Boom or Bust, Bank or Broker?
Boom or Bust, Bank or Broker?

Boom or Bust, Bank or Broker?

During Auckland’s May level 3 lockdown, the median house price rose by 9.2 percent to $925,000—the second highest recorded level ever. But, the previous month, under level 4, sales in the city—and around the nation—fell, unsurprisingly, to the lowest ever. Westpac predicted house prices would tumble 7 percent by the end of the year, ASB estimated 6 percent, and ANZ a whopping 12 percent, while independent economist Shamubeel Eaqub put forward what was probably the most accurate prediction of “I really don’t know”.


Fast forward a few months, and the Real Estate Institute of New Zealand’s House Price Index (HPI), shows a national increase in house prices of 2 percent in July (1.6 percent in Auckland) compared to June—and 9.4 percent higher than July last year. Such positivity caused Westpac to downgrade its forecast from a 7 to a 2.5 percent house price decline by the end of 2020.


“Prices may drop in the short-term but will increase in the long-term,” says John Bolton, director of Financial Advice New Zealand, and CEO of leading mortgage brokers, Squirrel.  “I’m picking the average house price in New Zealand will hit $1 million by 2030.”


The lowering of mortgage rates coupled with the likes of deferment schemes and wage subsidies have buoyed the economy, backed by a decent domestic tourist season semi-enforced due to the stringent border measures. But what many didn’t count on was the return of the Kiwi diaspora.


In August, the Reserve Bank revealed new monthly mortgage commitments increased by $1.1 billion between May and June (though still down 1.4 percent on last June). Sales director at Wellington’s Tommy’s Real Estate, Nicki Cruickshank, recently told RNZ that sales were now outperforming pre-lockdown levels, while in Christchurch, Andy Freeman, managing director at Harcourts Grenadier, says he was “staggered” at the post-May recovery. With June sales stats up more than 30 percent, Freeman believes it “phenomenal how the numbers just keep going up”, and Cruickshank says returning Kiwis are playing a big role in the economic rebuild, as are first time buyers.


For would-be buyers, John advises taking a big-picture approach to property, as we do with KiwiSaver. “It is a long-term investment that is emotional and rational,” he says. “House prices are fully explainable looking at the increase in household incomes over the past 20 years and very low interest rates. Affordability hasn’t changed all that much.” 


The stress of the current economic uncertainty and the added claustrophobia of lockdowns is testing many already fraught relationships, but, warns John, financially at least, these would be the worst times to divorce—especially for those with higher value properties where the market will likely suffer a more significant short term hit. For those on middle to lower incomes such as teachers and public service workers, it is, so says the CEO, “an excellent opportunity to get into the market”. Though he does counsel patience; a buyers’ market it may be but visit lots of properties to “establish what good value looks like”.


Boom or Bust, Bank or Broker?



“Government and reserve bank policy favours homeowners over renting,” says John. “Compare the mortgage deferral scheme to renters who got essentially nothing.  With deferrals and ‘home’ becoming more important, and the security of homeownership we, shouldn’t be surprised to see many in the market to buy.  Also, low interest rates make buying cheaper than renting, and the low interest rates to savers with money in the bank and the prospect of higher prices encourages property investors back into the market.”  


And, for those taking the plunge, is a broker or bank the best way to go?


“First time home buyers need more help through the process,” says John. “About 80 percent of what advisers do doesn’t relate to the mortgage and more to do with helping them through the whole house buying process.”


Other demographics deemed better suited for the services of a broker include the self-employed “who don’t fit the cookie cutter” and property investors who may need to deal with multiple banks and consider their property portfolio.


“In the past anyone could become a broker and that meant standards were low,” admits John.  “It is an increasingly professional industry with very experienced advisers. There is a genuine focus on the client and there are a lot of regulations in place to protect clients, including disputes processes if something goes wrong.”


What do brokers offer that banks do not?


“Choice of lender. That is especially true for clients who may not know their options.  Different lenders will be prepared to lend different amounts and may apply different rules.  It’s about knowing all of your options.”


Are brokers more likely to secure better deals?


“That’s not the proposition. They’ll always know what the best deals are and will be able to point clients towards those, but clients ‘in the know’ will be able to negotiate or get similar pricing. Generally, special advertised rates are the best rates available. Banks also offer cash backs which are below the counter and that’s where brokers can make sure you get the best deal.”


When scouting around for a broker, John says it’s essential to ensure that they belong to a professional body such as Financial Advice NZ: “If something goes wrong, you want to know that you are dealing with someone that can put it right.”


Mortgage advisors are also generally free—paid by the lenders instead—though in some situations such as using non-bank options, or for short-term finance, there may be a fee.


“It’s not about price,” John adds. “It’s about experience and expertise. It’s the reassurance that they know what to do if something doesn’t go to plan and that they also know all of the options available to figure out the best solution to your needs.”