Simplicity may not be the boon first-home buyers expect, broker warns

Friday, 4 October 2019

First-home buyers could find they're no better off with the Simplicity mortgage product than they are with a bank, one mortgage broker says.

KiwiSaver provider Simplicity on Thursday revealed it was to offer, by a ballot system, mortgages to people who had been members of its scheme for at least a year.

They would pay 2.95 per cent on floating rates, compared to 5 per cent or more for the big banks. A one-year fixed rate is 3.35 per cent compared to 3.65 per cent at the big four banks.

It expects to make $50 million of loans within the first six months of operation.

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But John Bolton, founder of mortgage broking firm Squirrel, said he was not convinced it was a compelling offer.

John Bolton isn't convinced by Simplicity's mortgage offer.

'The loan needs a registered valuation, charges an upfront fee, yet to be disclosed, and doesn't offer cash backs or cover legal costs which adds upfront costs and about 0.5 per cent to the effective rate over two years taking it back to bank rates but without any of the features of banks' products. It has no flexibility, no ability to borrow more later on, no ability to buy a second property, or bridge if buying and selling, no revolving credit, no transactional access. It cannot be purchased in a trust and cannot have guarantors.

'Whilst the product itself is simple there appears to be no ability to get advice through the buying process – for example whether or not a property is suitable as security. For example, what to do if a property has a code of compliance issue, or is monolithic, or an apartment less than 50 sq m and then making sure buyers understand all of these risks and issues during the buying process especially if they buy unconditionally at auction.'

He said he did not think many people would qualify for such a loan.

'The first-home buyer needs to have a 20 per cent deposit which we don't see very often except where parents can afford to gift part of the deposit. Realistically, the average first homebuyer has a deposit of around $70,000 meaning they could borrow $280,000 and buy for $350,000. Entry-level in Auckland is $600,000 and the type of buyer for that house in Manurewa doesn't have $120,000 deposit.'

Sam Stubbs, Simplicity founder, said he did not know how many people would meet the criteria.

The average first-home purchase for Simplicity KiwISaver members was $650,000 ,requiring a $130,000 deposit, he said.

'We know that many banks offer a slightly lower rate for under 80 per cent loan-to-value loans, so there is clearly a market for them.

'Of course, with our interest rate it's going to be more affordable than via a bank, and that's part of why we did this, increased returns being the primary reason.'

He said advice would be available to members from their lawyers. 'We are also providing access to fee-based financial advisers soon on our website, with no economics between Simplicity and the advisers.'

Glen McLeod, director of Edge mortgages, said it would be interesting to see the credit criteria and to understand the sustainability of funding/.

'More players in the market is a good thing. Provided the offering was good for my clients and offered flexibility along with the rate I would be more than happy to support them.'