Olly Newland: Hedge your bets or try threats to get free

Despite the financial crisis, the future holds huge opportunities for those prepared to take cautious risks. Property's great advantage is its tangibility - it doesn't disappear overnight as other investments can.

But borrowers are at the mercy of lenders and the astronomical cost of the break fees banks charge to reset mortgages is a worsening scandal. The heart of the problem is that there is no level playing field - the system is weighted in favour of the banks.

Even the Banking Ombudsman can only mumble and mutter and do nothing. In reality, the banking system is a cartel - competition is virtually non-existent.

Although the official cash rate is on its way to 2.5 per cent, lower mortgage rates are available only for new borrowers or those on floating rates. At the same time, should your cheque account go into overdraft, the interest rate is around 17.5 per cent and on credit cards it's around 21.5 per cent. In my book, that's not playing the game.

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We have sold our apartment and bought another in the same complex in a downsizing move, as we are aged 60. We will no longer need our $220,000 mortgage but it is fixed for another three years. Is there any way to avoid or lessen the early repayment penalty? We have our business loans with the same bank. - Nell and Alan

I suggest you keep the mortgage, investing the spare cash in the meantime. When interest rates go up, you will be able to repay without penalty. Alternatively, you can try threatening to take your business accounts away unless the bank agrees to waive or reduce its break fee if you want to pay off the mortgage now.

I am thinking of selling my house but don't know how to pick the right agent. - Craig

I would ask three agents who have "For sale" signs up outside houses similar to yours in your area to supply a written proposal on the best sale method, covering the costs involved, including commission, advertising and signage, and their estimate of the sale price range. You are not obliged to accept any of them or the suggested price so don't feel pressured, but it will be a useful guide.

With the projected increase in immigration, the still-high land cost and Auckland supply shortage, building costs and council charges, I would have thought that new house prices will remain high and lead to a rise in the second-hand house market? - Ron

The one fly in the ointment is unemployment - if people feel they cannot rely on regular income, one of the first things to slump is house-buying activity. Instead, people will rent, share accommodation with friends or relatives or even fill up trailer parks.

I am looking at a house with a CV of $950,000 in a good area, but the agent tells me the owner paid $1.5 million by way of a trade. How can a trade price be so different from the CV? - Ruth

It's not uncommon for property to be traded in part or whole for other assets, and vice versa. Cars, boats, caravans and actual real estate are regularly used as part or full payment one way or the other. However, distortions can occur when the parties to a deal are trying to balance the numbers. A property that may have a market value of, say, $500,000 is "written up" to $1 million to create an extra $500,000 equity, which may then allow a deal to proceed. Getting a registered valuation is advisable.

My husband and I are looking to trade property and recently bought a property for which the total cost, including renovation, was $415,000. On resale it made a pre-tax profit of about $35,000. We had budgeted on a $50,000 profit but the market had dipped when we came to sell. How do you determine how much profit there should be in a "doer-upper"? - Jacki

Start with your optimum selling price and deduct all costs, plus a 20 per cent margin for safety. It is not an exact science and there is no formula.

* Olly Newland is a property investor, consultant and best-selling author of six books.

You can email your burning property questions to omn@ollynewland.co.nz or andrea.milner@heraldonsunday.co.nz

www.ollynewland.co.nz