By Elizabeth Davies
I’m about to turn twenty four, for all intents and purposes I’m still very young. Half of you will tell me that I need to start planning for and thinking about the future now. The other half will remind me how young I am and tell me to stop stressing.
My biggest concerns for the future are home ownership, marriage and kids. The latest census showed that the average home ownership rate for under 40s has dropped to 22.1% from 35.3% in 2001. Those cold hard figures are nothing short of depressing. And as more and more properties are gobbled up by investors, including those from overseas, I’m left wondering just how low that figure will fall by the time I can even consider getting into the housing market in five to ten years.
For a lot of people purchasing your first home is something you do with your partner. As housing prices increase finances continue to put a massive strain on young relationships. These days we are forced to make financial decisions about our relationships incredibly early.
After living together for two years a split legally entitles your partner to take half of what you own. So after a year and a half the conversation arises, do the times call for a prenuptial agreement… without the nuptials? At such an early stage in the relationship even raising the question could shatter your shaky foundations and leave you convinced the best option is to ‘quit while you’re ahead’.
For most couples even the idea of combining finances seems frightening and far away this early on, the idea of being legally bound together before you’re 100% emotionally devoted is enough to make you doubt your feelings and run.
Once you’ve negotiated this minefield and your relationship is moving forward you soon encounter another massive obstacle, that of financial priorities. So many people in this age bracket are slowly realising that perhaps they can’t have it all, at least not all at once, or in the order they originally anticipated. So the great debate ensues, do we tie the knot, sign the deed or throw away the birth control?
Understandably for many couples babies are put on the back burner, until they are more financially stable, own their own home, more advanced in their career etc. But how late do you leave it before it gets risky? And is there ever a ‘right’ time to bring a new life screaming into existence to shatter everything you thought you knew about life?
For my partner and I kids are still a few years off but in our slightly more immediate future we have hit our first snag. His top priority is getting into the housing market as soon as possible. Obviously I can identify with this and understand the logic, however I’m voting for the marriage before the house. I’m painfully aware that if we commit to a mortgage we will never be able to afford the wedding because there will always be a more pressing financial demand.
The most pressing question for me is what am I willing to sacrifice to claw my way into home ownership?
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Elizabeth Davies is a 23 year old graduate of the Auckland University of Technology post graduate journalism course. She lives with her partner in Epsom and spends her free time refurbishing vintage furniture and attempting to bake while fighting a daily battle against her bank balance. She writes a weekly article for interest.co.nz on money matters and financial struggles from a young person's perspective.
24 Comments
One of our kids committed to the mortgage before getting married - a 5% down, 95% mortgage - right at the top of what their combined income could support by way of repayments. They worked tirelessly during their non-work hours to improve it. Mainly cosmetic redecoration, so no big additional capital investment in it - nonetheless, lots of long hours of papering, painting and decorating work. Then they sold it for a profit and with the proceeds they paid for both their wedding (a very modest family-only affair) and the honeymoon trip (a more grand overseas adventure); plus had a balance left over which gave them a bigger deposit on the next house purchase.
They made as much as they did because they did this within that rapidly rising market (early to mid-2000s) and they bought in a location that would sustain the higher capital value (i.e. an inflated resale price target).
They rented in the city on return from honeymoon and planned a pregnancy. Moved out of the city to a provincial town, rented initially, had the baby and then looked for the next house. They paid less for house number 2 than they had for the city property; such that their outgoings on the mortgage can be covered by one salary, if need be.
I'd say, buy the house asset in joint-ownership first, as it will test the strength of your relationship - and if marriage/children isn't the way, then it's very straight-forward to both go your own way.
The other thing. If you buy in the city, do it with a plan to take the profits and run to the provinces when you want to start a family. If you can't afford to buy in the city - head to the provinces now. And most importantly, whatever your plan - it should include how to reduce your debt as quickly as possible.
But, everyone is different!
There are many ways to have a wonderful meaningful wedding without spending tens of thousands of dollars. In fact someone I knew spent only 2k. They invited close family and friends who also took the photographs and recorded the event in a simply stunning location by the sea (which belonged to a family member). Another guest had a garden and provided the flowers (nothing fussy - just freshly cut hydrangea's) and a family friend also officiated, whilst Gran made the cake (a lovely personal creation). The guests all knowing the bride and groom well, knew the couple didn't have alot of cash to splash and offered to bring along some food to enjoy afterwards, it was an incredible spread (helped along by the grooms best man who was a keen fisherman) . The couple said they didn't want any presents (as we had done enough already) - but we all clubbed together to give them a few nights away as a honeymoon. For them it was important to marry because they were in love and wanted something deeply personal (but didn't cost the earth) to share with those people closest to them. The end result was an absolute triumph and it certainly had a little 'something' over those large flashy occasions where the bride got the latest designer dress (costing $8,000) instead of 'Auntie' (being a bit of a dab hand with the needle) making something especially for her niece. By all means if you have the money spend it on what makes you happy, but the point I am making is it still can be touchingly beautiful on a budget and possibly even better...
100% agree. If you go about spending a whole lot of money that you know you could otherwise put to better use, your worries that everything may not go to plan will increase accordingly, and your ability to relax and enjoy the day will decrease.
Make your wedding priority an enjoyable day and one to remember because of how much you and everyone else enjoyed and not because of how many points you my score in comparison to someone else's.
Some of the best ones I can remember were pretty much crate and a plate do's with those who could, binging guitars and other musical instruments. Have a plan "b" to cope with whatever the weather might bring
Avoid the herd mentality that has taken over the Auckland market . There is a very real risk of getting trampled .
Remember markets cannot get out of sync and go up forever .
It has never happened in the history of mankind .
Something will give eventually , be it due to interest rates , another meltdown, or a reality check by Auckland council who agreees to let Auckland grow .
Have an inexpensive wedding ( you dont need to outdo your mates) , and start saving for a deposit
This is excellent advice. We went one step further and moved to Australia. It means we can save a decent deposit and knock years off our mortgage when we do eventually buy. We were barely able to save in Auckland. The prospect of 5+ years saving just to buy on the outskirts of Auckland with a 30 year mortgage and 2 hours commuting each day did not add up (and no we don't expect to start in Herne Bay with million dollar views). We hope to move back to Auckland at some stage, but not at any cost.
Elizabeth, Boatman's dead right here. Go simple with the wedding and be patient with the house. When people panic to get into a market they land up paying the top. Although timing is always hard to anticpate, there is an old saying "what is unsutainable will stop". The Auckland housing market is there now, console yourself while being patient with that.
Elizabeth you have to be living together for three years in a relationship home before the 50/50 rule applies. Anything less than that is a relationship of short duration and the 50/50 presumption does not apply. What I suggest is that you and your partner forgot about this area of law unless one of you has received an inheritance for example and that money is going into the deposit for the home. If one of you have say $10,000.00 more than the other I would still not worry about a contracting out agreement. If both of you are working and contributing to the deposit then you have a good start. If one of you is earning more than the other again I would not worrry as both partners contribute to the relationship in different ways. Family Law considers all contributions to the relationship are equal. Finance is only one of them. Just work together towards a common goal and contribute equally or close to it if you can. If you split up you both put in 50 per cent so why bother with an agreement and its costs.
Doesn't need to be 3yrs. A solid 10-20 year mortgage will actually provide evidence in court that it is believed that the relationship is reasonably expected to be long term/ongoing.
So pre-nup aside, even an unexpected windfall could fall into relationship property, because the marriage was obviously (ie the mortgage) intended to be, by both parties, for more than 3 yrs.
Yep Cowboys correct, that so called '3-year' rule has been shortened several times in court cases based on other factors (such as owning a house, investments, kids, etc etc......).
My ex tried (and almost succeeded) to take half of the house I bought AFTER we broke up, claiming that if we weren't in the relationship, I wouldn't have been able to buy it once we broke up! It took me years and years to get the registered interest removed off the property so that it could be sold! To the point where I missed the window for the ideal sell time.
Both Cowboy and downlow are talking rubbish. The presumption of 50/50 only applies after 3 years of living together in a relationship home and if there is no contracting agreeement in place. Notice downlow uses the words almost succeeded. Of course both of them are practicing law. Or are they bush lawyers. They are the most dangerous of lawyers. They have no training in law and still think they know it all.
I was advised of the matter directly by my lawyer, and there are pamphlets in their office explaining the principle and including several of the tests as they have been used in actual case in front of courts.
And the presumption isn't actually 50/50, it's "fair and reasonable". 50/50 is the default position.
Are you qualified to give legal advice, gordon?
At least I was actually *in* Court last week, as I prefer to represent my own simple cases.
I have just googled the Nz Law Society and other articles put out by NZ Law Firms Cowboy. Relationships of three years or more duration, 50 / 50. There are exceptions where equal sharing will apply for relationships under three years duration where there are children or one partner has made a substantially bigger contribution to the relationship than the other but such exceptions are rare . You make it sound as if it is easy to achieve . Believe me it is not and the costs can be huge.
Have you tested it in court?
The exceptions aren't rare, even though the offical press release is of "fairness" and "50/50" seldom are such things done in practice, as the 50/50 contribution and release is very difficult. Perhaps you need to _talk_ to people who have been through the cases not just read the justifications and offical story. Very often the offical case will lean to an irrelevant point of law, as often the spirit of the law (fairness to all citizens, justice) does not have a specific clause to fit all cases.
And is it easy to achieve? Hell yes.
The party with no money just signs up for Legal Aid, and registers their complaint at the courthouse. Then they keep going until a ruling is made, the cost to them? negliable.
The contested property is held until the case is resolved.
The cost to the party that had the windfall or property...often a significant portion of their equity.
EVEN in cases under 3 years, if there is possibility of proof of 3yr _commitment_.
The tests are actually quite straight forward, however that why the complaint has taxpaid lawyers, to muddy things up
Main point to know, and your lawyer will back this up, is that you don't want to find out after the horse has bolted and you've sunk your future into a shortterm relationship and taken a mortgage on property (tenants in common), especially if theres an inheritance. Or relied on the default 50/50 to see you fair. That casualness that you back gordon, makes it very expensive to defend in court. The best defense is made well in advance
A large of the difficulty is the defacto/marirage relationship.
This is due to it not jusy being a straightforward tort/contract case.
It involves ionteraction with a large body of sensitive legislation which requires extra legal specialisation, and the case is very likely to be kicked to the Family Court at some stage, as the default jurisdiction for relationship related cases (defacto/marriage) is in Family Court unless it can be solidly proven otherwise (weight of proof on both parties...)
As for cavaet, you might find its a lien if the party is financially interested.
... Elizabeth , forget stoopid houses , those mind stonkeringly dumb assets are at / or very close to a bubble peak ...
The difference between the " haves " and the " have nots " in our society is growing ever wider as the " haves " have both marketable personal skills , and investments in growth assets ( businesses directly , or indirectly via the NZX ) ....
... back up the truck hon , and load her to the gunnels with Genesis Energy stock in the upcoming SOE float !
And when they pay you your first super fat dividend , use that cheque to have a slap up all the bells and whistles wedding with that guy of yours , the full reception , and honeymoon to your hearts' content .
... no need for thanks ... just name your first born child after moi !!!!
How about a very simple wedding, without blowing away all the savings on a grand gala affair, just for one day or half a day. A civil wedding with a few close relatives/friends (not exceeding 30) and a simple meal after that ? The money saved can be used for that house, which is a permanent refuge and satisfaction and worth the money spent.
I do not see why you can’t save up for both; E.g. 25% to wedding 75% to house deposit. Banks are lending 10% deposits to people that show good savings habits. I'd bet my mortgage, that if you rolled up to a bank with a 2 year proven saving plan they'd give you a 30 year mortgage.
A cheap wedding AND a crappy house. For the couple who had it all.
Sitting on the fence will do nothing for your ..prospects.
Rolling up to you bank with proven 2yr savings...will almost be as effective as rolling up to your banks competitor with the same. But they put a note in your file and collect later :)
For virtually every woman or her husband Ive had this conversation with a Wedding is far more important to her than him. I think the last time a mate wanted to buy something with the honeymoon money instead, so wasnt terribly happy he didnt get his way (they went to the cook island for the honeymoon, great place, thats were we got married and honeymooned).
If he has any sense he'll buckle...
LOL.
regards
My husband and I did ours for $500, thats five hundred NZ dollars. I wasn't going to waste money for other people to enjoy themselves when we had our house to finish off, so we did a simple barbecue in our yard. When I met him the house was to the lockup stage, but nothing inside (had been like that for several years)...yes the hubby came with a small house!. The $10,000 that our wedding was going to cost us gave us jib, pink batts, the wiring done and the hot water cylinder. I learnt to jibstop on that house, which has been useful for other family member's projects.
The most important thing for us was to have fun...we did once everyone buggered off and we could sit down and relax at 6pm! Didn't bother with a honeymoon, as again we both regarded that as a waste of money when we had a house to finish. So don't believe all the hype around weddings - there is an entire industry out there geared up to part you and your money on the sole argument that you 'deserve it' on your 'special' day.
So what are you willing to sacrifice? You did not anwer that.
Go and travel for a few years with or without boyfriend, it will change perception and who knows you may decide to remain elsewhere for a number of years so why own a house.
Renting has got advantages too and should not be looked at as second class. Except for brief periods of rapid house price increases renting is the better option when young and gives more flexibility, sure the landlord may want you out at a certain point or sell and the new owners want it for themselves but the flipside is that you can pack up and go at the drop of a hat and when young, and increasingly so, flexibility is needed. Then the next job is on the other side of town and it adds $300 per week in travel costs, it is not just the fuel. If you rent you pack up in a jiffy and move over and save that money. Alternatively you pay the real estate 40K or so to sell your house and 2 years later, or whatever, do the same again.
Ok, you can't put the kitchen in you want or extend the bathroom and add the gold taps or at least not without talking to the owner but the average doubling of houseprices every 10 years is only a 6.7 percent increase year on year which really as an investment is lousy. The only thing that makes it attractive to some extent is that, for now, it is taxfree.
To get those gains you do need to keep on investing in, ie renovating, the place otherwise you will find that the gain is nothing like you think it will be. Please don't think that putting a new 50K kitchen in will mean a price increase of 50K for the house, it may mean 10K and it may mean no gain at all, it is just needed to keep it marketable. Take the rate of inflation, council rates, insurance, interest costs and real estate commission into account also and the real gain can be quite minimal. On the whole, and depending on where in the cycle, once you bought you do not want to sell within 6 years if you just want to look at dollars gained, some success stories not withstanding, but you should really stay in a bought house a lot longer. And make sure that you pay off the principal sum borrowed as much as you can in the meantime otherwise the bank may well want back just about as much as you got from them and then with all the other costs taken into account even with a much higher sell price then what you bought it for you have still gone backwards in real terms. If you sell and buy in the same part of the market cycle keep in mind that the next house has also increased X%.
If it is capital gain you are after then there are far better ways to invest your money.
The question is: what are you willing to save and invest in.
You can buy a house at any time in your life but you only live once, so please enjoy the trip.
Which is not saying that you should just spend everything you earn on gadgets just because you can.
Money can buy a memory that lasts a lifetime or an iPhone that lasts 2 years if lucky.
(depending on how long you wish to work I do recommend you save for retirement one way or the other)
The tax free isn't the incentive Jake - for one, you can only gain that when you cash out (and then release costs apply, eg agent commission)
The incentives are:
(1) It's a compounding investment
(2) It's compulsory
Those are the two big "powerhouses" of property investing and are available to any sustained investment market.
The investment incentive differences are:
(3) It -can- be used as personal accomodation thus using saved rent to defray the cost of the leverage. Obviously this only applies in FHB and unfortunately in doing so some of the costs can not be recovered. This leads to "house swap" arrangements and use of Trusts, which are available to everyone but aren't without their own risks.
(4) It is very stable investment with well proven track record and predicted demand. this bodes well for "nest egg" and first up investors. It also gloves with very high leverage rates and low cost of leverage. Very attractive prospects for early investment and nest/core of a portfolio.
(5) Building on point (4). As equity builds in the property the low risk profile makes it excellent proposition as security for more risky projects. This works in very well with FHB (whose portfolio is small and they utilise the rent=>equity process and service facotr of the underlying asset) as they can leverage modest sums 10-100k against the "dead equity" in the property, and if their risker investment fails then they can draw on that property's dead equity to raise a loan without losing the actual property asset/investment. Such action does increase the pooled risk, but no risk, no gain.
[ Please note I haven't listed the bad points and not qualified to give financial (or legal) advice in general or in specific cases. And recommend people consider and discuss each case with a trusted qualified advisor.]
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