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Simplicity declares war with 2.95% mortgage

Non-profit KiwiSaver provider Simplicity has declared war on the major banks by launching a 2.95% mortgage for first-home buyers.

Thursday, October 3rd 2019, 5:00AM 9 Comments

The investment firm will offer the cut-price mortgage to first time buyers, lending to customers who have held a Simplicity KiwiSaver fund for more than a year.

Simplicity members can access the mortgage through a monthly ballot system. Once approved, recipients will have six months to buy their first home.

The loans are available to customers borrowing up to 80% LVR for their first property. Repayments cannot exceed 30% of after-tax income for borrowers.

The Simplicity mortgages will have no break-fees, no penalty fees, and members can repay loans in full at no extra cost. The firm will fund the loans through KiwiSaver and investment fund contributions.

Simplicity founder Sam Stubbs said his company was keen to challenge the established banks who were “driven to make profits” with “high margins 20% greater than Australian counterparts". Stubbs believes Simplicity will lend $50 million in the first six months.

Stubbs told TMM Online New Zealand banks operated with “excessive” profit margins, and failed to pass on enough of the recent Official Cash Rate cuts to customers.

“For a long period of time, New Zealanders have been paying too much for their mortgages. There are talkers and there are walkers. We decided to do something about it,” Stubbs added.

“This will show people just how low mortgages should be. Even at low rates, these mortgages will make our investing members a lot more money, too,” Stubbs added.

Simplicity will not pay advisers trail commission. Stubbs says advisers should consider the new product "which will free up money for clients, get them into their first home, and leave them with more money to invest".

According to TMM's rates table, the cheapest floating rate on offer in the market is Resimac's 4.5% loan. The cheapest fixed rate, ICBC's one-year, is at 3.18%.

Stubbs said Simplicity decided to go into the mortgage space as it had reached a “critical mass”, adding the firm would have a “high quality” first home mortgage book.

He expects mortgage lending to be a “permanent fixture” for Simplicity, and likened the new business model to a building society.

“Building societies have been doing this for centuries, but needed branches and staff. Now, we can do it online, and cut our mortgages to the lowest rate,” Stubbs said.

The first ballot for Simplicity members opens on November 1. The winners of the ballot will be chosen in early December.

Tags: first home buyers KiwiSaver Lending OCR Sam Stubbs Simplicity

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Comments from our readers

On 3 October 2019 at 7:58 am smitty said:
Always look for the flow of money: " The firm will fund the loans through KiwiSaver contributions". So lending money is contingent upon KS contributions coming in from their client book. No doubt they have crunched the numbers, and I certainly hope it works for them, but if a recession comes along, a cheaper supplier, poor performance, liquidity crunch, what will happen if these ongoing contributions suddenly start to dry up... Recall of mortgages? Does this mean that potential KS holders are at risk of having illiquid assets, given it is the broader KS client base that is providing the funding. I'm also interested as to how or if the Trustee approved using client money for investment into mortgages? Begs the question why Banks haven't thought this up yet? Hmmmmmm
On 3 October 2019 at 12:22 pm Gordon Gecko said:
There is no way the product would have been launched without the Supervisor being all over it. The assets are all going to be the highest possible quality and there are strict lending criteria according to the press release so if there is a liquidity crunch these will be the sort of assets you'd want to be holding. Why haven't the banks done it before - why would they when they can make a margin of at least 2.2% and it is a giant cartel of self-interest.
On 3 October 2019 at 12:39 pm MPT Heretic said:
GG I think you have missed the point with Smitty's valid question about liquidity at the KiwiSaver portfolio level. Of course KiwiSaver funds are locked in but investors can change their fund options.
What is missing from the article is confirmation of what yield the KS funds will actually receive. Is 2.95% or some reduced amount due to admin charges
On 3 October 2019 at 2:34 pm Gordon Gecko said:
At the portfolio level the impact on liquidity is going to be small if they lend $50mln on a total book of $1.2bln. The annual liquidity ratio will reflect this too.
On 3 October 2019 at 4:00 pm Skeptical said:
Correct me if I'm wrong regarding this. But I imagine, the lending will be sold by simplicity as a company and purchased by KS members as FI units. All of their funds currently have a decent amount of % attributed to NZ FI, so regardless if a member switches between funds they'll still have sufficient amount of members funds in the pool. Plus the even if they took a portion for 'admin' the return is going to be higher that most FI options out there.

I imagine most of this relies on the OCR staying low for a very long time.
On 4 October 2019 at 7:38 am MPT Heretic said:
Lets hope you are wrong Skeptical...but I fear you are not. For a company that is quick to have a crack at other providers over fees and ESG issues they seem very happy to enter into vertically integrated structures with conflicts of interest whereby they commit their KiwiSaver investors to investment options that Simplicity support and presumbly benefit from in some way. Their commitment to a PE fund is another example. Surely their investment managers must have the ability to not invest at all in these products if they decide that is most appropriate. It would be interesting to hear what their Supervisor thinks about this arrangement.
On 4 October 2019 at 1:03 pm Seehydenorhair said:
Why not just invest in a company buying and building rentals? That way they do good in increasing the housing stock and get the low term equity grow while having a conservative rental income.

I am dubious about the robustness of their model to withstand fluctuating economic cycles. The cynic in me, thinks it is almost like an entity that is struggling to cover the costs of their operation due to their low fee sales pitch so they are now trying to play a different game.

Someone is going to get burnt.
On 4 October 2019 at 1:08 pm MediCare said:
Well done Simplicity! What a fantastic initiative.
On 4 October 2019 at 1:59 pm Seehydenorhair said:
Why not just invest in a company buying and building rentals? That way they do good in increasing the housing stock and get the low term equity grow while having a conservative rental income.

I am dubious about the robustness of their model to withstand fluctuating economic cycles. The cynic in me, thinks it is almost like an entity that is struggling to cover the costs of their operation due to their low fee sales pitch so they are now trying to play a different game.

Someone is going to get burnt.

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Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.24 6.79 6.65
ANZ 8.64 7.84 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.24 6.79 6.65
ASB Bank 8.64 7.24 6.79 6.65
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - 7.24 6.79 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.84 7.39 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 7.04 - -
Co-operative Bank - Owner Occ 8.40 7.24 ▼6.79 ▼6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.74 ▼7.29 ▼7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.69 6.45 6.19
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 ▼6.75 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.79 ▼7.39 ▼7.25
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 8.25 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 7.25 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.75 7.35 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 8.30 7.89 7.69
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 9.30 8.89 8.69
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.84 7.45 7.25
SBS Bank Special - 7.24 6.85 6.65
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.74 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 8.04 7.55 7.45
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 7.24 6.75 6.65
Unity 8.64 6.99 ▼6.79 -
Unity First Home Buyer special - - 6.45 -
Wairarapa Building Society 8.60 7.15 6.85 -
Westpac 8.64 7.89 7.49 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.29 6.89 6.65
Median 8.64 7.29 7.32 6.65

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