Blog: The Landlord says...

Mortgagee sales are likely to hit the headlines again when the latest stats come out showing a big increase in the number of properties sold this way.

We’ve been looking at this issue for an article in the next edition of the NZ Property Investor magazine. Mortgagee sales are interesting, as most people think that banks are unhelpful and will move to a sale quickly.

It reinforces that notion banks are bastards.

Indeed the opposite appears to be true. Around 30-40% of mortgagee sales are conducted by banks, yet they are responsible for more than 80% of all home loans written.

That suggest second tier lenders, particularly finance companies and mortgage funds, are the ones fuelling this market along.

The latest stats, yet to be released by Terralink, will show that the number of mortgagee sales have increased yet again from just over 200 in March to more than 250 in April. No doubt this will be trumpeted as some additional sign of doom and gloom for the property market.

However, if this market is being driven by the second tier lenders rather than that banks, then it wouldn’t be out-of-line to assume that they are well through the process of liquidating their loan books and the number will start falling again.

So for investors looking to nab a bargain (according to QV the sale price of a property is on average 16% below market value), then they better get in quick.

The other thing which came up when researching this area was that banks actually want to avoid mortgagee sales.

As one said: “It is in the bank and customer’s best interests to not force the sale of a property, due to increased costs and the risk of the end sale price being lower than what could have been reached through a normal sale.”

There is a lot of head scratching going on over the future of home loan rates this week. As I said last week the Reserve Bank is saying its base official cash rate is likely to stay around the 2.5% mark until 2010 and home loan rates should stay down.

However, the market is disagreeing with the central bank, and saying that rate increases will start early in 2010. A wrap of what the economists are saying, now they have had some time to digest the RBNZ announcement and review the market reaction, is here.

This split in opinion is quite critical for borrowers. Most experts, whether they are economists or mortgage brokers, are saying the best strategy at the moment is short-term rates. Go for six-month or one-year terms and look to roll them at maturity.

However, many comments to the previous Blog suggested going long makes the most sense at the moment. A couple things to consider are that long-term rates, particularly five-year rates, are sitting at their historical average and are very close to where they were a year ago.

Short-term rates are some of the lowest on record, and as this graph shows, are significantly lower than a year ago. Indeed the six-month rate is more than 400 basis points lower than this time last year.

One of the more exciting things in what was a rather dull Budget last week was funding for home insulation jobs.

This is an idea the previous government started and National initially trashed when it took over the Treasury benches. Seeing it pick the policy up again is, pardon the pun, but warming news.

It’s also something which the media has really got its teeth into too.  There are plenty of stories about the “ice blocks” people live in and how cold New Zealand houses are.

Over the week I’ve also heard lots of stories about the old, cold houses and flats people have lived in before, and there are plenty of these stories.

The other thing which has caught my attention is how many people have asked about rental properties and whether landlords are going to get their investments insulated.

To me it is a no-brainer. Provide a good property and you will get better quality tenants, keep them longer and even charge higher rents. But unfortunately it seems not many investors have, in the past, been prepared to do this.

I hope that this attitude changes and landlords wake up to the offer which the government is making.

Meanwhile, if you are a landlord and have insulated a property I’d love to hear from you to find out how you went about it, and what the end result was. You can send an email to thelandlord@landords.co.nz