The lowering of mortgage interest rates and the resulting surge in house prices has created some major winners and losers in the housing market.
The obvious losers are aspiring first home buyers, while real estate agents and banks are obvious big time winners. But another group that has benefited hugely from falling interest rates and rising house prices is existing home owners.
As well as tracking how easy or difficult it is for first home buyers to get a foothold in the housing market, interest.co.nz's Home Loan Affordability Report also tracks how existing home owners are faring, and how easy it is for them to move up a rung on the property ladder.
It shows that existing home owners have been doing very well indeed.
The first home buyer of 10 years ago is now extremely well placed to move up the property ladder by selling their starter home and buying something a bit more desirable. In the Home Loan Affordability Report we call these people second rung buyers.
Take the example of a couple who purchased their first home at the lower quartile price 10 years ago. In March 2011 the Real Estate Institute of New Zealand's national lower quartile selling price was $250,000. By March this year that had increased to $598,000.
If first home buyers had purchased their home back in 2011 for $250,000 and sold it at the March 2021 lower quartile price of $598,000, they would have made a substantial (tax free) capital gain which they could use to buy a home at the current national median selling price of $826,000.
So they would be trading up form a lower quartile-priced home to a median-priced home.
The financials would look like this:
If the house was originally purchased 10 years ago for $250,000 with a 20% deposit, they would have needed a $200,000 mortgage.
If the mortgage was for a 30 year term the principal repayments over the last 10 years would have amounted to around $37,620, which would have left $162,380 still owing on the mortgage.
If they sold the property at the March 2021 lower quartile price of $598,000, they would be left with $414,690 to use as a deposit on another home, after repaying the $162,380 still owing on the mortgage and paying real estate agent's commission (we've used 3.5% in our calculations but commission rates can vary).
That would be enough for a 50.2% deposit on a home at the March 2021 national median price of $826,000, meaning they would need to finance the purchase with a mortgage of $411,310.
If the interest rate on the mortgage was 2.53% (the average of the two year fixed rates offered by the major banks in March) and the mortgage was for 30 years, they'd need to set aside around $376 a week for mortgage payments.
The combined national median after-tax pay for couples aged 35-39 (if both are working full time) is $1979 a week, so if they were on average wages their mortgage payments would be taking up just 19% of their take home pay. Financially, that should put them in a very happy place.
They would have gone from owning a home in the bottom end of the market to owning one in the middle of the market, would also have a significant amount of equity (50%) in their home and by any measure the mortgage payments would be considered affordable.
They would also have plenty of financial options. Because the mortgage payments would take less than a fifth of their after-tax pay that would leave plenty of money for spending on other things, or increasing their mortgage payments or making lump sum payments to pay off their mortgage sooner, or tipping some money into savings or investments.
They would also have plenty of wriggle room to cope with a financial disaster such as a sudden loss of income or rise in mortgage interest rates by restructuring their mortgage.
So while the decline in interest rates and the dramatic surge in house prices it spawned has been a disaster for the current generation of aspiring first home buyers, it has left the previous generation of first home buyers sitting pretty.
The numbers used in the above example are based on national lower quartile and median prices and national median wages, but of course these figures would vary by region.
The table below shows how the figures would vary across all of New Zealand's main urban districts.
The numbers are based on the same model used in the example given above - a couple who bought a lower quartile-priced home 10 years ago and sold it in March this year to buy a median-priced home.
The table shows how much equity they would have from the sale of their first home to put towards the deposit on a median-priced home, how much of a mortgage they would need, what the mortgage payments would be and how much of their income that would eat up if they were earning median rates of pay for their region.
Perhaps not surprisingly, Southland is the most affordable region in the country with the repayments on a median-priced home taking up just 9% of the after-tax pay for typical second rung buyers, while Auckland was the most expensive region at 23%.
By almost any measure, those figures suggest moving up the property ladder should be an extremely affordable proposition for second rung buyers in all parts of the country. This has likely been a major contributing factor to the recent high levels of buoyancy in the residential property market.
The comment stream on this story is now closed.
| Moving up the Property Ladder | |||||
| The financials of selling a lower quartile-priced home purchased 10 years ago, to buy a home at the current median price | |||||
| Equity from sale of lower quartile home for deposit on median-priced home | Amount of mortgage required for median-priced home | Weekly mortgage payments | Median after-tax pay for couples aged 35-39 | Affordability: Mortgage payments as % of income | |
| Region | |||||
| Northland | $326,615 | $383,385 | $351 | $1,824 | 19% |
| Auckland | $595,173 | $524,827 | $480 | $2,098 | 23% |
| Waikato | $408,687 | $321,313 | $294 | $1,904 | 15% |
| Bay of Plenty | $474,520 | $347,480 | $318 | $1,578 | 20% |
| Hawke's Bay | $419,125 | $291,875 | $267 | $1,789 | 15% |
| Taranaki | $241,621 | $273,379 | $250 | $1,837 | 14% |
| Manawatu/Wanganui | $343,224 | $223,776 | $205 | $1,837 | 11% |
| Wellington | $496,696 | $386,004 | $353 | $2,184 | 16% |
| Nelson/Marlborough | $381,351 | $300,649 | $275 | $1,797 | 15% |
| Canterbury/Westland | $288,386 | $286,614 | $262 | $1,897 | 14% |
| Otago | $365,586 | $334,414 | $306 | $1,850 | 17% |
| Southland | $230,760 | $184,240 | $169 | $1,778 | 9% |
| New Zealand | $414,690 | $411,610 | $376 | $1,979 | 19% |
| City/District | |||||
| Whangarei | $381,166 | $341,834 | $313 | $1,940 | 16% |
| Rodney | $659,058 | $490,942 | $449 | $2,098 | 21% |
| Auckland North Shore | $718,869 | $631,131 | $577 | $2,098 | 28% |
| Auckland West | $580,559 | $407,441 | $373 | $2,098 | 18% |
| Auckland Central | $632,863 | $752,137 | $688 | $2,098 | 33% |
| Auckland Manukau | $592,825 | $472,175 | $432 | $2,098 | 21% |
| Papakura | $493,727 | $371,273 | $340 | $2,098 | 16% |
| Franklin | $503,284 | $322,716 | $295 | $2,098 | 14% |
| Hamilton | $461,771 | $318,229 | $291 | $1,897 | 15% |
| Tauranga | $557,464 | $343,536 | $314 | $1,844 | 17% |
| Rotorua | $395,084 | $254,916 | $233 | $1,891 | 12% |
| Gisborne | $375,886 | $254,114 | $232 | $1,658 | 14% |
| Napier | $451,249 | $269,751 | $247 | $1,796 | 14% |
| Hastings | $434,315 | $302,685 | $277 | $1,789 | 15% |
| Wairarapa | $377,482 | $207,518 | $190 | $1,509 | 13% |
| New Plymouth | $345,340 | $267,160 | $244 | $1,810 | 13% |
| Whanganui | $335,300 | $185,700 | $170 | $1,699 | 10% |
| Palmerston North | $406,534 | $243,466 | $223 | $1,944 | 11% |
| Kapiti Coast | $537,338 | $342,662 | $313 | $1,949 | 16% |
| Porirua | $531,538 | $428,462 | $392 | $2,070 | 19% |
| Wellington Hutt | $509,900 | $291,100 | $266 | $2,124 | 13% |
| Wellington City | $525,257 | $534,743 | $489 | $2,483 | 20% |
| Nelson | $380,442 | $301,558 | $276 | $1,797 | 15% |
| Christchurch | $281,353 | $318,647 | $291 | $1,890 | 15% |
| Timaru | $226,098 | $203,902 | $187 | $1,733 | 11% |
| Queenstown | $634,534 | $550,466 | $504 | $1,850 | 27% |
| Dunedin | $395,464 | $254,536 | $233 | $1,732 | 13% |
| Invercargill | $253,637 | $176,363 | $161 | $1,694 | 10% |
*This article was first published in our email for paying subscribers on Thursday. See here for more details and how to subscribe.
96 Comments
A rising tide lifts all boats...but if you don't have a boat you have a problem.
The power of property ownership is unambiguous.
Only the naive and the thick would dispute the above.
TTP
You guys always miss that many are not as lucky and cannot afford accessing that "power".
I dunno, most people would rather be young with their best years ahead of them than being some crusty old boomer with one foot in the grave clutching their precious "property".
Ah yes, you reminded me a song that always get played along the way during hunting trips up the hills.
Brock
Great.
So from here in we are going to see lots of positive comments from you now on rather than you whining about property.
You've just made my Friday. :)
My comments are always positive printer8.
I just believe its positive to have a fair society based on opportunity and merit instead of entrenched rent-seeking behaviours.
Only the thick cannot grasp that one can grasp the undisputed power of property, while at the same time understanding the unfairness of the power imbalance or 'social inequity' if you prefer
However some cannot hold two concepts in their mind at the same time, and one has to be dropped to allow the other to fit in
TTP your trolling powers are unmatched. Bless you.
As long as it doesn't become a Flood and wash away everything.
Noah, get the boat.
Great - your example shows someone with a $160K mortgage moving up the ladder to a $410K mortgage -- or taking on over 150% more debt ..... Great position indeed
Yup, a crazy prospect. My wife and I are considering the opposite. Sell our Auckland house for $1m and buy with no mortgage in the regions.
Yes, that is the pattern - hitch up those ponies and head south. Here in Auckland at lunch yesterday I agreed with my colleagues that it is hardly surprising Dawklanders are so unpopular in the provinces. We came, we bought.
...NZer's forced out of Auck to the provinces, those in the provinces forced into what..cars and campgrounds?
Lets' open the doors even wider and speed up the 'tenant in our own country' issue that JK campaigned on all those years ago.
And into Motels in Rotorua.
Mentioned earlier in the year of a motel owner from Rotorua buying a family home in eastern bop as a bach. That family bought elsewhere but eventually down the line a family will have moved into a Rotorua motel from that initial purchase :(
Worked for me, moved from Auckland to Tauranga to a way better house (1996 built to 2015 built) and came out with $100K in the bank. House prices in Auckland are a Joke and the quality of the stock is just appalling. Leaky rot boxes built in a city with non stop rain and stupid high 70-80% humidity every day of the year so they get full of mold. Auckland actually needs special houses built to cope with the weather there and its certainly not the "Mediterranean" style.
kpnuts
Fridays make you grumpy? :)
Here we are moved from a lower quartile home to a far better median priced home . . . and importantly only paying 19% of a median income.
Your comments suggest you wouldn't have been keen to take on that lower quartile home 10 years ago either.
That suggested is far preferable compared to have been renting, still in that cr*ppy little rental, and now paying 40%+ of median income on rent.
Seemingly, unlike you I know what position I'd rather be.
lol nope off work 4 day weekend not at all grumpy - and 25 years ago i bought a bogging repossession with 107% mortgage from Northern Rock ... surprisingly they went broke :) now mortgage free 10acre block in Waitakere ranges ! I would always support buying a first home - even if it needs a load of work - in fact recommend it!
My Comment relates to the joy of "moving up the Ladder" and how lucky those people are to be increasing tehir mortgage another 250K or a lot more to do so - Its becoming farcical that our entire economy revolves around people taking massive amounts of debt for a BASIC NECESSITY !
Exactly. Like you I struggle with the notion that these people are better off by increasing their debt. Pay off the $160k and save some money then use the savings and capital gains to upgrade by purchasing outright and live freehold. That's what I did. Now our mortgage is 0% of our income. The belief in this country that housing is an investment, a way to make money, rather than a roof over ones head to keep them alive is disgusting. It's a way of thinking that unfortunately has been passed down from generation to generation in NZ. It doesn't help that govt and RBNZ policy has reinforced this thinking by providing astronomical gains. "Stuff the people who are now not able to get into a house...must be their fault...they just need to work harder or take on 10x as much debt as I did or should have chosen their parents better".
This.
The 'property ladder'. Crikey, I hate that phrase.
It's more of a brick wall these days.
Yeah.
The Property Precipice?
But it is a ladder. It's a ladder leading to a doorway in a sinking ship, and everyone is climbing on top of each other to get to freedom. Those who make it out alive will be very, very happy indeed. Such a shame about those who drowned.
Some people climb a ladder, but most only have a 2 step step ladder. You get on that lowest rung, a bit later you step up to the top step, then later on you go down the other side to the lower rung again. That is, unless you stretch too high while standing on the top step and the whole thing topples over.
I prefer money escalator. Ladder suggests effort is required.
Mountie
Re: "The 'property ladder'. Crikey, I hate that phrase."
It reeks of bitterness and envy.
The reality is that those who you likely envy used the property ladder to get where they are today.
I dont think it is envy. It is an emotive phrase. What happened to just living and owning a home ? Why are we encouraging the population to climb some imaginary ladder to what end ? Even the pollies use the phrase, Im sure the RE and Bank PR people are very happy it has become common usage language, after all they are the only winners in that climb to Housing Nirvana
Sluggy
“What happened to just living and owning a home?”
What happened to just owning and driving a 1999 Toyota Vitz? Good for 300,000k and can readily get the expanded family in there albeit a squash.
The reality is those people who want a comfortable level of life tend to work and make decisions to achieve that for themselves and family - nothing wrong with that and it shows initiative.
For those who want to chill out by keep living in their small entry level home and drive their 1999 Vitz, well that’s fine also.
The Vitz first came into existence in 1999, so you must be doing really really well to be driving one around in 1995. But this fits in with your facts-free aesthetic so good for you for being your true authentic self at all times.
GV
Corrected it for you. It just looked like a 1995. OK? :)
Nonsense P8. That phrase is a put-down to people who don't yet own their own property. I don't envy anyone. I don't want to say I'm wealthy but you've forced me to. Hugely wealthy actually. What I care about is our society is going to the pack because young people are losing hope. Let's not have a p***** contest.
Mountie
Of course, of course.
But you would have to be uniquely exceptional amongst the “hugely wealthy” who have not climbed the property ladder and typically have their multi-million homes. In fact those “hugely wealthy” look to do so.
I think those who have done well by climbing the "property ladder" never set out to do so initially. They've lucked out by 40+ years of solid price increases, particularly in this last decade. What I mean is, you buy one house, then after 5 years you find your equity increased, you take advantage of that and climb the ladder as it comes. I'd wager those who bought in the 80's or 90's weren't given the "property ladder" advice when they started out.
That's why I take issue with it now. Sure it worked for you in the past, and good on you for trying to offer advice to young ones. But now we're told we have no choice but to buy as cheap as we can, anything we can get, just to climb the ladder, as if it's a certainty. I mean, buy a house you like now if you can afford it, and budget to pay it off, sure. Then as years go by, reassess your situation and the market and trade up if you can. But to plan for that now, before you even buy a house? Doesn't make any sense to me.
Now all the desirable houses (modest enough) are close to a million dollars, and any that are even close to what I can afford are either absolute wrecks, or townhouses or flats that I don't want. So I really don't want to buy what I don't want, just believing this "property ladder" will allow me to get what I do want in the future. And if you don't follow my logic, think of when you bought your first home (if you're old enough). Did people back then tell you the only way to get a three bedroom 1/5th acre home, is to first buy a 1 bedroom concrete flat in Naenae? And if they did, would you have trusted them?
Solid
"no choice but to buy as cheap as we can, anything we can get, just to climb the ladder"
That is precisely what I and my group of friends had to do in the early eighties after a period of house inflation. We always saw our first home as lots of compromises but a stepping stone.
Compromises for me were age of the house, condition of the house, size of the house and suburb - in my case an older two bedroom wooden house which I spent some effort having to renovate on the fringe of Mangere East. That was reality and I don't expect sympathy and please don't expect any from me as you seem to be seeking.
I don't know if I can define myself hugely wealthy. But I have a couple-mil. mortgage-free home in Central Auckland and a few mil savings (invested in every possible asset class with the exception of "investment" residential housing).
Well, I never looked at investing in residential property apart from buying a house for my daughter, that's it.
Of the many friends I have here in NZ, in Europe and in Australia, many of them are in a financial position pretty similar to mine in terms of assets/savings, and most of them never invested in residential housing apart from their own house. Most of them actually provided and provide a net positive contribution to society with their hard work, some of them employing people, rather than parasitically crowding out young productive families in search of a first home and sucking money out of the real economy by milking an unproductive asset whose ridiculously inflated bubble is tearing apart the fabric of NZ society, and creating a huge risk to the whole of the NZ economy.
But maybe they all are "uniquely exceptional".
They always leave out the snakes part of the snakes and ladders that it really is. And I see the snakes have a presence in our audience today.
Ermmmm I am not buying the argument here. Increasing one’s debt as interest rates are likely to go up is probably not a good thing.
Interest rates only go up if everything goes up and that includes rents
Renters don’t seem to be able to grasp that concept.
The evidence presented is that most Renters are to busy trashing the place to even post here my Lord
That's a very low IQ take.
The RBNZ is mandated to keep CPI between 1% and 3%. Interest rates go up if inflation is projected to go beyond these prescribed bounds without intervention.
Interest rates can go much higher while CPI inflation (and that includes rents) are kept within those bounds.
Brock that's what Greame Wheeler warned about when he bought in the lvrs
On the morning they were announced he gave a speech and presented a paper outlining his decision here in Auckland.
A rise in real interest rates will eventually cause the housing market to revert to mean....and looking at the hundred year graph that means values of three times incomes.
I see a lot of friends getting closer to fifty and the house is the retirement plan. They will be broke in their retirement if the market corrects in the next twenty five years.
It wont be 3 , it will be 6, but thats better than 10
"If first home buyers had purchased their home back in 2011 for $250,000"
Ahhh the sensable cuple who bort wit twinty parcint deposit and did not drawfown on the windfall gain to engage in sum consuma spendding
PS: If you dont like my poor spelling it must be you also noticed the many errors in the article... well done
They would be much better off if house prices had remained the same. In March 2011, median house prices were ~360000. If the hypothetical person had sold at the same price as they had purchased, they'd be left with 78,870 after the 3.5% fee quoted. This is a 22% deposit on a 360k house, leaving them a mortgage of 281,130 much less than the 411,310 of the buyer above. Even if interest rates were higher than today their repayments would be lower (for a 30 year mortgage, 411k @ 2.29% has the same repayments as 281k @ 5.4%).
Very much so. Everyone, even the rich, are better off when houses are cheaper. Those who disagree need to pull out their calculators.
But have a heart, and spare a thought for the mega wealthy land-bankers and apartment developers etc
Ha! Don't forget the banks who are creaming it too. But when the collapse comes we need to remember they are the ones who created the conditions for it to occur and are therefore responsible for it, just as much as the central banks and governments.
True or they can keep printing
Haha, really? They would of been better buying the median price house in 2011 for less than what they still owe after the $400k+ deposit,
I'm trying to imagine what sort of house at $826,000 would be considered an upgrade
Holey moley. The change for the bank is huge. They shift from a $162,000 mortgage to $411,000. That's mind boggling.
Total agreement with some of the above pointing out the cheaper houses being better for everyone, EXCEPT banks and realestate agents.
Not to mention that the upgraders have set themselves back another 10 years in this scenario
Yep, a valid point as it would suggest they would have a 40 year mortgage in total. That is fine if you bought a house when you were 25 or under! Problem is the stats they use is the median income for a 35-39 year old! Just to add that the average age of a first home buyer is 34 and increasing.
True it is essentially a 40 year mortgage. Lucky banks
Agree. And its banks that largely create credit availability, which (along with cost of credit) fuels property prices. The government should guide credit availability to support the productive sectors of the NZ economy (eg businesses, farmers, new house builds etc) rather than the unproductive sector (eg specuvestment in existing houses). This guidance was done in post war Japan and fuelled the Japanese miracle. It was destroyed by the application of neo-liberal theories in the 80s which allowed credit availability and property prices to soar. See Richard Werner’s Princes of the Yen on YouTube and book.
History is not going to look kindly on a double income median wage family leveraging up their debt heading into the crescendo of the GFC. If they make these sort of risky financial decisions with the big things you can guarantee they haven't been prudent with their other expenditure. NZ is in for some tough times. If it seems slow in coming, wait. It’s on its way. It will come right on time.
I personally found it extremely difficult to move to the next level despite being a home owner. I went to auction after auction and continuously missed out as the gap was too big. Will watch and wait instead.
One thing I noticed visiting open homes recently is that there are a reasonable number of parents visiting with their son/daughter and his/her couple, obviously the former can afford using their existing equity into an "investment" home while the later might not have a deposit, making it look as if it is a first home, allowing them to purchase a home they would otherwise won't. While there's nothing illegal going on here I doubt this is what the government intended with their latest changes.
My parents came to open homes with me because they were excited for me, and wanted to lend their experience. Sure they loaned us $20k to renovate the kitchen, but that was from their savings, not their equity.
That's really great to hear. My comment was not about cases like yours but people that may funnel their investments through relatives or friends who are first home buyers.
Excellent article!
It goes to show waking up on the right side of the bed every morning with good vibes and positive energy will likely lead to a more prosperous outcome any individuals. I can't imagine the same people who bought 10 years ago talked themselves out of buying only to end up as a DGM for the next 10 years.
Tyre kickers will always be tyre kickers, they kick from one house to another wondering why sellers wouldn't budge because it didn't come with a set of their dream Michelin at a discount.
Looking at the median multiple from the table, maybe it's time the folks at Demographia be more positive and come up with a new category of "Severely affordable" for a "1.5 and under" just to balance things a little bit.
Be positive!
The longer a FHB waits, the more they have to come up with for a deposit, be quick!
Even 3 years ago. CoreLogic mid-range valuation on our home is nearly 250% higher than purchase price.
If we waited, we would have paid $60k+ in rent, needed to save minimum twice as much for a deposit, and borrow twice as much.
"Past performance is no guarantee of future results"
Only a fool doesn't factor in history and is destined to repeat the same mistakes over and over. The housing market has been on a winning streak since we came to NZ in 1974.
Not quite, Carlos67. There was a severe downturn in the late seventies. In 1979 I sold the first house I'd bought in a southern suburb for $11,500 on a quarter acre section (around 1012 m2) when I was 19years old in 1967. I sold it to the motel owner next door for $43,500. My father persuaded me to go in with him on a 3-unit development with the proceeds. We both lost a lot of money because there was a severe housing downturn in 1979.
Someone should have told you that in 2020 there would be a pandemic followed by a house price boom and your 3 units would go to the moon
How about running a comparable comparison if they had been able to buy at 3x median income back then, and used the rest of the money they would have spent on interest and principal repayment under the present status quo, on other more productive investments.
For starters, there would be less need to 'upgrade' as you would have more afforded what you wanted, so less real estate churn which is a large saving right there.
But if upgrading, they would have almost the same equity amount as they would have been able to pay down the lesser debt that much faster and/or would have the savings and investment money from the money not wasted on higher house debt to use.
This article describes my situation. Bought our 1970s 3 bed house (a dump) in 2013 for $285k in a major NZ city. Sold it in 2020 (during lockdown, renovated at a cost of $110k) for $732k. Moved to an almost new house that is double the size, almost double the section in a provincial town nearby and had $50k change.
Until prices took off I had no idea how we were going to upsize as our family grew. A lot of hard work was required, but even more luck, as it turns out.
NB: homes.co.nz now says my old home has gone up by $150k since May last year while my new house has gone up by 90km, which shows how crazy the cities are compared with provincial towns.
Whatwillhappen
Your comments and outlook are positive, you are taking opportunities and getting ahead in life, and providing a better more comfortable home for your family.
It says a lot about many of those posting negative comments.
If you are sitting pretty, why do you keep harping on about peoples negative comments? Either you are afflicted with some weird sort of obsessive Polyanna syndrome that compels you to get up every day and vet peoples online comments for negativity, or you have so much leveraged property that the negativity terrifies you
dago
Happy, comfortable and successful people in life are those who are not negative.
Maybe you you could be better off to stop both with the negative comments and defending them. Negativity is so destructive.
In the last year alone - despite Covid and affordability issues - over 30,000 mortgages (50,000 people) have gone to FHB who have a positive attitude, have initiative and got on with life.
Negatively will not help one also achieving that goal, but keep right on if you wish.
Comment positively sponsored by Westpac?
adding to that, you are compelled to hand out little gold stars for positivity. Did you miss your calling as a kindy teacher?
Hey! I like gold stars, thank you very much!
Jumping in on this one, to point out, as others have, that this is completely and utterly mathematically wrong.
If you only own one home, and you intend one day to upgrade to another more expensive home, if the market increases the values of all homes, you are actually in a worse position when you come to upgrade. You are better off if prices stay the same.
The only way you even retain your purchasing power, is if the house you are upgrading to, has increased only half as much as your first home, which is clearly deeply unlikely.
It’s fairly common knowledge that the time to upgrade is when the market is down or flat yes
Switch markets. Make it fiscally neutral. Most people can't or won't make this happen.
That's the problem we're in, looking to upgrade. Let's say you buy a house, $200k at 80% LVR a mortgage of $160k. An "upgrade" house is $300k, at 80% LVR is $240k. You need to borrow an extra $80k to upgrade.
If house prices increase 150%, then your house is $300k, the upgrade house is now $450k. Need to borrow $360k at 80% LVR to upgrade, or an extra $200k.
Indeed. Increased prices are a liability when you need more of something.
Exactly and thats why so many people who upgraded will be in the shit, not just the recent FHBs.
Crux to this charade is cutting rates. What happens when you cannot do that anymore?
Until 2 months ago, we were promised the party could continue with negative rates. Then 10 year rates moved up and that group of cheer leaders went quiet.
Debt requires service from income.
If income rises less than inflation, then debt becomes more expensive, regardless of what happens to rates.
people seem to miss this reality.
So, watch REAL inflation. You will know about it because GDP and consumer spending will start to fall because people have to pay more for all sorts of stuff, esp imports. Of course CPI will remain a joke so ignore that. Watch what people do. The party is now out of punch
"They would also have plenty of wriggle room to cope with a financial disaster such as a sudden loss of income or rise in mortgage interest rates by restructuring their mortgage."
You forgot to add, put in a swimming pool, finance a Remuera tractor, buy a boat, buy a bach, do 500k reno.
Known to all that existing home owners have had a good run specially in last few months where house price have gone up much more or as much as in last number of years before last year - a jump of 30% or 50% in just under a year is bound to be good to those who have stock and dreadful to those looking to enter.
It is people who are trying to get into property market particularly in Auckland and nearby are and will struggle unless government and RBNZ act.
FHB are at disadvantage when competing with existing home owners (lucky them) as they obviously have more deposit through equity (fair enough) and also have advantage to use interest only loan (unfair) to boost their purchasing power over FHB in auction room.
No one can argue on this. Let their be level playing field to all.
No more interest only. Wait and watch!
Wow Nzdan, So fast but think you did not read my full comment, if following should read in full to comment or whatever.
Also do let me know what are your views on Interest only loan. Discuss on issue, please and not be upset if touching a nerve that hurts you.
I don't agree with them. I've regularly called them "non-performing loans" on here.
by Nzdan | 17th Apr 21, 1:11pm
Non performing loans for "businesses".
by Nzdan | 3rd Mar 21, 10:51am
20 years of non-performing loans. Your friend's investment doesn't stack up, it's a shame it's taken 20 years for this realization.
by Nzdan | 5th Feb 21, 6:47pm
Maybe remove interest only mortgages for investment purposes as well, if your investment stacks up you shouldn't need to take out non-performing loans. Hell, if it's a business then why not take out business loans like every other company does? Then I'm happy to see residential property investment see tax incentives like other businesses enjoy.
Since August 2014 when RBNZ first published its data, 165,000 mortgages (250,000 people?) have gone to FHB. Many of those FHB will now be in a position to trade-up their property. The reasons for that will be sound; either a larger home for an increased sized family, or a more comfortable home, or a home in better area than their basic entry first home.
For them that is a great position to be in. The article makes the point that is that they are most likely in a financial position to do so.
I find it incredible that many of posts have been dgm and anti that.
Many of these dgm are critical of "boomers" in that they now have comfortable homes and are financially secure. Invariably they have climbed the property ladder - where they are today is not where they started.
Most boomers would have been financially secure in homes by 2011 so they have not relied on the recent property boom for this. Of those 165,000 mortgages since 2014 or those who purchased in 2011 and now able to trade up will be mainly those generation X and some millennials with initiative - and that is really great.
To those dgm who are critical of trading up; well they really need to question as to where they are at and the rationale or motive for their comments. I make no excuses for being blunt in previous posts.
Go on and rub that salt onto the first home dreamers.
After selling in Auckland and moving to Christchurch in 2019, Christchurch is still affordable and the culture of buying is so much less competitive. Personally I think Christchurch is a smart move for owner occupiers and investors.
You are joking of course.
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