Whose Advice Is It Anyway?
Our favourite pundits have gotten quite the workout this year. Advice and predictions are flying around at speed. We no longer live in a world where we can count on anything staying the same to the extent we used to. So we hang on the TV reports, the news briefings, and our cafe friends. After a good chinwag among the local experts, I'm exhausted!
Recently, I noticed how often our PM signs off her press conferences with "remember to be kind, everyone."
I like her strategy. Learning to take a breath and get a grip is the kindest thing to do for ourselves! I think most of us realize that attempting to race headlong back toward what we used to call normal is no longer the goal. It's clear that the world is still wobbling and who knows what the future brings. In New Zealand, we ask: Is it "party while we can" time?
As financial advisers, we have seen big swings and cycles before so the first thing I think of is this. Don't take the bait. First, take stock with how you are now, really. How do you want to travel in this market going forward and most importantly - why? Since many people are still dealing with job insecurity or living on top of each other with our repats safely home, maybe it's a better idea to free up that trust and spread the love now instead of waiting until you are gone. We've learned that stressing about money during a crisis is not a great idea. What's money for anyway? Odd thought coming from a mortgage adviser? Not really. We take your life goals into account just as much as your need for funds next month. Most of us just want to know we can provide for ourselves and our families, that our friends are OK and how we spend the holidays this year.
The idea of getting into debt for the rest of your natural life means real reconsideration of what kind of life you are programming into your financial DNA. 30 years is a really long time and a million dollars is a really big stack of money to be responsible for. Many consider this market one big opportunity; like ripe fruit for those who are willing and ready. Unfortunately, the RBNZ has reinstated higher the Loan to Value regulations as of March 2021. 60% Loan to Value is back on for investors (40% deposit). This has sent everyone racing to the next bank still offering 80% and more chaos in an already hot market. Our Non-Bank lenders are still offering 80% LVR for qualified buyers on residential investment properties which can make sense for a couple of years.
The national median house price as increased by 23 per cent in the last year to sit at a record high of $780,000, according to latest Real Estate Institute data. The median price in Wellington and Auckland now exceeds $1m. Stuff article 18 March 2021
These home price increases are staggering and you will hear a lot of noise in the press about the potential of home prices coming down by political or other means. The fact is: no one knows. Fortunately, mortgage interest rates are holding in the historically low range for now. The predictions about mortgages recently have been to expect them to stay relatively low for the next 1-2 years. Will they change? Yes - but when!? Speak with your adviser about the impacts of locking your interest rate in line with your personal situation and goals*
Statistics can be useful, sure. Hey, I love economists. I just don't think they are very good predictors of real life. Statistics support trends and history but that's it. Who knew about Kaikoura's earthquake or COVID-19? Who could predict that our pristine tourism brand with its reliable stream of overseas visitors to our shores could ever be touched? Remember when I said out loud, 'Never is a long time, Bernard Hickey?" Life has a way of proving us wrong. This just emphasizes that every decision you make for yourself and your family should be based on your personal situation and doing your own due diligence.
Does this mean you go against their advice and wait to rollover your expiring loans or delay borrowing? Your choice totally depends on your circumstances, your age, your work plans, your tolerance for risk and your time frame, goals, how long you will hold the property, market trends, and so many other personal factors.
If you do have a loan expiring in the next month or two, it will pay to watch what's happening in rates and values and be in contact with your bank or broker. A brief time floating your rate gives you options to pick a rate when and if your bank succumbs to the next RBNZ shift. It also leaves you free to restructure terms or move banks without penalty if you are considering a change. That's why your bank is so keen to get you to refix your rate while they have you! There's no time like paying down your principal using your savings on lower rates. Many people are happy to keep the payment the same but shorten the terms, which will save you much more in the long term than just niggling over a .15% interest rate difference. If you don't have an amortization table (free on the web) ask your adviser to demonstrate and have that discussion.
One month we get advice to take the best 1-year rate and with the news release, the suggestion of fixing for longer is debated. There is almost a stigma that floating rates are somehow 'bad'. Not so fast. Floating your rate is also a much-considered decision depending on your goals and timing. No one bit of advice fits all. Economists tend to speak to the market of their peers who are mostly middle-aged professionals like them who don't get out of the C-Suite all that much. The fact I even have to say this just amplifies the need to think for yourself, consider your family, and get a good financial adviser on your side who can help you build a strategy for your next move and the move after that.
HINT: Give your financial adviser every document they ask you for on-time, kiss their feet when they get your approval and keep your powder dry for the right house. I won't bore you with the copied fizzy frothy charts my competitors sling around to hype an already insane market. When you're ready, call for a quiet chat about where you want to go and when.
Remember at times like this a little oft-quoted advice from the poet, Rumi: “What you seek is also seeking you.”
So for now, just keep calm and remember to be kind, everyone.
*This post is not advice. Consult a financial adviser for a professional opinion of your specific situation.