Year in Review: Consumer choice king
1999 was the year that mortgage customers were really given choice.
Wednesday, December 15th 1999, 12:00AM
by Paul McBeth
- Interest rates have well and truly bounced off their lows and now look likely to continue the rise throughout 2000 and beyond
- The residential property market has gone from bubbly to bilious: the usual "spring surge" was more of a slither, the pundits are predicting flat house prices next year and a potential oversupply is looming of apartments and some rental properties
- However, 1999 was generally good news for consumers as more action by new mortgage bankers spiced up the competition, a number of players revved up their online application service and mortgage brokers continued to help more and more Kiwis with their biggest financial decision.
Lindsay Hore, mortgage broker for Forsyth Barr, says that homeowners are finally realising that they have more options than ever before.
"There's a real awareness now of the advantages of splitting loans and of using revolving credit as a business tool."
He says 1999 hasn't so much been a year of innovative mortgage products, but of much greater consumer awareness. "The products have always been there - it's just that the banks haven't really promoted them."
As William Cairns, of mortgage banker Cairns Lockie, puts it: "The consumer is really starting to get the benefits of competition and of the non-banks being in there, as that's keeping the rates down."
The choice is certainly widening, with more players offering mortgages and increasing numbers of brokers competing to service them. AMP Banking finally got going officially in October (although it incorporated AMP's existing mortgage arm, Ergo), Colonial New Zealand announced plans to move into the banking market next year and even The Warehouse is keen to get in on the act.
Martin Shepherd, sales manager for property funding specialists Loan Plan, thinks there will be a much greater use of technology-based lenders next year. "For example, Wizard is coming in here from Australia and they're very strong online, and I know that the banks are now also moving very rapidly towards online services."
"Pricing is also going to become a huge issue very soon as people say, hang on, you haven't got a branch on every corner but I don't really need that with telephone and Internet banking".
"As more insurance players are gearing up - Sovereign, for example, has really taken off this year and you've got others such as Colonial coming in - you've got a number of players making a pretty good impression."
So, let's take a quick look at what else is in store...
...for interest rates: onward and upward. Deutsche Bank are now tipping floating rates will go above the nine per cent ceiling tipped by some other forecasters for 2001 because of a robust economic recovery and inflation pressures. Most banks are currently offering floating rates of 7.25 per cent (see our table), up from the 6.50 per cent offered for much of the year.
ASB Bank economist Rozanna Wozniak, in the bank's October quarterly housing report, says that shorter-term mortgage rates are expected to bear the brunt of overall rate rises during the next few years. Meanwhile, the longer term fixed rates (three, five year terms and longer) will continue to be affected by what's happening in the US bond market.
...for the housing market: those higher rates will definitely have an impact. Mortgage broker Lindsay Hore says homeowners have gone out of their way this year to upgrade and renovate while rates were low, "so there are some big uncertainties in store for next year".
"Building permits, in Wellington at least, are outstripping demand so that's a bad sign. As for apartments, there's a lot of nervousness out there."
Massey University Real Estate Analysis Unit's latest report on the residential rental market says the outlook for private sector rents will depend on the degree of intervention in the housing market by the new Government. That aside, the Unit says the outlook for significant capital gains on rental properties are "currently not high" thanks to a net outflow of migrants, reasonably high vacancy rates and low inflation.
...for mortgage products: more use of all-in-one products is likely. This year, homeowners have really taken to splitting their loans between fixed and floating, different fixed rate terms or adding in a revolving credit-type facility as well and that's expected to continue. The explosive growth of the mortgage broking industry, increased use of the Internet for mortgage applications (although most lenders' sites are still informative rather than interactive) and heightened competition among lenders should also boost homeowners' willingness to shop around.
Paul is a staff writer for Good Returns based in Wellington.
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