UK Immigrants unknowingly entering into NZ Sale and Purchase Agreements

A new Blog Post by Steve Koerber regarding new immigrants purchasing homes with major leaky home issues, got me thinking; I back Steve up completely on this stuff and there is also another key issue when it comes to new immigrants buying NZ property, specifically people from the UK.

According to Statistics NZ - 18,361 people came to live in NZ from the UK from July 2008 - July 2009.

The house buying process in the UK is somewhat different to NZ. In the UK, a 'Offer of Purchase' is made to the vendor from the buyer via an Estate Agent. Ok, so you may be thinking, this is not too different to the NZ way of putting in an offer on a property via a 'Sale and Purchase Agreement'; but here is the difference: The UK offer is not a legally binding contract like the NZ one is. You can walk away from the UK one at any time and you are also at risk right up until the day of Exchange (our Unconditional day) of being Guzumped or Guzundered.

So, my issue is that UK immigrants are at risk of unknowingly making offers on NZ property and not understanding at the offset that the offer is a legally binding document and they are at risk of losing their deposit or worse.

To aid in this issue, I think that NZ Real Estate Agents should at all times ensure that Immigrants are made aware of the risks of an unconditional Sale and Purchase agreement and advise to set conditions especially a full building report in support of Steve's blog post as mentioned above.

Retirement - Are you saving for yours?

I've been thinking about doing a blog like this for a while... It is such an important topic that people, especially the under 30's, just don't even think about, letalone plan for!

I've been doing a bit of research, which was not actually that easy as I couldn't find the stats that I was after, especially in NZ pages, but, I did have some interesting findings I thought i'd share.

One wesite I came across had the following:

A survey commissioned by the BBC has revealed that saving for a pension is not a top priority for many UK adults.

The report revealed that half of adults in the UK aged between 20 and 60 are not putting anything towards a pension with the situation being worst for those under the age of 30.

The reason for not saving towards their retirement is a lack of funds with the priority being paying off their debts.

Furthermore, younger adults said they felt retirement was too far away to be worth planning for.

Meanwhile, 45% of the 41 to 60-year-old category are not paying into a pension fund with a number of reasons being cited such as redundancy and women who never joined a pension scheme because of giving up full-time work to have children.

This explains that basically HALF of people are not doing anything about their reitirement - that is pretty staggering in my opinion!

This website explained componding interest quite well I thought http://www.sheknows.com/articles/807585.htm.

Both money and years factor into how well your retirement account will do over time. The sooner you start, the more your money will compound or grow, even if you begin by investing only a small amount each month. The interest you earn will continue to compound over time, growing the value of your account substantially as the years add up.

Example

The earlier you start investing, the more time your money has to compound, which earns you a higher reward in the end. Here’s an example of consistently investing $100 per month at 5% compounded quarterly until age sixty.

Starting when you're 20... By age 60... $152,410

Starting when you're 30... By age 60... $83,525

Starting when you're 40... By age 60.... $41,175

Sorted.org.nz did have some good information for when you actually want to start the planning phases and working out how much you will need. See http://www.sorted.org.nz/home/sorted-sections/retirement

Even if it just $100-$500 per month, it's something. Or even if it is just kiwisaver, it's something. Maybe even a rental property perhaps? At least then you can claim on the tax losses and offset them against your personal 9 - 5 income. My mix at this stage is property and kiwisaver, it's not much but it's something. Sounds all very cliched but honestly a little bit of planning now can save a hell of a lot of hard work and unnecessary stress later.

You are eventually going to get to retirement age one day, and I don't know if anyone agrees with me but the older I get the quicker the years are going.

Unfortunately we don't live in Never Land. The one thing you can 100% depend on in life, is time.

Cross Securing vs Stand Alone Mortgages

I wanted to offer some clarification on cross securing vs stand alone mortgages when obtaining finance for a new property.

CROSS SECURING
This means the bank you are mortgaging your property with is taking security over A) the property you are purchasing AND B) your existing property or potentially your whole portfolio of properties if they are all with the one lender. The danger with this is people are unknowingly getting themselves into a tangled web and when it comes time to liquidate and sell off one property, issues arise. One of the issues with cross securing is explained in a NZ Herald article I read recently, where Liz Brown from the Banking Ombudsman was interviewed.

"When people buy two or more properties, they think one loan belongs to each property and, if they sell one, only that loan has to be repaid." she says.

"But normally the bank will have taken security over all their properties for all of their debt. And, particularly if they don't have much equity left in the properties, the bank is within its rights to ask the customer to reduce that debt as well as pay back anything they took out in the first place to buy the property they have now sold."

Brown says while this is legitimate, she is concerned that banks are failing to tell people they plan to do this until long after they have made their plans and commitments based on the expectation of getting more from the sales than the bank leaves them.

STAND ALONE
If possible, always try to insist new mortgages are only secured against the new property. Sometimes this will not work due to cashflow or lender criteria reasons but wherever possible, re-finance existing properties to pull out enough cash so you can use this as the deposit (work off 20% needed here) to purchase the new property. That 20% deposit you have pulled out from the existing property/ies will grant the new property its very own mortgage at 80%, meaning no cross securing is done and the properties are stand alone.

Some lenders only have the cross securing option and you don't actually get a choice in the matter. However some lenders do have this option so it certainly pays to ask the question up front.

This is all more reason why you should spread your mortgages around different lenders so again, you don't end up in a tangled mess like you can if you have all your eggs in one basket.

Bankruptcy v's No Asset Procedure (NAP)

I thought after my last blog I would explain a bit further on the specific details of the options available to you if you find you are in a position where your debts are out of control. After all, nothing in life is that big of a deal that you can’t get out of, it’s just knowing how to deal with difficult situations when they arise. As my mother always told me, “being overwhelmed is all in your head so just get on with it!”

Bankruptcy

Bankruptcy is a way of dealing with debts you have no means of repaying. A clean slate.

There are two ways to become bankrupt:

1. The individual applying for bankruptcy, a No Asset Procedure or a Summary Instalment Order now applies for these options online via the Insolvency and Trustee Service website or by sending a completed statement of Affairs and application form directly to the Insolvency ad Trustee Service.

2. A creditor can apply to the High Court to have a debtor adjudicated bankrupt.

Becoming bankrupt is a serious decision and it should only be viewed as a last resort. It is recommended that anyone considering making themselves bankrupt should get professional advice on how bankruptcy might affect them.

Information above collated from Ministry Of Economic Development - http://www.med.govt.nz

The bits I found really daunting about bankruptcy was the fact that you needed permission by someone I a likened to a parole officer (actually called an Official Assignee) if you were leaving NZ at all, even for a holiday. Failure to do this can result in fines or being chucked in prison or both – so, it’s recommended that you really do not screw with the system and you follow their rules. Of course there are a bunch of other rules around bankruptcy you can find here but I thought the holiday one was pretty severe as bankruptcy can last up to 7 years.

No Asset Procedure

A debtor who is unable to pay their debts may have an alternative to bankruptcy through the No Asset Procedure (NAP). Unlike bankruptcy, the NAP lasts one (1) year. Creditors cannot pursue you for debts included in the NAP.

1. To qualify you must:
2. have no realisable assets (realisable assets exclude cash up to $NZ1,000, a motor vehicle up to $NZ5,000, tools of trade, and personal and household effects)
3. not previously been admitted to the no asset procedure
4. not previously been adjudicated bankrupt
5. have total debts (excluding student loan) not less than $NZ1,000 and not more than $NZ40,000. (Please note that your debt level when applying for entry to the No Asset Procedure will be calculated including all unsecured and secured debt)
6. complete a means test showing you have no means of repaying any amount towards your debts.

The Official Assignee can refuse entry into the NAP if:

1. your creditor(s) object to entry or
2. bankruptcy proceedings have been initiated and the likely outcome for the creditor would be materially better if the proceeding continued or
3. you have concealed assets or
4. you have committed an act that would be an offence under the Insolvency Act 2006 were you bankrupt or
5. you have incurred debts knowing you had no means to pay them.

Information collated from - Bankruptcy & No Asset Procedure

In summary – if you own property or have debt in excess of $40,000 bankruptcy might be an option for you (lasts 5-7 years). If you do not own property and your debt is less than $40,000 NAP might be an option for you (lasts just 1 year).

For goodness sake though, do not enter these decisions lightly, do your own research, get professional advice and try all other avenues before taking one of the above steps.

What to do when things go bad!

The last six months have been the worst of my life in a financial sense. I have lived through the terrifying prospect of filing bankrupt and even when I accepted the fact that I might have to file bankruptcy, it didn’t have the effect on me that you would think it would. I was relatively calm about the ordeal as it just seemed too far out of my hands. One thing that I did have a realisation on was that bankruptcy, although wasn’t going to be a fun thing to go through, really wasn’t the end of the world. It was to be a step back, but it wasn’t going to kill me so I just needed to get on with life and that is precisely what I did. In the end I didn’t go bankrupt and a few months on I am starting to recover financially; I personally faced the worst case financial scenario, and I recovered. Nothing much scares me now.

The financial issues I faced was due to loss of daily income from my employer who quite simply didn’t pay me throughout the whole time I was employed by them (approximately 4-5 months); I continually gave them the benefit of the doubt and brought into the excuses they continued to make and as it turned out, it bit me severely in the arse! In the meantime I had mortgages, personal loans, car loans, rent and food to pay for and with NO income, this was rather difficult as you can imagine. Also emotionally I was a wreck and pretty highly strung due to the constant phone calls from creditors. All I really wanted to do was bury my head in the sand and not look up until the coast was well and truly clear.

The coast wasn’t going to clear on its own, so from my experience if you are in a financially tight or unstable position, step up and TALK TO YOUR CREDITORS, they want to help you, they need to know what is going on, they are actually bound by the Credit Contracts Act to consider helping you if they can. The person on the other end of the phone is human too. Just explain your situation, advise you are not abandoning your debt but you need some help. Don’t be afraid to ask for help, people generally are willing to help if asked.

So in summary – I have two offerings of advice if you find your financial situation is getting out of control:

1. If you choose bankruptcy – it won’t kill you. Don’t panic, just go through the steps and get on with life. Of course research this; It is not necessarily the easy way out by any means!
2. Talk to your creditors – they must be kept in the know.