If you are refixing and you can afford the current payments, then strongly consider keeping the payments the same. There will never be a better time to make a significant difference to the length of your loan (and to how much interest you will pay in total) than when you refix at a lower rate than you are currently paying.

2) If you have a surplus in your weekly budget, have a conversation with your adviser as to the best way to use this to reduce your debt. Options range from increasing your fixed payments to setting up revolving credit or offset accounts with part of your home loan.

Back to why I argue for fixing for 1-year:

a) If the 6-month rate was competitive you would probably fix for six months, but most banks simply aren’t pricing this competitively. You will in all likelihood be better off fixing for a year and then refixing in a years’ time at a lower rate than now.

b) Let’s assume the 1- and 2-year rates are the same. If you fix for a year, you are likely to be able to fix in a year’s time for a cheaper rate than now. One year at 2.39% and one year at 2.00% is better than two years at 2.39%.

c) In a year’s time you will have the option of re-fixing for another year, or, at that stage, fixing for a longer time while rates are still low or likely even lower than now.

Because the future is uncertain, some may disagree and argue you should take advantage of the low rates and lock them in for longer while you can, which is a fair argument. And, of course, my above recommendation assumes rates are going to drop and I am reminded in March the same experts were predicting house prices to drop by 15%!

A final piece of advice

Banks are making it easier and easier to click a button on your phone app to refix a new rate in. Here at Velocity Financial, we are all for convenience but we would encourage you to have at least a quick check in with your mortgage adviser to ensure you are making the most of your situation and have thought through your strategy.

Brendon Ojala is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.

Savvy Savers Summer Fun

With summer holidays not far away, it’s time for some carefree summer fun that doesn’t break the bank. Enjoy Kirsty’s top picks for affordable holiday smiles.

1. Get out in nature. 

 Google search the best walks in your local area, pack a picnic, and feel lucky to live in beautiful New Zealand. Wellingtonians can enjoy:

• Top Trails - Click here for Wellington Regional Trails Top 5 Trails

• Trails with a View - Click here for Wellington Regionals Trails with a View

• Greater Wellington Walks - Click here for local walks

• And if you’re up for a boat ride, Kapiti Island makes for a great day trip: Click here for details.

2. Let time float by.

In the ocean, a lake, nearby river, or the local pool, water sports are fun for the spirit and kind on the pocket. If you’re at a beach, be sure to look for the red and yellow flags to ensure you stay safe in the water. 

3. Go on an literary adventure.

Find your nearest local library, or discover a Free Little Library near you: Click here for info.

4. Join the world’s biggest treasure hunt.

Download the Geocaching app, and get hunting: Details here. (And to make others smile, stock up on a few teeny treasures that you can leave behind in the chamber for the next Geocacher to discover.)

5. Roll a die or two. 

 Either stock up on board games at a local store or op shop or check out local board game cafés where you can test out a bunch of different games for a small fee. If you’re Wellington-based head along to Caffeinated Dragon or Counter Culture.

The team at Velocity Financial wish you a super fun holiday ahead, and we’d love to hear your ideas on ways to make the most of summer days without denting your savings in the comments below.

What DO Mortgage Brokers Actually Do?

Does a mortgage broker send your application to all the banks, sit back and watch them fight it out for your business? Sadly, and as much as we would all love to feel this special to a bank, this is simply not how brokers or the banks operate. Lance explains.

So, if a mortgage broker is not bringing the banks to fisty cuffs on your behalf, what are we doing? How do we help? And what should you expect of us as a broker?

1. Advice. Firstly, it may be helpful to use the term mortgage adviser, rather than broker, as this better represents what we offer to our customers. Our job is to know what the banks are up to and make sure we get you to the best bank for your needs, not only for today’s plans, but also for what you are hoping to achieve in your future.

During in-depth conversations on what you’re trying to achieve we’ll explore whether you are after multiple properties, building a new home, wanting to pay off your loan fast, renovating, buying your first home, or your forever home. We will then advise you on the best course of action and which bank or banks (see the “Mood of the Banks” article in this addition of the Spin that talks about spreading the love across multiple banks) would be the best for you.

2. Knowing what the banks are up to. Banks change their minds … a lot! One day a bank will give pre approvals to people purchasing their first home with 10% deposit, the next week the ‘tap’ has been turned off and that bank might stop giving pre-approvals altogether, no matter how much deposit you have. Furthermore, they could also change their assessment tools, meaning you can now borrow more money than a week ago, so you can actually purchase the property you want, or vice versa. So, you can see how choosing a bank can be so much more than just who’s got the lowest rates.

3. Hunting for the “yes” responses. Unfortunately, we come across a number of people that are told “no” by their banks so they miss out on purchasing properties, not because they do not have the ability to purchase, but simply that their bank is not lending that way right now. Our role is to make sure that if there is a possibility for a “yes” out there, we will find it.

4. Long term strategy. I have heard it said that surely the best way to choose a bank is by going to the one that gives us the best interest rate. We see this from time to time where people try to use us like they have turned up to Harvey Norman with a discount on an item at JB Hi-Fi asking us if we can do better. This is one way of doing business, but only when ‘price’ is all that is on the table, and if this transaction only occurs once.

The thing with home loans is that you have them for a long time, so there will be multiple times when your rates expire and you need to lock them in again and again. So, you may choose a bank solely on the best rate today, but next year when it is time to lock in new rates they could have the worst rates out there. Unless you want to change bank every other year, with all the legal fees and other costs, you may want to come up with a better strategy that will actually save you serious money.

Rates at banks are pretty similar and the cash they give back to customers to go with them will chop and change depending on whether they are wanting to crank up business or not. Yes, we do get great rates, and banks like us because we are not one client, we are a source of connecting multiple clients for each bank, however, choosing a bank based on getting the best rates today could end up costing you tens of thousands in the long run. We can help you come up with a manageable debt reduction strategy, saving you tens of thousands of dollars over the life of your loan, set up a facility so you have access to money for something planned like a wedding or holiday (within NZ), or set up a rainy day fund in case something major outside of your control occurred, you know, like a worldwide pandemic for instance (I know I almost made it all the way through without dropping the ‘C’ bomb).

So, in short, yes, we get you great rates, and, yes, we know how the banks are lending and how they will view your situation at any given time. But there is so much more we can advise you on for reaching your goals so you don’t miss out on any opportunities.

Lance Shearman is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.

Work Place Health Insurance: Is it Worth it?

If you’re in a company with more than five staff and don’t have private health care as part of your employee package, you should bring it up at the next staff meeting. This is something that could be available to you through the Velocity Financial company wellbeing initiative (watch this space for more on the Employer Momentum Programme).

Imagine the life-changing possibilities not only for you (the boss pays your premium) but also your spouse and kids. Pre-existing conditions (excluding congenital) covered from day one and you could be avoiding New Zealand’s growing public waiting lists.

New Zealand’s public health system is great, but it’s also being stretched. Health treatments are becoming increasingly expensive and longer lifespans mean there’s more time for the wheels to come off. Annually, 380,000 Kiwis receive elective surgery. Of the additional 270,000 that need elective surgery, 170,000 aren’t on a waiting list as their health condition is not perceived to be sufficiently serious. Auckland heart patients needing to wait 12 months or more to get seen is certainly not fake news.

The examples, if you don’t already know someone affected or on a waiting list already, are numerous. But here are three stories to illustrate where things can go wrong:

·      The Kiwi lady who couldn’t wait any longer on the public health waiting list and dipped into her retirement savings to fund her hip replacement at $22k (a significant chunk of her savings) ending what she called her year of pain.

·      The Waikato bus driver who, with a lung cancer prognosis and given six months to live, had to fund his own treatment of the immunotherapy drug Keytruda at $7k a pop (four treatments needed) after the funding was halted by Pharmac.

·      Recently, Counties Manakau DHB breast cancer service has been turning down more referrals by toughening the threshold for seeing patients and reducing the number of follow up appointments, delaying the diagnosis of breast cancer.

Outside of this strained public system, in 2019, private insurance companies paid more than $1.3b in claims in New Zealand. So, there is another option out there and your workplace could be well positioned to make it happen.

Yes, the premiums do go up each year. Yes, there are exclusions. Yes, big pharma and the insurance companies do pretty well. But not looking into your options or asking a broker about what it would actually cost leaves you on a waiting list you may never top.

Give us a bell today to talk through workplace health insurance options.

Simon O’Neill is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.

What do You Have to do on Settlement Day?

Recently we were asked by a client buying a new home what they had to do on settlement day. The short answer is pretty much nothing! But it helps to know all the wheels that are spinning behind the scenes so the transition to your new home is smooth.

If you have gone unconditional and have signed the loan documentation then most of the hard yards have already been done by yourself and your professionals. Your lawyer and the bank still have work to do, but you can just sit back and start planning your house warming party (if they’re still a thing these days).

Settlement day is the day that all final payments are made, and you officially become the owner of the property. This usually happens around midday, but can take till 4pm. Your lawyer will let the real estate agent know, who will then contact you with the good news. The only real effort you have to put in to this day is to go and collect the keys from the agent!

While your lawyer would no doubt have already done an amazing job walking you through the last steps until settlement (including organising a pre-settlement inspection, sorting out the relevant utilities, reminding you to book the moving company for the day after the settlement date etc), here are a couple more pro tips to keep in mind:

1.     Don’t forget to get a photo of yourself next to the For Sale sign. These signs tend to spring up and disappear out of the blue—you won’t want to miss this memory!

2.     Treat yourself to a professional spring clean. If you are moving into a previously owned property (or a new build with signs of construction work), then it has probably had many years of good use. You may not want to spend the first week in your new home cleaning those years of good use yourself.

And a couple of post-settlement tips for good measure:

1.     Don’t rush into making changes or buying all new furniture at once. We admit, this one will depend on your personality type; however, you may find that a little patience in this department reaps huge benefits. It could be that after a while living in your new home, you realise that you aren’t using it how you thought you would. My partner and I spent hundreds of dollars on new curtains and blinds to then realise that we wanted to get rid of some windows and reduce the size of others. We now have a gold mine of almost new blinds gathering dust under a bed.

2.     If you’ve had a builder’s report done prior to purchase, you can use that as a maintenance guide for the house and surrounding property. This works surprisingly well.

3.     Find toby! Your water toby is the valve that allows the mains water to be closed off. Find it, clean it of spiders and cobwebs, and make sure it turns easily. And do all this before you actually need to close the water off to your property. You’ll thank me one day.

Willi Gunn is a Client Service Manager with Velocity Financial.

The Mood of Banks in a Post-Covid World

During uncertain times, it pays to know what’s driving the decision-making of the banks. Graham shares how the mood of the banks is changing with the times. 

Ever since I’ve been a broker (nearly 20 years), banks have looked at your income history as a tool for working out what you can afford to borrow. However, now it’s more about your future income potential, because, from a bank's perspective, the future is a little shaky so let's prepare for the worst.

Overall, banks are getting more conservative with their assessments of who they lend money to and also what they do with the proceeds of the sale from the house you have just sold. All banks are now assessing your ability to keep the lending you have when you sell a property. Just because you think you are going to get a nice cheque after you have sold a property doesn't necessarily mean you will, as the bank may decide to keep the proceeds to pay down your remaining debt with them.  

So, knowing this, what do we do? Well, as borrowers, the strategy is also to prepare for the worst. And the messages we have been saying for a long time are truer today than ever.

For example, if you have multiple properties, don't have all the lending at one bank. Have your business banking and your personal banking at separate banks. On a regular basis, assess your ability to free up properties from the bank’s clutches—a little dramatic perhaps, but basically try to give the banks as little hold over you as possible. Plan ahead of time which investment property is the first one to be sold and structure for that ahead of time.

Confused?

Give us a call to discuss what your options are to prepare for the end of the world ... well, the end of the lending world. 

Graham Goodisson is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.

Insuring Your Sports Club

By Joshua Rhind (of Caveo, the insurance branch of Velocity)

When we think of sports clubs, we don’t often think of insurance. But like anything in life, unforeseen loses can happen and these can have implications for not only the board but also for the members of that club.

Do you know if your personal belongings and uniforms are covered, even whilst on a tour? What about reimbursements if a tournament is cancelled? In most cases, they wouldn’t be. However, there is a unique cover through Rosser (one of the Commercial Insurance companies we work with) that has been built specifically for sports clubs.

This insurance covers, not only the above, but also irrigation and drainage systems, landscaping and specialised sporting surfaces, and equipment breakdown. This unique cover is available for most sports clubs, from golf to basketball, cricket to table tennis, and facilities like gyms, tenpin bowling and swimming pools.

If you’re involved with a sports club or you think an affiliation of yours may benefit from this (with a cheaper excess than most standard policies) then do give me a ring and let’s see how I can help.

Joshua Rhind heads Caveo, our insurance branch, and is a Registered Financial Adviser with Caveo. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.

How’s Your KiwiSaver Trajectory Looking?

2020 has been a harrowing year for us all—not least for our KiwiSaver balances! Fortunately, there are two new developments in the KiwiSaver space this year that make the scheme more user friendly. Elizabeth explains.

The first of those KiwiSaver developments is the decision by the IRD to refund members who have mistakenly been overpaying tax on their KiwiSaver. Your PIR rate (10.5%, 17.5% or 28%) determines the level you are taxed for investment returns, and any new members who didn’t select the correct rate will have been put by default at 28%.

In all previous years, if you had underpaid on your PIE tax, the IRD would present you with a bill, however, if you had overpaid there were no refunds. As of 1 April 2020, this has been amended. So, not only does the IRD have a greater ability to identify that you are on the wrong rate and notify your KiwiSaver provider, but if you do overpay you will now be able to claim a refund just as you would with income tax.

The second development was the compulsory inclusion of projections into your annual KiwiSaver statement. These are designed to give members a better idea of how they are tracking for retirement. This development was prompted by the findings that most New Zealanders are not financially set up for retirement and suffer financial stress as a result.

It’s important to note that while the projections are an excellent development in making KiwiSaver more relevant and tangible, particularly for young people who may not be thinking of retirement yet, they are constrained by the guidelines set out. These include the guideline that all providers must use the same underlying assumptions in their projections in order to compare apples with apples—when in fact your true projection will vary depending on the provider and fund chosen. The assumptions are also conservative (to ensure members over, rather than under, prepare) and so won’t hold true for many people.

For example, the projections assume an increase in income of 3.5% each year, no contribution holidays or first-home withdrawals, and a top tax rate of 28%, amongst other factors.

This highlights the value of speaking with a financial adviser, even about something as seemingly simple as KiwiSaver, in order to get a true idea of where you might be at age 65 and what you need to do now to get on the right path.

It’s never too late to take a step in the right direction. So, regardless of where you are on your KiwiSaver trajectory, take a moment to review it, get some advice and course correct towards the financial future you really want.

Elizabeth Tsikanvski is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.

Fixed vs Floating

Have we seen the bottom for interest rates? Brendon thinks not!

I hope you have had your figurative seat belt on this year (as well as, of course, your literal one—safety comes first!). It has been a rollercoaster of world-impacting, once-in-a-generation, unprecedented events.

Think back to a year ago, none of us would have picked that interest rates would be closing in on 2% by the end of the year. In last Christmas’s Velocity interest rate sweepstake, my money was on 3.5% … hmmm.

But amidst all the uncertainty, here is what we know in terms of interest rates …

In September, the Reserve Bank kept the Official Cash Rate at 0.25, with a signal it may drop early next year. The Reserve Bank did indicate they were going to fund banks in a way that would allow mortgage interest rates to drop. I don’t think it’s possible to get a clearer message that we aren’t at the bottom of the interest rate cycle yet.

So, what to do? Fix or float? And for how long?

Right now, a good 1-year rate is somewhere between 2.49% and 2.55%. The longer you fix for the higher the rate (but not by much to be fair). A floating rate is around 4%. An unfortunate fact is that a 6-month fixed rate is priced pretty close to the floating rate at most banks (more on that soon, but it seems it just isn’t a duration the banks are interested in competing in).

Here is what I think:

It doesn’t look like rates are going up in the next year (the experts are predicting this—I am just the messenger). Fixing for longer than a year would seem like extra cost for something that is unlikely to occur, but if you value certainty, then you may still choose to fix for longer than a year.

If the 6-month fixed rate was the same as the 1-year rate, I would tend towards fixing for six months. However, because it is not competitive, it is really a choice between keeping your loans floating for a few months or fixing for one year now.  In most cases, fixing for a year seems to make sense, even if rates drop in the next few months.

However you do it (keep your payments the same, use revolving credit or offset accounts), please, please, please, use these low rates as a chance to pay down debt. Do talk to your adviser about the best strategy for you.

Brendon Ojala is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request

What is a Registered Valuation? (And do I Need One)?

Photo by Nate Watson, on Unsplash.

There are CVs, GVs, EVs, TVs and RVs. Most of these relate to property valuations  and some clearly don’t, but let’s take some time to understand the all-important RV, or Registered Valuation, as it can make the difference between getting that dream home and missing out.  

Defining RV

A Registered Valuation (as opposed to an E-Valuation or a Desktop Valuation) comprises a site visit by an approved valuer and a subsequent valuation report, which will state a market valuation of the property. This valuation will consider the valuer’s inspection and also comparable sales in the area. This is now the value the bank uses to lend against.

When Will a Bank Request an RV?

Banks will request a Registered Valuation for a number of reasons, but here are the main ones:

·       You are building your own home

·       You are buying a “turn-key” property (off the plans)

·       You have less than 20% deposit and want to buy an existing dwelling

Who Can Perform an RV?

All valuations now have to be done through the respective bank’s preferred Valuation Portal. Some banks use CoreLogic/Property Hub, and others use Valocity (no relation to Velocity Financial).

Costs and Timeframes?

Expect a valuation to cost between $850-$1200, depending on the type of dwelling that is being valued.

Valuations usually take up to four days to get done, and then they need to be submitted to the bank for sign-off approval. So, it’s important to get your strategy correct with your advisor to ensure that there is time to do everything.

What if I Have a Deposit of Less Than 20%?

If you are purchasing an existing dwelling with less than 20% deposit, then you won’t be able to put in an unconditional offer without a Registered Valuation being signed off. The banks are very conservative in this area, and rely on an impartial and expert opinion for the market value that they will lend against.

You have a choice to pay for the valuation upfront (with the potential risk of not getting your offer accepted), or put in your very best offer with a Finance Condition, and get the valuation done once your offer has been accepted.

As there are potential limitations on any offer that requires a Registered Valuation, a good, robust plan is the key to success here. Get in touch with your adviser early, and they will help you come up with the best strategy for you.