As rates continue to fall, structure – not just price – is back in focus
With ASB becoming the latest major bank to cut fixed mortgage rates following the Reserve Bank’s latest OCR decision, mortgage conversations are once again heating up across New Zealand. But while rate movements grab the headlines, mortgage advisers remain focused on what moves the dial in the long term – structure.
Hamish Patel, mortgage adviser and owner of Mortgages Online, is one of the advisers leaning into that shift, as he shared recently with other FANZ advisers. An increasing number of advisers are advocating for holistic structuring strategies that offer both flexibility and protection.
One trend that has been gaining momentum in recent years is split banking – the practice of separating lending between two or more banks. While not new, the approach is becoming more widely adopted by clients looking to safeguard their assets and create flexibility in uncertain times.
“It’s becoming more popular,” Patel said. “When I look at a client and I think about their security, split banking has its advantages. You can potentially have tax advantages, and advantages in terms of protection.”
For advisers, using split banking is an opportunity to go beyond traditional structuring. In Patel’s view, split banking can be especially effective when combined with advice from other professionals.
“It’s also a great way to engage with your accountant, for example, which can be great for future referrals,” he said. “When you’re looking at a client’s structure, we have to be more holistic, and I find pulling other professionals into the talk can be a great way to add value.”
Split structures can raise questions, particularly around tax. Patel broke down a scenario that many advisers will recognise: a client has home debt with one bank, and investment debt with another. If the investment debt is secured against the home, does it remain tax deductible?
“The answer is actually yes, because IRD is not concerned about the fallback position of the lender,” Patel said. “They’re concerned about what you did with the money, all else being equal.”
Another trend Patel highlighted relates to deciding which property to freehold – a decision that can significantly impact financial flexibility. Traditionally, clients have been told to pay down their owner-occupied home first, but this may not always be the best idea in practice.
“What I’ve noticed over the last two decades is that when push comes to shove and you’re under pressure, if you ask your client which property they’d sell first to free up capital, you’ll find most people would sell the investment property,” he said.
“That’s why I take a different approach. I ask which property the client is more likely to sell first, and advise them to freehold that.”
With rates starting to come down and clients rethinking their next move, it can be easy to focus just on the numbers. However, advisers are finding that this is also a chance to step back and look at the bigger picture - how a loan is structured, what protections are in place, and whether it really fits where the client’s heading.
