The year ahead – Property Outlook for 2022

Dec 21, 2021 Josh 0 Comment

The year ahead - Property Outlook for 2022

We wanted to start this month’s blog by saying happy holidays to everyone, well done on getting through a challenging year and we wish you all a safe New Year. If you’re anything like the team here, you’re looking forward to a hot summer with plenty of cold drinks and minimal talk of Covid. For us, this time of year is always about reflecting internally as an organisation, celebrating our successes while identifying key areas we want to improve in the year to come. We’d encourage everyone reading this blog to spend at least a little time over the break thinking about your financial goals for 2022. To help, we are dedicating this month’s blog to look ahead at what we think the year to come has in store.

A cooling property market in 2022?

Property prices have exploded over the last few years, and no matter where you sit on the ladder you’ve probably come to the same conclusion we have; in the long run it’s unsustainable.

That’s why we can say we’re honestly glad to predict that in 2022 the market will cool slightly. We don’t think it’s going to be a full-blown buyers market, and it certainly won’t be a crash. Instead what we’re predicting is a slight cooling off and maybe a small decrease in prices toward the back end of the year. What this means for buyers is that there will likely be some fantastic opportunities. We’d encourage you to ensure your ducks are in a row so you are prepared to buy. If you need help planning don’t hesitate to contact us today.

So the question, particularly for owners, becomes why is the market going to flatten? We’ve provided a list of reasons below but to summarise demand is going to drop and supply will increase which will level off the playing field. We’ll also have a period in which sellers will expect to realise the high prices they have seen in the past but buyers won’t be willing or able to pay these prices meaning more properties passed in which in turn will trigger a change in market expectations.

We have seen property listings getting closer to where they were this time last year
Increase in construction
Rising interest rates
New tax rules for investors
Much tighter lending rules from the banks

Looking back at 2021 and ahead to 2022

In 2021 we felt we had a great year. One of our goals as a business is to take the fear out of finance for everyday New Zealanders. We were incredibly proud to be asked to give advice on The Rock at the beginning of the year and now on George FM as well. We thrive when offering expert advice and insights in a commonsense way that is easy to understand and being asked to do it on radio was testimony to the fact that people saw value in our approach. For those of you who have been following us on the radio, we hope you’ve enjoyed the banter, but most of all we hope that you were able to use the information we share to improve your financial position.

In 2022 we have big plans for the business. Our main goals are to grow our team and to continue to develop new ways in which we can add value for our clients. As always, we’ll continue to deliver expert advice in a way that is easy to understand and helps everyday Kiwi’s get ahead.

Get free money from the Government to grow your business

If you’ve been running a business in Auckland in 2021 then you’ll be well aware of the challenges that Covid posed, but hopefully, you’ve also heard of the MBIE Activate Auckland business grants that can go a little way to alleviating some of the pain. There are a few different grants available, but the two standouts are:

Business advice grant – This grant is for up to $3,000 and it allows you to get expert advice and support to ensure your business keeps moving forward regardless of what Covid throws your way. It can help with areas like financial planning and cash flow management, developing your marketing strategy, creating a digital media plan, or help with your overall business management, continuity, and strategy. All of these areas are particularly important and will help to ensure that your business has the right plans in place to continue thriving regardless of the Covid situation in 2022.

Implementation grant – This grant is for up to $4,000 to implement advice or plans. For a lot of businesses, the reality is that they have a roadmap or plan for the future but might not have the cash reserves to make it happen. This grant can put you in touch with the experts and services you might need to turn these plans into action.

If either of these grants feel like they would be helpful we’d really encourage you to register here, or get in touch if you need a hand.

See you next year

So that’s it from us for 2021. Again we wish you a happy holiday and a safe new year.

Rest assured that if anything urgent pops up you can simply call us on 0800 888 482 or email us at support@moneymen.co.nz .

Otherwise, we’ll be back in the office on the 17th of January ready to kick into a massive 2022.

Industry Updates Mortgages

House prices, mortgage rates and mortgage lending

Dec 1, 2021 Sarah Imhof 0 Comment

House prices, mortgage rates and mortgage lending

In this blog, we look at the changing face of mortgages in New Zealand. We look at why it feels like it’s getting harder to get a mortgage, how people with mortgages can find certainty in the face of a changing OCR and increasing interest rates, and a strategy for staying on top of your mortgage.

Why is it feeling harder to get a Mortgage?

Turn on the 6 pm news and you’re likely to see another report on how quickly house prices are increasing. Property prices in New Zealand have almost become a running joke, but the ones laughing tend to be the ones who are already on the ladder.

Over the last 12 months, we’ve seen the average price of a house in Aotearoa increase by 27%. That means if you bought a house for $1,000,000 twelve months ago you may well be staring down the barrel of $270,000 in capital gains.

This is wonderful news for people with property, but it’s devastating for people without and particularly for first home buyers. The price of a home is increasing at a rate that is far outstripping people’s ability to increase their earnings which makes it seem like fulfilling that first home dream is almost impossible.

A lot of our clients are experiencing the challenges increasing property prices are creating for people looking to buy their first homes. It’s disheartening to hear stories of people who thought they had saved enough only to find the drastic increase in house prices means they are now unable to afford what they thought they could just a few months earlier. We so often have clients coming back and asking us to increase their pre-approvals so they can afford to buy something.

There are changes on the horizon in the form of the Credit Contracts & Consumer Finance Act (CCCFA) which is due to arrive on the 1st of December. It’s going to lead to the biggest overhaul of banking policy we have seen in over 8 years. We’ve included a summary of key points below but to summarise this Act is going to increase the level of scrutiny from banks in regards to mortgages. This is being done in the hopes of reducing the risk of people defaulting on their mortgages due to the increased amount of debt most people are taking on to secure a home.

Here is a quick summary of the key points:

Banks will need to be able to prove they have undertaken the necessary steps to prove consumers can afford the lending, so you can expect them to take a deep dive into your day to day expenses. Be particularly mindful of using buy now pay later services like Afterpay as these will decrease the amount you can borrow from a bank.
Sources of income such as flatmates, boarders and rental income are being scaled back sometimes to as little as 65%.
Cutting back on interest-only lending even on investment properties or restricting it to the 60% loan to value ratio.
Older borrowers are finding it more difficult to borrow due to having to explain their exit strategy in greater detail.
Bank funding for borrowers with less than 20% deposit has been cut by half. Banks are now only able to lend out 10% of their overall lending to clients who don’t meet the 20% deposit requirement. For first home buyers this makes getting a loan even harder, and often only the bank they currently bank with is willing to offer this lending.
Due to the halving of these funds the banks have increased the income benchmark for clients to qualify for the lending so now only higher-income households will qualify.
There are talks of increasing debt to income ratios with one bank already implementing this and the others unofficially beginning the process behind the scenes. Debt to income ratios specify that you can only borrow six times your household income, so if you have a household income of $100k you can only borrow $600k.

Is it possible to find certainty as interest rates rise and the OCR changes?

For some borrowers, the recent rise in interest rates may have come as a surprise because most people expect an increase in interest rates to be triggered by a change to the Official Cash Rate (OCR). But the fact remains that every fortnight since mid-July we have had emails from all the main trading banks saying that they are increasing their rates.

To be fair we have had our first two increases in seven years to the OCR. The first was due to the pandemic on October the 6th when it went up by 0.25%, and the second 0.25% increase was on November the 24th. Economists are predicting that the OCR will hit 1% in the next 6 months and reach a high of 3% by late 2022. All of this means that we can expect to see further increases to interest rates, likely 4%-5% for 1-year rates. The reality is that it’s unlikely for them to go higher than 5% as if they were to hit 6% then mortgage payments would account for 51% of gross household income, the worst level in 18 years and something that would be unaffordable for the country.

With the above in mind, we’ve taken a look into the crystal ball and our mortgage rate predictions at Money Men HQ are:

2021 – 2.55%
2022 – 3.75%
2023 – 4.5%
2024 – 4.4%
2025 – 4%

4% may seem high to those borrowers who got their first mortgage when rates were at an all-time low but in reality, it’s still very low and represents good value for the borrower. If you don’t believe us just ask your parents about the interest rates they had when they bought their first homes.

If all of this talk of increasing OCRs and mortgage rates is keeping you up at night then we’d suggest you think about fixing your interest rate for a longer period. We expect that in the medium-term rates are only going to go up, and as such we believe that by fixing now you will lock in a lower rate and therefore reduce your overall mortgage payments.

The Money Men Mountain Trek – Saturday the 20th of November

Mental health has become an incredibly important and topical point in New Zealand recently, and it’s something that we couldn’t be prouder to support. We know from our work, and the research out there, that there is a direct link between financial health & mental health, and we know that right now with everything that is going on in the world how important it is to keep talking about the subject.

We are long-time supporters of The Movember Foundation and believe in the work they do to increase awareness around men’s health – and in particular men’s mental health. This year the whole team got involved, and we couldn’t be prouder of the money we raised for this great cause.

Our team and a bunch of other great New Zealanders walked up Mt Eden 46 times in one day. This summit walk is 196m, so by doing it 46 times we equalled the elevation of Mt Everest at 8,848m. We did it to raise money for a great cause, to encourage people to reach out to their friends and whanau, to start conversations about checking in on loved ones, and to encourage people to get out into this beautiful country and enjoy the fresh air and great outdoors.

We started early and finished late in our effort to “move for Movember”. Thank you to everyone who showed up and supported us and this cause. Whether you did 1 lap, 5 laps, 10 or the full amount, or even just showed up for a chat, it was truly appreciated.

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April-May Industry Updates

Apr 30, 2021 Kale 0 Comment

April-May Industry Updates

Welcome to our April Newsletter

Each month, we’ll be digesting market news and sending you our best summary – so you can keep your finger on the pulse and only read what’s relative and important.

There is already lots of information out there, so we don’t want to regurgitate it all for you – but we will aim to translate it in plain English and actually tell you what it means and how it might affect you, so you can make better, more informed decisions.

And of course, we are always here if you want to chat about anything in more detail.

What a month to start on, we have a lot to unpack and to say there have been some changes in the property market lately is an understatement.

It’s very difficult to argue that house prices are increasing at a sustainable rate and that the massive increase in values across the country will continue forever.

No one is denying that.

We cant help but feel that investors have become the punching bag for the bigger problems associated with housing affordability which is that we simply can’t build enough houses and haven’t
for decades.

The cost of construction and red tape seem to be the biggest hand break.

Our issue with these changes is that the property investors that we see on a daily basis are really hard working Kiwi’s trying to get ahead by investing in property and that these changes announced on the 23rd March could have a significant impact on them.

80% of investors only own one property but it seems like the picture the Government is painting is that an investor is someone driving around in a Bentley.

Let's have a look at the recent changes in the Property Market...

The Government is giving $3.8 billion towards housing supply and infrastructure which is
great, we just hope it gets actioned.

Brightline test increased from 5 years to 10 for investment property.

New builds remain at 5 years.

First Home Grants have had the price and income limits increased to try and make it easier for First Home Buyers to qualify for the grant.

First Home Grant Income cap lifted from $85k to $95k for an individual and from $130k to $150k for a couple

Auckland cap on the value of a property has gone up for new builds from $650k to $700k and for existing property from $600k to $625k

The removal of interest deductibility for investors which means they can no longer offset their interest expense against their rental income

This applies from 1 st October and will be retrospectively applied to existing investment properties over the next 4 years

All the points above have a relatively minor impact.
But the removal of the interest deductibility, that came out of left field and its those mum and dad investors hard in the pocket.
Here is an example:

Lets assume you have an interest only mortgage of $500k at 2.29%

$40k rental income received less

$5k for insurance and rates less

$11,450 in mortgage interest cost for $500k mortgage

$23,550 is your taxable income from the property

$7,771 is the tax you would pay prior to changes for this taxable icnome (assume 33% rate)

$3,779 is the new tax you would pay on the mortgage interest

$11,550 is the total tax if you purchased after 27th March

Let us know if you would like a copy of our New Interest Tax Calculator.

Unfortunately, when any cost in a business increases business usually pass on some of that cost to the end user.

The end user in the property investor market is people renting. Tony Alexander, who is arguably the best independent economist in the country, surveyed 1,700 landlords to see if they will increase their rents due to the next tax rule. 73% said they intend to increase rents to allow for the new changes.

Unfortunately the Governments plan to help First Home Buyers is going to be costing those that are saving to enter the market more money making it harder to get the deposit together.

One important point I haven’t seen a lot of media attention focused on is how the banks are going to allow for this increased costs to investors when they are calculating how much lending someone can borrow.

It seems obvious to me that given the significant increase in cost that the banks will come out shortly with new credit policy to take this additional cost into account which means it will reduce the amount of money investors can borrow and could be enough to move some more highly leverage investors into negative servicing.

It all sounds pretty negative for the investors out there getting hammered by Government policy but if we take a deep breath property prices have increased by 35.8% over the last two years as a national average as of Feb 2021 and with interest rates at record lows there is still a very good argument for investing in property and continuing to invest in property.

It will remain a solid investment and the main reason for sharing the above info is to give a heads up to our property investor clients out there that these changes are significant to cash flow and you want to make sure you are aware of how it could affect you.

Don’t make any rash decisions around exiting the market. Be proactive with planning for these tax changes and any future possible changes – we are happy to help.

It’s important to realise that the interest deductibility changes have not become law just yet and needs to get past consultation with Treasury and IRD.

Below is a quick summary on some other points of interest:

House prices:

Disruptive changes like this in the housing market always cause people to sit on their hands while they wait for the dust to settle.

We don’t expect to see house prices fall out of the sky but do expect them to slow due to more highly leverage investors leaving the market and therefore less competition. General expectations still seem to be that property will increase by about 10% over the next year instead of at the current rate which is about 25% so don’t expect to see houses get cheaper!

Demand for property is the main driver for why prices will continue to increase

First Home Buyers:

With less investors in the market for those lower entry properties that first home buyers are after there will be a less competition which is great for First Home Buyers.

Saving the deposit will continue to be the biggest hand break, especially now with increases in rents on the horizon.

Increase salary and house price caps for the First Home Grant might help out some people.

New build properties:

There will be a push towards building new for investors which is what the Government wants.

They are exempt from LVR rules so you can buy with 20% deposit instead of 40%.

You are allowed to deduct the interest as an expense (so pay less tax).

Bright line test remains at 5 years instead of 10.

This will push up the price of land as investors move to secure land over existing housing stock.

Construction supplies will be interesting to watch.

Note: banks all treat construction lending very differently, let us know if you are thinking of building and we can point you in the right direction.

Mortgage Interest Rates:

Up until these recent changes there were rumours of introduction of debt-to-income ratios and potential removal of interest only lending which now seems to be unlikely.

These changes also lighten the load on the reserve bank to have to step in a do something
like increase interest rates to help stabilise property prices so it seems unlikely they will do
this any time soon.

Unemployment is at a low level, the economy seems to be rebounding, commodity prices are increasing and a hint that inflation is on the horizon could suggest further big decreases in interest rates are unlikely and could be close to the bottom of the cycle.

Its our view interest rates wont go up for the foreseeable and worst case if they were to increase it wouldn’t be going up much because these interest rates are what is propping up our economy and the world economies at the moment which is why housing is booming in lots of other countries as people spend the cheap money which is exactly what the Governments want them to be doing.

There is an argument that if you wanted stability with rates potentially at the lower end of the cycle you could lock some lending in for 2-3 years just in case but the 1 year fixed rate continues to be the best performing strategy in terms of the lowest interest cost.

Want to learn more about these changes?

Let us know a bit about you and how we can help you – and we’ll be in touch as soon as we can!

Archives 2021