Finally there seems to be a little relief for those who are becoming financially stressed by this global economic downturn. Westpac is the first bank in New Zealand to follow Australia’s lead and offer 12-month mortgage holidays.The decision is part of the bank’s new set of measures to help financially stressed customers. Australia’s biggest banks are offering customers a 12-month holiday after pressure from their Prime Minister Kevin Rudd to go easy on those who had lost jobs and were struggling to pay their mortgage.
Prime Minister John Key said he welcomed the positive step to help those New Zealanders who had lost their jobs and still had to service their mortgage. Westpac New Zealand discussed its proposals with Mr Key before announcing it would offer customers new options of interest-only repayments and to extend the period of loan contracts.
But while many customers will welcome the new offers, Westpac acknowledged that postponing loan payments for any period would increase debt, and therefore may not be suitable for many borrowers. Mortgage holidays are nothing new. They have been around for some time and under special circumstances the banks usually will allow you to ask and try for one. But now the recent announcement is a step forward for people who are struggling a little more than they could have before. Its a step to helping people keep their homes in my view.
There are inherent dangers of mortgage holidays – for like all holidays they ultimately have to be paid for and would be careful in the way it applied the options.
Taking a holiday from your mortgage repayments certainly gives you a breather for a few months if that keeping that roof aloft begins to look a bit precarious, but to ensure your next intake of breath isn’t a sharp one, beware of the pitfalls. Missing payments can have a huge impact on future payments and the size of you overall mortgage.
Here’s what will happen to say myself in this situation;
• Taking just one year’s mortgage payment holiday.
• The price of the home dropping in value by 10 percent.
CASE STUDY
My house is worth $300,000 in todays market. My mortgage loan is for $270,000. So, I own 10 percent of my home at the moment. In one year, the 10 percent estimated drop means my home will be worth $270,000 the amount of my loan. If I add on the $15,000 I plan to defer on the mortgage that then means I owe $285,000 on the mortgage, but the home is now only worth $270,000 and I will owe $285,000 so that means I will have negative equity in the home. Meaning I will owe more on their home that it’s actually worth. This isn’s a problem if I don’t intend to sell but I probably wouldn’t be able to remortgage in future untill I get some equity in the home.
.
It sounds like a really terrible situation and sounds daunting and you have to look at both sides of the fence when thinking of taking the holiday. The most important action that can be taken in times of hardship is for you to talk with their bank early so that if you are in trouble the bank can help you make the best descision for your current financial situation.
April 11 2009 | Sellers and The Market | No Comments »
Summery of New Zealands economy for the quarter March 2009
The NZ economy is yet to find a base. Business confidence surveys are either at, or near, historical lows. Employment intentions are tumbling and investment plans are being shelved. Corporate tax revenue – a key timely indicator of economic activity – has capitulated. Consumer sentiment is also very subdued despite falling mortgage rates, tax cuts and lower petrol prices. Car registrations are at their lowest level since 1994 and building consents in January fell to their lowest level since 1965. It is now likely that the recession, which began in the March 2008 quarter, will extend to five, possibly six, quarters as the full impact of recent financial market turbulence is felt. This has been exacerbated by the global downturn and follows a largely domestic and drought driven recession over the first half of last year. The last time NZ experienced such a string of negative quarters was during the oil shock of the 1970s.
Of course the positive spin on this is that we are close to the turning point, considering it is now the end of March. We have some sympathy for this view in terms of the pure numbers and the reality that the bungy-cord tends to come out, which is already manifesting in the housing market with reported uplifts in enquiries. But we also need to be realistic: 2008 was by-and-large a domestic induced recession in response to internal imbalances, a drought, and tight financial conditions. 2009 will have an added global influence.
On top of this, we would be inclined to throw some statistical quirks into the mix. Technically, NZ was in recession in H1 2008 but weakness was heavily concentrated so it didn’t really feel as weak as the normal recession. By late 2009, NZ’s GDP figures are likely to show a rebound into positive territory, but it will be out of sorts with other measures such as the unemployment rate, which is still headed higher. Hence, the H2 2009 rebound will not feel like a recovery at all.
The outlook for 2009 is dominated by four dynamics. These include:
- A credit centric shock. Despite signs that global credit spreads have eased and major central banks are embarking on quantitative easing to keep longer dated yields down, credit markets are still far from normal. It is no longer a question of price. We are in a world where capital is scarce, and this is not about to change for some time.
- A deep global recession, which started at the end of last year and is set to last throughout most of this year.
- A structural change in the pricing of risk, with a clear shift in the balance of power away from borrowers and towards savers and investors. NZ is already seeing this via changes in retail deposit rates, which now sit materially above the wholesale interest rate curve.
- NZ’s heavy reliance on offshore capital, which is evident via a large current account deficit and large net external liability position. The latter, at 93 percent of GDP, is a key source of vulnerability in the current global environment and needs to be reduced.
These issues above manifest in our forecasts via a number of avenues:
- A structural rebalancing for the economy away from debt-fuelled consumption towards more earnings centric growth (i.e. exports). This sees anaemic consumption growth for a number of years and a sharp improvement in the household savings rate.
- An elongated adjustment process, particularly with household balance sheets in most need of repair.
- A requirement for the currency to weaken markedly, and stay low for some time to assist in the rebalancing process.
- The economy to remain void of key engines of growth over 2009, as the combination of de-leveraging restrains the domestic economy, and the flow-on from a weak global environment restricts the earnings sector.
We expect the NZ economy to contract by 2.8 percent this year. By-and-large this reflects the big-picture forces noted above. Confidence remains weak, and we are only now starting to see the flow-on impact from the global scene. As these effects take hold via weaker export demand, falling tourism numbers and lower commodity prices, the recession naturally shifts from its urban focus towards the hinterland. We have already seen residential property prices fall by close to 10 percent from levels a year ago. This year will see much weaker rural land prices in response to a lower dairy payout. The lower payout and land prices will be the main transmission mechanism through which the global recession filters through into the rural regions.
Consumers are no longer the main driving force for growth. Consumption growth may be the weakest it has been since the early 1990s, but we fully expect more weakness to come in the near-term. Household cashflow may be improving thanks to lower mortgage repayments and tax cuts, but the deteriorating labour market and rising unemployment rate (we are forecasting close to 8 percent by the middle of 2010) increase the likelihood that households save any windfall gains, rather than spend them. Despite record low interest rates providing support to cashflow, the aggregate household debt servicing burden relative to income remains around 14.3 percent, well above its historical average of 9.6 percent. Improving this ratio towards historical norms has to come from a lower stock of debt. Negative wealth effects from falling house prices (we forecast a peak to trough decline of 25 percent in real terms) and tighter access to consumer debt are also acting to curb consumption growth, particularly for durables. But even when the economy starts to recover from 2010, we fully expect consumption growth to lag the overall economy. This is part and parcel of the rebalancing process, which sees consumption as a share of GDP fall from its current lofty 62.3 percent towards the historical average of around 59 percent. We are forecasting a 1.4 percent fall in consumption for this calendar year, and only a mild 0.7 percent growth next calendar year.
Businesses will do it tough, as both domestic and external demand wanes. Profitability is well down and firms have already responded by a freeze on hiring and investment at the end of last year. Firms exposed to domestic demand (e.g. retail and housing) have fared poorly as the recession intensified, but increasingly it will be exporters that will feel the effects of the global recession in the form of reduced or cancelled export orders. Thankfully, business sector balance sheets are healthy. But with topline revenues continuing to head backwards, the recession lasting longer than normal and balance sheet preservation becoming a priority, the onus will increasingly turn towards costs in order for firms to stay profitable. We foresee negative employment growth throughout 2009, and likewise for business investment. The latter will reduce the potential growth rate of the economy, and hamper the eventual recovery when it comes. Employment and investment intentions already sit at historical lows, and these are the next leg of the cycle to watch.
It’s not all depressing news. We are aware of certain pockets that continue to perform well. NZ’s macro framework has responded via interest rate cuts, expansionary fiscal policy and a lower currency. NZ’s financial system remains sound, a major differentiating factor from the United States and other nations. But all are within the context of the deepest global recession in half a century. NZ still stands out as being vulnerable given our reliance on exports and offshore capital. We are also mindful that monetary policy is rapidly losing traction given fierce competition for deposits and funding in general. And pressure on the Government to maintain our sovereign credit rating means they cannot simply go on an unfettered spending or tax cut binge.
Despite the pressure on businesses, we need to remain mindful that a household debt correction story is at the heart of this economic cycle. It is household balance sheets that need to be repaired. Household debt to income increased from 60 percent to close to 160 percent between 1991 and 2008. Debt servicing increased from 8 percent of disposable income to over 14 percent currently. Housing represents 75 percent of total assets. These dynamics were a reflection of the “old” macro environment where credit was cheap and freely available. This allowed NZ to run large current account deficits. In fact, when you overlay cumulative current account deficits over the past decade with home lending, the relationship is startling.
We are in no doubt that we will see the odd burst of activity, particularly in relation to the housing market, which seems to be occurring already (albeit off a very low base). But we struggle to see it taking hold given the global backdrop, turn in the labour market, and weaker appetite to lending per se. It is simply not credible for NZ to expect to borrow and spend its way out of the current jam.
The seeds of the long awaited current account adjustment have been sown. We see the 8.9 percent annual deficit recorded in December 2008 as the peak, with improvements to come from here on in. But rather than via better export performance, the improvement in the current account initially will be via lower profits generated by foreign owned firms in NZ and a lower overseas debt servicing burden, together with reduced import demand as a result of weak domestic demand growth.
A weaker currency is a prerequisite to the adjustment process and the improvement (and recovery) taking on a sustained look. With fiscal policy somewhat constrained in its ability to provide additional counter-cyclical support and monetary policy losing traction given the reality that borrowing rates are being determined by aggressive competition for deposits, the critical shock absorber that must adjust is the currency. Years of the currency remaining above its historical average has led to a deteriorating goods and services balance. We simply see the reciprocal going forward, as the currency follows its normal path of moving further than what is typically expected as the adjustment takes time. This has already occurred, and together with weak consumption growth curbing import demand, we envisage a return towards surplus in the goods and services balance by the end of this year. It’s essential for providing some much needed spine and balance to growth, particularly given the de-leveraging process we envisage for the household sector. We also should not forget that while commodity prices have fallen, the net effect has been muted via the terms of trade, and this is in fact giving us some comfort towards a better medium-term story for New Zealand.
We will be looking at a broad array of indicators over the coming months in terms of any recovery. We are in no doubt that we will see a recovery. Natural population growth, improved migration and easier monetary conditions are support factors that will gain traction as the global scene gradually improves. Business and consumer confidence, along with dwelling consents will be key to watch. But not until we see a sustained improvement in structural indicators; such as the ratio of consumption as a share of GDP, better mix to imports (more investment, fewer consumption goods) and improved savings rate; can we look towards any recovery taking on a sustained look. This looks a way off still.
The economy will come out of recession in the second half of the year, but a sustained recovery will be a mid-2010 story. Though we expect positive growth rates from the second half of this year, it will not feel like a recovery initially. Indeed, growth will be subdued heading into early 2010 as the economy remains in the de-leveraging process. It will not be until mid-2010, by which time the unemployment rate would have peaked and the global economy has started to mend, that the economy will embark on a sustained recovery and start posting strong quarterly growth rates. Pend up demand will fuel the initial rebound, as building consents play catch-up to underlying housing demand, consumers replace durable goods, and businesses upgrade their depreciated plant and machinery equipment. All are natural pro-cyclical forces that once unleashed will see the economy temporarily expanding well above its trend growth rate.
And let us not forget the Rugby World Cup being held in NZ in 2011. Preparations in the lead-up for the event will further add to activity, and we can expect a surge in visitors for the event, leading to a boost in services exports. We see the economy performing strongly in 2011.
Don’t forget the medium-term story. The sacrificial lamb in a de-leveraging environment is growth. Reality needs to set in as it’s a process that will take time. But the medium-term outlook remains strong. NZ still producers the goods (and services) that the world (increasingly Asia) demands and this sets us in good stead for the future. The rebalancing away from the spending towards the earnings sectors will put the economy on a firmer footing to grow at a more sustainable fashion. As firms get back to basics and focus on what they do well (and get assistance via small changes in the microeconomic arena) the seeds of better productivity growth are being sown. This is a dynamic we are already detecting and expect to become more pronounced as the year moves on.
source: National bank of New Zealand
April 02 2009 | The Market | No Comments »
The short answer is that for people on the average wage of $48,500 a year will get an extra $15.66 a week and those on $100,000 will benefit by $18.46 according ti Bill English and his Tax Cut plan. From Wednesday when the tax cuts roll out people will have a little extra money in their pay but thats not the end of it in terms of spending out.
There are also going to be increases to benefits and superannuation, and a boost to the minimum wage take effect. The increase the minimum wage from $12 to $12.50 in line with the Consumer Price Index, also the minimum wage for training and new entrants’ will increase from $9.60 to $10. The only problem I am seeing from this is due to the recession we are in now how will this effect the employers in regard to being able to retain their employees with a marked reduction in incoming money for almost all businesses is being felt accross the board.
But the Minister of Labour Kate Wilkinson said on Feburary 9th when the increases were announced, “In reviewing the minimum wage it was clear that, given the current recession, we needed to find a balance between protecting jobs and fair pay for workers.We do not want to see workers priced out of the market during these difficult times, but we are confident that a 50c increase, in line with inflation, will not harm businesses.”
The total cost for this package has been totaled to over $2 billion. And this extra cash will start flowing into taxpayers’ pockets as a result of the tax cuts and a 3.4 per cent increase in benefits and superannuation and student allowances from Wednesday.
On the flip side to this our New Zealand ACC system is in crisis and has needed a huge cash injection from the governement and the tax payer. An increase in Accident Compensation levies will take some of the extra money that we will get from the tax cuts. Here is a breakdown of the extra ACC charges which will be effictive from 1st July 2009 for motor vehciles.
Petrol levy (cents per litre) – From 9.34¢ to 9.90¢ = increase 0.56¢
Average annual licence fee - From $136.48 to $168.45 = increase $31.97
Total average per vehicle - From $254.63 to $287.00 = increase $32.37
Then on top of this you have an increase in the ACC you need to pay on your liable income. This has been rolled out by the Governement and will come into effect the same day as the Tax Cuts (April 1st 2009)
The Government has adopted the following levy rates:
- The Earners’ Account Levy (paid by all employees and self-employed to cover their non-work, non-motor vehicle injuries) will increase from $1.40 to $1.70 (including GST) per $100 of liable earnings
- The average composite employer and self-employed levy will increase from $1.26 to $1.31 per $100 of payroll. This levy excludes GST and is an average rate. Individual rates for industry groups may be higher or lower
- The new rates take effect on 1 April 2009
For an example and to put these into real numbers a person on the average wage of $48,500 per year currently pays $658 a year or $12.61 a week to ACC for the Earners’ Levy. Under the charges an average wage earner would be paying $940 a year or $18.02 a week.
But taking everything into account overall the changes leave fulltime workers on the minimum wage $24.30 a week better off.
The tax cuts will benefit 1.4 to 1.5 million people, the Treasury says.
March 28 2009 | The Market | 2 Comments »
Todays OCR rate cut of 1.5% from 6.5% to 5% is a bold move by the Reserve Bank of New Zealand and is one that is hope to put some stimulation into our very slow economy. The OCR drop will mean to us as consumers a whole host of things that will save us all some money in the long run. 
The main one will involve bank interest charges. Credit card interest rates will drop. Westpac has been the first and has dropped their interest charges, Kiwibank also has lower than the given normal credit interest rate. This will be great coming into Christmas and may ease a bit of pressure of families.
The big one that will help hundreds of thousands of New Zealanders will now enter into a market with lower interest rates as all New Zealand’s banks have been told to pass on the benefits of today’s record 1.5 percentage point cut in official interest rates.
Unfortunately this doesn’t go far enough in my opinion. There are still thousands of people fixed mortgages on interest rates around the 8% mark and higher and the sad thing is the breakage fees for these people is in some cases more than the savings that they may make with the lower interest rates.
But for all new mortgages and people coming up for renewal this is the rates you should expect:
ASB has cut its variable rate from 8.7 per cent to 7.95 per cent, while SBS has cut from
9.15 per cent to 7.2 per cent.
Kiwibank cut its floating rate from 7.95 per cent to 7.45 per cent, its six month rate from 7.49 to 6.99 per cent, its one year fixed term 6.99 per cent to 6.49 and its 2 year rate from 7.59 to 7.19.
Westpac has left its floating rate unchanged, but has today moved to cut its fixed terms. Its six month term has fallen 0.25 per cent to 7.1 per cent, while its one year rates have fallen by 0.5 per cent to 6.8 per cent
BNZ has cut its six month mortgage rates by 0.5 per cent, moving from 6.99 per cent to 6.49 per cent. Rates on its ‘totalmoney’ product are coming down from 8.29 per cent to 7.75 per cent.
Also what we are seeing is the New Zealand Dollar Dropping as well. With the Reserve Bank of New Zealand cutting the OCR the New Zealand dollar against most of its trading partners is weakened keeping our dollar low. But when other countries drop their OCR their currency is also weakened.
The New Zealand dollar has fallen from above US82c this year to US53c this week. This has increased returns
to exporters. But on the flip side many exporters are experiencing slower demand in export markets as a result of the global financial crisis so the exporters needed today’s big cut to keep downward pressure on the New Zealand dollar so that this part of the economy doesn’t stall.
At the end of the day the interest rate cut announced today was one that was predicted by most because the economy has clearly been slow and this rates cut will do wonders to stimulate activity in our economy. This should be good news to home owners and people wishing to buy a new home.
It is now becoming much more affordable to buy a home now. Interest rates have come down from where they were, house prices have dropped in almost all areas of New Zealand. These two factors are making the market real again. House prices and new mortgages are now at realistic levels and if you are thinking about buying some real estate I think that you now need to have a serious look at the market and consider what your next move will be. Are you going to wait or move…..
December 05 2008 | The Market | No Comments »
I was today looking through articles online on The Heralds Website. This article hit me in the face. Its sad to see this. But its a fact of where we are at the moment in the market.
$375k house – costs $900 a week
Soaring interest rates will see Kiwis fork out almost a billion dollars extra in mortgage payments this year.
GE Money home lending director John Grant said an average interest hike of two per cent will affect about $45 billion of home loans rolling off fixed rates – a total of about $900 million.
The revelation comes as housing affordability continues to fall.
The latest quarterly report by Massey University’s Property Foundation shows a 6 per cent decline in the past year.
And financial pressure is being felt even by high earners, with one budget service giving food parcels to a family with a six-figure household income.
Grant predicted the increase in interest rates would cause more misery for cash-strapped Kiwis and warned unexpected changes in income could see some lose their homes.
“It’s one heck of a lot of money being channelled out of the pocket,” Grant said.
“It’s not just those with 100 per cent loans. They could have borrowed 60 per cent and be facing exactly the same predicament.”
Banking industry experts estimate there are about 600,000 mortgages in New Zealand.
Based on that figure, senior analysts say about $155b is owed, with the average mortgage about $250,000.
That’s a massive jump from 10 years ago when there was $56b in mortgage debt with an average of about $100,000.
The change is hurting huge numbers of average Kiwis with mortgages, among them first-time owners Lee Potter and Lori Clearwater.
The west Auckland couple both work 50 hours a week, with a combined annual income of $120,000, but are crippled by weekly mortgage payments of over $900 for a $375,000 house. Starting a family is out of the question, while holidays, Sky TV and a social life are also off the agenda, as the couple budget down to the last dollar.
They are weighing up a move to Australia where, even if they lost money on the sale of their home, Potter estimates they could double their income and quickly end up better off. Sick of forking out “dead money” in rent, the couple approached banks for a 100 per cent $375,000 loan when the Sunnyvale house next door to Lori’s mum came up for private sale.
“They welcomed us with open arms. We were quite surprised when they said we qualified,” says Potter, an engineer.
“We would have needed a $32,000 deposit and it was just too hard to try to save that amount.”
Before becoming homeowners, the couple had money to spare, but the mortgage has put a stop to that – and their social life.
“We always had that bit of extra cash. Now, we only buy what we need.
“Then again, it’s not dead money any more, I’m not paying someone else’s mortgage.”
Potter says he’s sickened to think about how much he and Clearwater, an electrician, have paid in rent.
Now they also have to cope with a $1400 rates bill, which had risen more than $100 in the eight months the couple have owned the house.
They’re on a fixed 9 per cent mortgage for 24 months and are hoping interest rates fall by the time it ends in the middle of next year – if they haven’t already decided to cut their losses and cross the ditch.#”We are in a better position than most because we pay a slightly higher interest rate anyway,” says Potter.
“I know some people who are really freaking out at the moment.”
Grant told the Herald on Sunday it was becoming harder to secure a 100 per cent loan.
GE Finance had again tightened its lending criteria in the past few weeks to offset the economic downturn and more homeowners were struggling to meet repayments.
“We are getting three times the volume of those types of enquiries.”
Many families facing mortgage misery are seeking free financial advice.
Darryl Evans from Mangere Budget and Family Support Services said 15 per cent of the organisation’s clients had mortgages – treble the figure three years ago.
Families on middle and higher incomes were increasingly needing help and some asked for free food parcels.
One client had a combined income of $140,000 but were grappling so hard with a huge mortgage, holiday home, leased car and two sets of private school fees that feeding the family had become an issue.
Mandy Paget, A mortgage broker for New Zealand Mortgage Assignments, said those hurting most were first-home buyers who had borrowed 90, 95 or 100 per cent.
With property prices slumping, the capital value increases families were relying on for security were neglible. “There is hardly any equity there. They are in no position to sell, and even if they do, they won’t make the money back.”
The reality was, once you included lenders fees and insurance, 100 per cent loans often ended up being 101 or 102 per cent.
She said rises in living costs were adding to financial hardship but assured sacrifices made now would pay off sooner rather than later.
“If they can get by for the next year or two, then they should be okay. They will need to restructure their life and really budget, but houses will come back in value. In five years time houses will be much more expensive than they are now.”
There was also a glimmer of hope from Hayden Atkins, New Zealand economist for Macquarie Capital Securities. He believes interest rates may drift slightly higher but are “close to their peaks” and should ease at the end of this year.
But there is little comfort for people saving to join the property ladder
April 22 2008 | The Market | No Comments »
