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.

So while banks are practically screaming "Take ME!" maybe now 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. "Pick now before the RBNZ reinstates the Loan to Value regulations!" Yes, that happened today (12/11/20). 70% Loan to Value is back on for investors with more conservative banks seeking to put the brakes on ahead of a general RBNZ announcement. They always do their own thing anyway - which sends brokers racing to the next bank still offering 80% before the window closes. It's crazymaking.  

According to ANZ's October Property Focus, "The housing market is very tight, with inventory of houses on the market at an all-time low. This has added to price pressures, with house prices up 4% over the past three months....Average home loan rates across the four major banks are little changed over the past month."

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. Which 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 drop. 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. 

According to ANZ, "Floating is also unattractive and we instead favour the 1-year rate as a proxy for floating, mindful that the likely introduction of a “funding for lending” programme by the RBNZ next month is likely to lead to further mortgage rate reductions. It is this expectation that makes 2-year and 3-year fixed rates less appealing despite them being at historic lows and not significantly higher than the average 1-year rate." 

Not so fast. Floating your rate is also a much-considered decision depending on your goals and your personal risk tolerance. 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. 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.

About Susan Templeton

Susan Templeton is a personal mortgage adviser and home buyer coach in Auckland New Zealand.