Year in review: mortgages

by Paul McBeth

The Christmas cards are piling up on the mantelpiece, you've ordered enough ham and turkey to feed the in-laws and summer holidays beckon.

But, before you switch off for the season, here's a whiz through the millennium year and some thoughts for 2001.

Yuk year for housing was one of our headlines on the mortgage page. Well, the market was certainly weak and a number of investors realised that residential property wasn't a get-rich-quick scheme. However, housing confidence had picked up again by October and is expected to improve as the domestic sector sees some trickle-down from an improving export sector. The Reserve Bank stopped putting interest rates up in May (the Official Cash Rate has been at 6.5 per cent ever since), but chances are they'll get round to increasing it again early next year before easing off again by late 2001. Mortgage rates next year? Well, a lot depends on the RB and whether they judge that inflation is under control, but some upside still for floating and short-term fixed rates and further falls in longer-term fixed rates is probably the best guess.

Saving money and time were key themes. For all those impatient types out there, ASB Bank ran a spring promotion called the 60 minute Home Loan Challenge (if their loan approval took a second longer, you got $100 worth of Mitre 10 vouchers). Meanwhile, online mortgage broker E-Loan, new in town since June, launched the Speedy Lender service (lenders that could cope got a rocket icon next to their names) promising conditional loan approvals within half an hour. Offers of cheap conveyancing, fee-free loans and other benefits were popular, and the deals are expected to pick up in 2001 as people gain a growing appetite for snappy service.

More info and more choice for borrowers was also a hot theme, as the likes of Intel Mortgages, Mortgagenet and E-Loan provided comparative information online, mortgage lenders geared up their websites and mortgage broking continued to grow. From originating about seven per cent of loans four years ago, mortgage brokers are now estimated to be responsible for around a quarter of all loans. The profile of mortgage broking is a lot higher and brokers themselves are reporting that borrowers are much better informed (thanks to more data online and increased advertising by banks and other lenders on managing your mortgage). The use of mortgage brokers is likely to continue to grow: we've still got a long way to go to match places like California, where 70 per cent of all loans are handled by brokers.

Saving you money were the non-bank lenders as their growing impact on the market prompted the established players to trim their margins. In fact, Cairns Lockie pointed out in its most recent newsletter that its floating rate was currently 25 percentage points below the banks compared with 75 points a year ago, saying that was mainly because its competitors had sharpened their rates. "Despite the pricing differential narrowing, this increase in competition has still brought positive gains to the consumer both with choice and lower rates." Meanwhile, another aggressive lender to set up here during the year was Wizard Financial Services, Australia's second largest non-bank lender. KPMG's annual financial survey noted that non-bank lenders were changing the marketplace, as had already happened across the Tasman. KPMG said it was becoming hard to differentiate mortgage products on straight interest rate pricing, so that lenders were turning to greater product innovation

Saving you money part II : banks also got in on the act by giving customers more tips on managing their mortgages. Remember the WestpacTrust ads, offering ways to save up to 40 per cent on your interest costs, and AMP Banking's series using financial writer Martin Hawes for mortgage slimming tips?

Cheaper conveyancing also hit the market in a number of guises. Banks and others joined up to offer reduced legal fees (for example, ANZ's link-up with Key Law and the Public Trust), while new real estate agents REAL Ltd tried a different tack through their pairing with local legal firms. Expect more on this next year, as much-awaited legislation means that conveyancing will no longer be the sole preserve of lawyers.

New products abounded, although some were the same old suspects dressed in fancy clothing. A couple of banks launched products with lower rates but more conditions (ASB Bank's Economiser and ANZ's Money Saver). Loyalty points for loans was another twist (such as BNZ's GlobalPlus Home Loan and ANZ's QTAV promotion), while WestpacTrust bundled up incentives on insurance, banking and credit card charges with discounted mortgage rates and called it Redpac. One company developed branded mortgages (Financial Marketing Services); another an outsized loan for the big borrower (Mortgagenet's Jumbo Home Loan); others hustled on price and low or no fees (Wizard's Rate Breaker and Essentials and Cairns Lockie 's Quick Start); while BankDirect held a five-day loan tender and asked borrowers to name their own rate (highest bidders accepted). Expect to see more specialist products next year - for first home buyers, people building a new house, people buying more than one property to name a few. And watch for more tie-ins like reward points or discounts on other financial products.

Paul is a staff writer for Good Returns based in Wellington.

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