Buying a home with less than a 10% deposit carries risks, but over the long term it may be a risk worth taking

Buying a home with less than a 10% deposit carries risks, but over the long term it may be a risk worth taking

First home buyers have been increasingly active in the housing market over the last few months, borrowing $1.344 billion in new mortgages in August. This was up 45.6% on the $923 million of new mortgages they took out in August last year, according to the latest Reserve Bank of New Zealand (RBNZ) figures.

They are also taking a bigger share of the market, accounting for 19.8% of all new residential mortgage lending in August compared to 17.1% in August last year and 15.4% in August 2018.

The main driver appears to have been the ongoing falls in mortgage interest rates, with the average of the standard two year fixed rates offered by the major banks dropping from 3.70% in August last year to 2.72% in August this year.

The RBNZ's removal of loan-to-value ratio restrictions on new mortgage lending earlier this year, making it easier for borrowers to get a mortgage with less than a standard 20% deposit, appears to have had less of an effect on the market.

The amount of new mortgages taken out by first home buyers with less than a 20% deposit accounted for 44.3% of the total new mortgage lending to first home buyers in May this year. That dropped back to 42.8% in June, 42.9% in July and 41.2% in August, which was less than in August last year when 41.8% of lending to first home buyers was low deposit lending.

Even so, the figures suggest that around four out of 10 first home buyers are getting into their homes with less than the standard 20% deposit. The obvious benefit of buying a home with a low deposit is that its gets you into your own home sooner.

It would take half the time to save a 10% deposit as it would to save a 20% deposit, all other things being equal.

But there are disadvantages too.

Banks will generally charge higher mortgage interest rates to buyers with less than a 20% deposit, pushing up their mortgage payments, and because they will have less equity in their home, they have less wriggle room to restructure their mortgage if interest rates went up significantly, or if they suffered a major loss of income.

But at least 40% of first home buyers are deciding that those are risks worth taking.

To get a feel on how that might work out for them in the long term, interest.co.nz did a 10 year financial comparison of buying a home with a 10% deposit versus buying with a 20% deposit.

In June 2010 the Real Estate Institute of New Zealand's national lower quartile selling price was $253,000.

Ten years later in June 2020, the lower quartile price had increased to $452,000, up 79% in 10 years.

Over the same period of time, the average of the standard two year fixed mortgage rates charged by the major banks had more than halved, falling from 7.19% in June 2010 to 2.76% in June 2020.

If someone had bought a home at the June 2010 median of $253,000 with a 10% deposit, they would have needed a mortgage of $227,700.

Because that would have been a low equity loan, interest.co.nz estimates that their average mortgage interest rate over 10 years would have been 6.35%, compared to 5.14% if they'd purchased with a 20% deposit.

That means their total mortgage payments over the 10 years would have been about $169,904, with $35,333 of that being principal repayments and $134,571 in interest payments.

That means they would still owe $192,366 on their mortgage after 10 years.

Because the value of their home would have increased to $452,000 over the same period, their equity in their home would be $259,634, or 57% of its value, which is not a bad financial situation to be in.

If the same buyers had purchased the same home with a 20% deposit, their average mortgage interest rate over the 10 years would have been about 5.14%.

That means their total mortgage payments over that period would have been around $132,376, which is $37,528 less than the buyers with a 10% deposit.

They would also owe just $165,370 on their mortgage after 10 years, giving them total equity of $286,630, or 63% of their home's value.

So the buyers with a  20% deposit were better off on two fronts.

They faced lower mortgage payments, leaving them with an extra $37,528 to save or spend over 10 years, and they ended up with more equity in their home.

So yes, they would be better off than the buyers with a 10% deposit.

The main impact on the buyers with a 10% deposit is that over the 10 years, their mortgage payments would have averaged around $72 a week more than if they'd had a 20% deposit, but they'd still have a respectable amount of equity in their home after 10 years.

So its understandable that many first home buyers are opting to take the plunge with less than a 20% deposit.

Although that does carry extra risk, if they are comfortable with the effect that has on their mortgage payments, you can see why many are deciding it's a risk worth taking.

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220 Comments

10
up

This risk is very much worth taking. The additional interest pales in comparison to the cost of not getting into the market, and most of the risk associated with a lower deposit sits with the bank not the buyer. If the bank is willing to take the risk on you, absolutely go for it.

They are still stress testing at something like 5% - 6%. If a mainstream bank is willing to lend to a FHB, they have high enough income to service the mortgage when interest rates go up. It will be a long time until interest rates go above 5% - 6%, by which point wage inflation would very likely make repayments easier.

21
up

Job stability & career prospects are the starting point though. Aware of family friends with recently married young ones who have purchased a good property with a reasonable deposit. What came next though was a new car, jet ski & trailer, home entertainment system all on tick. Then came CV19 & one job gone. Parents to the rescue.

11
up

We bought 3 years back, refinanced at the 2 year mark and our mortgage broker was quick to inform us that our equity had increased considerably. "Did you know you can use it for a new car or a holiday?"

It's good to have as a last resort/emergency fund, but certainly not something to be tapped into on a whim.

If I recall correctly you had to resort to a loan shark back then as you were too risky for a mainstream bank. I guarantee you that if you had asked for advice on this site 95% of the commenters would’ve warned of impending doom and advised to wait it out until you had a significant deposit and/or wait years until your income is higher. Hindsight has shown that would’ve been terrible advice. Sadly this scenario is playing out today, with pessimists of low acumen sharing misinformation with prospective first home buyers.

So if wages stay stagnant and petrol goes to $10 per litre, is that grounds for Optimism? Fuel, after all, is a Consumption Item in an economy, just as Housing is.
"Hindsight has shown...." It always does, and it's TimeFrame that matters.
Who, just 9 months ago, would have seen $60 billion being pumped into our economy? So what will the next 9 months bring? What will an exclusively Labour Government deliver to us that it hasn't dared tell us yet? Will it be Urban Dwellers turn to restructure our economy, as they unexpectedly asked to Rural Dwellers/Farmers to do 30 years back?
Hindsight, as always, will tell us.

Buy an EV. Currently running at the equivalent of 1.6 litres/100km

Nothing decent in the EV space is affordable yet. Looking at replacing my car with a Leaf as a shitty cheap commuter box since my partner has just upgraded to a petrol SUV so we have something decent for trips, but if we still had her little tonka toy car no way would an EV be in the running.
Saving 5L /100km sounds great, except you have to pay back the extra $40k or so the EV cost in the first place. At $2/litre in gas thats 400,000kms.. call it 250,000km once you account for other servicing costs. We don't keep cars that long.

Don't do it. The Leaf have defective batteries, due to lack of cooling. Check out Auto expert TV on youtube.

Wouldn't be an issue, I wouldn't be fast charging, I don't live in Arizona, and as a commuter box the batteries are never going to get a thrashing.

We’re replacing a large old SUV that gets 15l/100km so the figures work for us. It will be kept for 15 plus years.

Have you figured in the cost of a replacement battery pack or 2?

I've got a Leaf, doesn't have a defective battery and only cost $20k. Great little runaround and can get me into the city and back on one charge. Saving me a fortune in petrol. Looking forward to getting my hands on one of those new fully electric Minis when they come out though...the bigger range will be nice.

Noone has a crystal ball bw, but the one basic fact that continues to hold true is if you can afford to get into a home now, then you should do it now. Dithering about "what if's" merely entrenches peoples as renters. I certainly know I'd rather pay 650/wk to a bank for MY home than 650/wk for someone else's.

12
up

I choose to dither because of the risks (interest rate rises, unemployment, house price drops), which I believe are significant.
It's also nice not to care what happens to real estate and focus on other things.

Refreshing honesty

10
up

True. But in all fairness no one until quite recently realized how invested the NZ govt was in maintaining inflated property prices no matter the cost.
Its all gambling at the end of the day isn't it?

I could easily see property prices being 20% higher a year from now with another bout of QE. I could also see them being 20% lower with the greens in govt bringing though new anti property investor taxes.

All Developed Nation economies are invested in maintaining inflated property prices.
But that hasn't stopped a few of them repricing over the last few years. It's not gambling, as such, but desperation.
We shouldn't have become held hostage to property prices to justify our economic fundamentals - but we have.
That's the problem. What's going to replace it?
Answer: A lower wage structure to make whatever it is left that we do more price attractive on Global markets. All other adjustments will flow on from that. That's why % rates are falling - it's effectively real wage replacement to sustain debt creation. But that can't go on.
NZ, and whoever leads us next - because this is our last independent shot - has to rebalance our economy. Time has run out and we need to be ahead of those who will try to do the same as us. As with property speculation - getting our before the turn is crucial.
It's going to be VERY interesting from here on in, in a way it could and should just have been just boring..

16
up

Good lord ..what an elitist comment. Someone could have ignored the house market and invested in shares and be 50% better off today. Dont confuse luck and a rigged ponzi scheme as high acumen.

How is my comment elitist?

I assure you, a bank will not margin lend someone $500k with a 10% deposit to invest in shares.

CFD's? You only need 1%. (Partly why RobinHood etc have become so popular now)

No, margin lending. No ordinary individual is going to get a 500k loan at 1% deposit to invest in shares.

Like these ordinary individuals? They got their Margin Loan to go and speculate in the property market.; maybe even at 10% down!

“ New Zealanders unprepared for financial shock...(They) had nearly paid off the mortgage on their four-bedroom home on Auckland’s North Shore, had invested in a second home....People get motivated when they have scares, but often it’s too late.”

https://tinyurl.com/y5p2uszs

Does this article say anything about the deposit requirements for borrowing to buy shares???

No, it doesn't.
It suggests that property investment can be financially crippling if it goes wrong.
But you don't have to take out a Margin Loan to speculate on the stock market. Frankly, that's only for those who want Dividend Steams -as anyone who is a AirNZ shareholders are now finding out. But the Finacial Market can be used in all sorts of ways, many of them by just 'ordinary individuals' just by signing up to, say, CMC Markets.

"It suggests that property investment can be financially crippling if it goes wrong." haha classic anti housing DGM. Equity investment can be even more financially crippling when it all goes wrong and it happens a lot faster, with less warning and more regularly than house price correction (which invariably is only a few %)
Investing in Equities is the ultimate gamble, far more so than housing.

That really isn't true (its another false narrative spread by the uneducated property spruikers in NZ). Property market going bust is much more destructive due to the leverage, sums of money involved, hard to diversify, liquidity, inability to hedge..... Could write pages on this, but I'd probably be wasting my time.

Interesting that article doesn't mention what happened to the second house. Did they sell for a profit? How long had they owned it? Are they now freehold on the first house? Many unanswered questions. The bank would have happily lent on 0% deposit given the equity in the combined properties - I know this because I've done it and there are no interest rate penalties.
As DD says - NO bank lends money to purchase shares (knowingly)

DD.... borrowing for a property with a 10% deposit could almost be classed as 90% margin lending on property. With the extreme likelihood of a deep and long term property correction and high unemployment coming in the not too distant future I would be very, very reluctant to borrow heavily due to the excessive risk. And that is coming from someone not averse to high risk borrowing. In the early 90s and in my mid 20s I borrowed 500K+ ( and was refused another 500K) to invest in Akld property, even getting my parents to sign over the family home as security. IMO what is going to trump everything is income to house price ratio, although QE and low interest rates may delay the inevitable longer than most think.

We had to resort to a Credit Union, my wife was on extended maternity leave (a qualified teacher) and due to the responsible lending code our borrowing was limited to 3 x my "above typical" salary which meant significant lowering of sights. The interest rate was 5.75% (2 year rates were around 4.5% at the time).

3 years later we're at 50%+ equity with a mainstream bank @ 2.55% and on a 13 year schedule @ < 15% of our gross income.

And it turned out to be an excellent decision. This has profoundly changed your life for the better. Some people today are in the position that you were back then. Some of them will be influenced by the conspiratorial doom merchants that infest this site - it is a hive mind. I feel sorry for those prospective FHB, they don’t deserve to be misinformed.

But it is still rear vision mirror thinking. At the time the decision was made the world wasn't in the grip of a pandemic with increasing uncertainty. While everyone is free to make any financial decision they want, they need to realise that it could all go pear shaped and suffer the consequences. And that comes down to how much risk they are prepared to take.

BadRobot
May now be rear vision mirror thinking . . . but at three years ago it was forwards looking.
Exactly same comments being made by the likes of you.
So the time to buy when there is certainty - when is this going to be????

DD.... Be careful. The biggest risk in gambling is thinking you have a long-term winning strategy when you don't.
BTW essential reading for your good self. Fooled by randomness by Nassim Taleb.

And what if interest rate manipulation stops, and your loan rolls over at 15.5% in 2 years time? 13 Year Schedule doesn't guarantee 2.55% for that period?
That's improbable. But so was a pandemic. Both are possible and one has arrived, unexpectedly.

Then i'll revert to a 25 year payment schedule, and have a $600 per week mortgage at 15%.

Nzdan, do you want to go back in time and tell your younger self it is a “ponzi”? No, yet you tell this to today’s FHB. Nice /s/.

I think one of the main problems is that those in financial institutions that should be providing with financial advice to those that have or are trying to take a mortgage, also lack the right knowledge to do so.
Once things turn into custard the same ones that now advice for people taking mortgages under 10% LVR will blame people for having done so as a scapegoat for irresponsible lending. The same way you would blame your Internet provider if the connection goes down and not the user using a browser to access Instagram we should be blaming banks for what's about to come.

19
up

When you loose your job don't go cap in hand to get your debt fueled lifestyle and mortgage paid for by the taxpayer. Take your medicine and your friendly bank will send your house for mortgagee sale. If you can't save 25% you should not be be buying and learn to live within your means until you have saved a sufficient deposit. This will mean cutting out after pay and the latest iPhone, 4k TV, netflix and spotify and new car bought on credit. Orr is a disgrace removing LVR restrictions.

Saving a deposit is easy. It's servicing that is the problem. You mention iPhones and Netflix.

What about the war on savers or QE and corporate welfare? Do your comments apply too them as well?

24
up

100% it does. All of them are going cap in hand to the Government for losses to be socialised but their profits are private. Corporate welfare being dished out is disgrace. PROFITS ARE PRIVATE BUT LOSSES MUST BE SOCIALISED.
All savers are being put at an extreme risk of an OBR EVENT for zero return and Orr and Robertson refuse to bring in a deposit holder guarantee but they are using the savers to protect the debt fueled.
If saving a deposit is so easy why are 40% of FHB taking out LVR loans?

Great comment!!

All savers need to move their money to Australia. Watch 'conflict of interest Orr' try and wriggle his way out of that one.

Can anyone advise how this is done?

Yes, you have to be a resident in Australia to open an Australian bank account. Australian Bank accounts are government guaranteed to $250k. Got $1M? Open four different bank accounts (at four different banks).

Australia used to guarantee deposits up to $1M but this got reduced to $250k after 2008.

If you know someone you can trust there you could put savings in their bank account in their name.

Otherwise the only other option for legally getting funds out of NZ to Australia other than equities and PMs is to buy Australian property which kiwis can do of course without being a resident. Hope that helps.

Even though aussies have a 250k guarantee they also have a bail in clause , so it’s not completely safe .

Yes, and don't forget that the Aussie guarantee isn't just sitting there waiting to be claimed upon by depositors. It must be specifically invoked by APRA depending upon the circumstances. If the melt down is beyond the the $20 bln deposit guarantee cap they may just turn the other way and resort to a bail-in.

True ,there has been a bit of banter in Australia about this.

Amokk... transfer wise

don't worry the day that they try to introduce an OBR will be their last day. and they know it. they won't be able to run fast enough.

So your saying fhb should save say 175k for a 700k first home? Let's say its Auckland and 700k gets you near nothing, you pay say $600 a week rent(low end) and you save $400 a week, this would take you about 8 years. In that time you what is that house now worth.also if you can afford $1000 a week on rent and saving you can comfortably repay 700k,. Throw 70k as the deposit and you are paying of 630 very easy. Stupid to think 25% is realistic without mumy and daddy help

Its not stupid at all. You sound like all the other I want it now people out there. I have to wait 8 years.....I have been there and done it myself without mummy and daddy as you put it. People need to learn FISCAL CONSERVATISM that's why all the debt fueled are being bailed out by the savers via the artificial interest rates that Orr has created to save the debt fueled. But from what i have researched delay gratification cannot be taught. I like the saying GET RICH SLOWLY.

It is stupid, if they had set out to save 20% 10 years ago every year that house prices went up massively would have meant them being further from buying a house. It was much cheaper to buy a house with no deposit 10 years ago than with a 20% deposit now!

But now the borrowers are going cap in hand to the bank for mortgage deferral and to the taxpayer to pay for their debt fueled lifestyle and mortgage payments via welfare. I take the high road in everything i do and if it costs me so be it. Why do banks around the world have LVR restrictions? If it is such a good idea? Why not make every loan an LVR loan. Here's RBNZ's reasoning
https://www.rbnz.govt.nz/faqs/loan-to-value-ratio-restrictions-faqs#:~:t....
The LVR restrictions will support the stability of the housing market and help reduce the risk of a disorderly correction in house prices. Although the availability of high-LVR loans will be reduced, the speed-limit approach means some borrowers should still be able to obtain high-LVR loans.

14
up

COVID19 IS NOT MY FAULT.....I need someone to pay for my mortgage on the house that I overpaid for and I didn't save enough deposit to buy when I loose my job. Total BS. Personal Responsibility is what needs to be taught not more and more welfare to support the debt fueled lifestyle and not bailouts by the RBNZ artificial interest rate market Orr has created.

It’s the lender that needs to be responsible. If the banks lend money to people who can’t afford it that’s their own problem (and the people who invest money in the bank without doing due diligence) The biggest disgrace was the bailouts of the GFC especially the likes of south Canterbury finance.

Zero interest rates to save the DEBT FUELED is a bigger disgrace. Its Orr and the RBNZ that is driving. Also they are also making it hard to transact in cash via AML and other rules so banks pay zero interest to allow you to transact with your money. So you dont have a choice to be able to transact in cash for houses, cars and more
https://www.stuff.co.nz/business/money/122835522/banks-wont-accept-cash-...
Banks won't accept cash from customer trying to deposit money into friend's account
South Canterbury Finance was not a transaction account. It was an investment in a finance company.

I think the 0% interest rates are to stimulate inflation.

If printing money by the central bank and lending to banks at negative rates as is proposed was a good idea they would have done it a long time ago...More likely what is going on is an attempt to save the banks who are so exposed to our housing bubble the RBNZ and Robertson are too scared what might happen. But I would rather the market be the market it clean it out now than let it go on. House prices dropping 30% over a year and staying that way would be a great thing for the next few generations.

COVID19 IS NOT MY FAULT.....I need someone to pay for my mortgage on the house that I overpaid for and I didn't save enough deposit to buy when I loose my job. Total BS. Personal Responsibility is what needs to be taught not more and more welfare to support the debt fueled lifestyle and not bailouts by the RBNZ artificial interest rate market Orr has created.

If David Seymour expressed something similar, then I wouldn't think that he is the big phony that he is. More to the point, your thinking gels with me and points out that the property bubble is little more than a sham sponsored by a dogmatic ruling elite. And it it. But it won't last forever. The way things are going, things might unwind very quickly.

Some might be. That’s the bank’s problem. Personally we bought a house with 15% deposit 15 years ago and we turned our 60k deposit into 800k equity even after subtracting the principal we have paid in between. Had we tried to save 20% I doubt we ever would have got there as the goal post was getting further away every year. A 20% LVR at that time would have cost us significantly.

Some might be. That’s the bank’s problem. Personally we bought a house with 15% deposit 15 years ago and we turned our 60k deposit into 800k equity even after subtracting the principal we have paid in between. Had we tried to save 20% I doubt we ever would have got there as the goal post was getting further away every year. A 20% LVR at that time would have cost us significantly.

OK. That's good. You're a bubble beneficiary. Everyone benefits from the bubble. Just in different ways. But then we're all going to have to live with the consequences with the bubble when it reaches its nadir.

I don't think the checkout worker at the supermarket or a retiree living off super with a small amount saved hoping to get some fixed interest is benefiting at all from the bubble.

Indirectly, they have benefited (past tense) from the bubble. I'm nut sure if anyone is benefiting 'now'. The wealth is more 'imaginary' than ever before. If my house has increased 200% in the past 10 years and the ROI on the deposit is challenging the returns I would have made on Bitcoin, it still doesn't mean that I can realize that 'equity' tomorrow, this week, next week, next month. So let's say 5% of house owners wanted to release equity, the whole market would be affected. If 10% wanted to release equity, it could be a 50% or more crash.

The general populace is generally ignorant about how bubbles work. This is why govts like bubble economics. They can bamboozle people with bullshit ('nice problem to have'). The reality is that they work until they don't. Unfortunately, NZ's ruling elite believed that they could pull it off (taxation, monetarism, immigration, importing slave labor, etc). Covid aside, property bubbles inevitably always fail as shown elsewhere.

Great post - couldn't agree more.

OC's reasoning is faulty. In the example provided by the article house prices appreciated by roughly 8%pa. By his reasoning they should save 20% deposit over 8 years so roughly 2.5%pa plus the additional 8% appreciation so 10.5%pa. Clearly impossible for the average FHB

OC's reasoning is faulty. In the example provided by the article house prices appreciated by roughly 8%pa. By his reasoning they should save 20% deposit over 8 years so roughly 2.5%pa plus the additional 8% appreciation so 10.5%pa. Clearly impossible for the average FHB

Depends. Regardless, the average NZer is not sophisticated enough to understand that the current situation related to the property bubble and the perceived wealth is little more than a mirage.

Your NOT READING CAREFULLY AGAIN Hook. I never said it would take 8 years. 8 years was brought up by Luke83. I dont care how long it takes. They should be made to save 25% deposit.

Doesn't make your comments any less unrealistic - especially that one.
Actually you did mention the 8 years - go check.

I am not a believer in the debt fueled lifestyle. Fine for others but now they need everyone to support them.

Well good for you. I personally am not aware of anyone who could purchase a house with cash. Your rants above just sound mean spirited and disconnected from reality. Just because you were fortunate doesn't mean everyone else has the same means or opportunities. I'm sure if you were in the same position you'd be in the same queue front and centre.

No honestly I would not. I like fiscal conservatism and have practiced it from day one. Perhaps I am unique with my thinking but I had a goal of not being answerable to the man (the bank or employer) very early in life and worked towards this. So not meaning to be mean spirited I think we cant allow houses to keep going up. It cant continue. At this rate Auckland will be average $2m in 10 to 15 years and how will anyone be able to buy one. The banks mortgage books will be out of control. It just does not make any sense to me to allow this. I do agree its good for family stability to live in owner occupied home but many are not and landlords just keep adding to the empire.....

So we can be clear on facts Luke83 said below it would take 8 years. See my direct reply on his 8 years comments below also.

by Luke83 | 27th Sep 20, 9:13am 3 up
So your saying fhb should save say 175k for a 700k first home? Let's say its Auckland and 700k gets you near nothing, you pay say $600 a week rent(low end) and you save $400 a week, this would take you about 8 years. In that time you what is that house now worth.also if you can afford $1000 a week on rent and saving you can comfortably repay 700k,. Throw 70k as the deposit and you are paying of 630 very easy. Stupid to think 25% is realistic without mumy and daddy help

----
by OreoContrarian | 27th Sep 20, 9:31am 4 up
Its not stupid at all. You sound like all the other I want it now people out there. I have to wait 8 years.....I have been there and done it myself without mummy and daddy as you put it. People need to learn FISCAL CONSERVATISM that's why all the debt fueled are being bailed out by the savers via the artificial interest rates that Orr has created to save the debt fueled. But from what i have researched delay gratification cannot be taught. I like the saying GET RICH SLOWLY.

Your NOT READING CAREFULLY AGAIN Hook. I never said it would take 8 years. 8 years was brought up by Luke83. I dont care how long it takes. They should be made to save 25% deposit.

I disagree. They should be allowed to borrow as much as they like if there is a willing lender (who also has discretion over capital). However, the govt (and taxpayer) should not be subsidizing this malarkey and the property bubble.

Problem is the savers and the taxpayers are subsidizing / rescuing the borrowers. We don't see any mortgagee auctions. If you cant pay don't worry you can have a holiday for a 6 months then another 6 months. All the while RBNZ / Banks create an artificial interest rate to save them and refuse any guarantee for deposit holders.

Problem is the savers and the taxpayers are subsidizing / rescuing the borrowers. We don't see any mortgagee auctions. If you cant pay don't worry you can have a holiday for a 6 months then another 6 months. All the while RBNZ / Banks create an artificial interest rate to save them and refuse any guarantee for deposit holders.

Well yes, but I think that you seem to think that there is limited capacity to do this in NZ and Australia. There is no precedent for what the outcomes will be. The 'bull' scenario is that this is preserving the status quo and the banks can muddle along. Well that maybe true for a while, but what if businesses start going under? Remember, in the eyes of the banks, much of the equity behind SMEs is the family home. If the business is kaput, the home has to go in many cases.

You missed the point, save 175k over 8 years to buy a house that doesn't exists, I like you have saved and am where I am because of it, but my point remains, if a secure working couple for example earning good money can easily pay back 800k at a pressure test of 6% why not put 10% down? If they lose 10% in price (not likely) but aren't selling so what? Anyway doesn't affect me so don't really care

I am not missing your point. A holes buying in your scenario is the exact reason the banking system would be in trouble without zero interest rates on deposits. They need to SAVE HARDER

We need a hardline message like NAB / BNZ boss
"As ASIC said, we’ll take every reasonable step to keep people in homes and keep them moving, but there unfortunately will be some situations where it’s better off for people to actually sell up and start again, so that they can take some equity out of the situation"

Instead of doing everything possible to save the debt fueled and keep house prices going up and putting savers at a HUGE RISK of an OBR event with no deposit guarantee.

https://www.smh.com.au/business/banking-and-finance/nab-profits-slump-7-...

A HOLES, go have a coffee and chill out,

OCs ranting because his offshore equity portfolio is getting taxed at 5% pa and he feels he's subsidising the nasty house buyers with "his" money that he didn't earn .. lol

Not at all Hook. I think its costing me about 12k a month (that's realized interest meaning I was being paid it!) via earning zero interest on cash deposits since end of March. So I am definitely paying it. But I am gladly doing so as I don't want to be locked in at a NZ bank for less than 1% after tax if we have an OBR event. I am not one of these aholes going cap in hand for wage subsidies to the taxpayer and mortgage holidays to bail me out as I cant manage my finances.

Really OC, I think your calling people A holes for taking advantage of a mortgage holiday when they've just been made redundant ( or about to be) is the ultimate in insensitivity - but that's just my opinion. As for wage subsidies - it was businesses who took it and if the govt hadn't made the original criteria so loose, many wouldn't have. I wasn't going to take it, didn't need it but when I saw Destiny Church get paid out I thought "bugger this" I'm applying. It was a lolly scramble - even my accountant said I'd be foolish not to take it The blame should be laid at Govt's feet for making so fast and loose with other people's money - not those who legitimately and/or legally took advantage of it

Mortgage holidays are fair enough - you still have to pay it back. But people who took the wage subsidies when they didn't need it should be ashamed of themselves. The reason the criteria were kept loose was because it was a high trust model, designed to quickly get money to people who needed it at a stressful time. I've talked to small business owners who did need the money and were really grateful for the fact it was easy to apply. That you chose to abuse that simply because others were too is on you. What you are saying essentially that those who really needed it should have had to navigate a complicated system and wait longer for money they desperately needed to keep their businesses and families afloat because you couldn't be trusted to do the right thing. Just because it was legal doesn't mean it was the right thing to do.

Re: wage subsidy - It would have been very simple for the Govt to narrow the criteria to the obviously needy businesses. Retail, hospitality, and tourism and possibly construction. As a taxpayer I don't expect a Govt to open the pot of gold and say "just take what you need" without checks and balances,but if they do I certainly not going to say "no thanks". Governments are in place to run the country efficiently and responsibly, not operate a "high trust model" lolly scramble. My company was shut down for 6 weeks due to their directive. You may call it abuse, I call it staying even with the competitors who did exactly the same thing. I see many in the Tourism industry who weren't viewed as "iconic" missed out on support whilst THC (an ZNX listed coy) got several million. Business isn't about the "right thing" it's about survival.

As a taxpayer, I'm angry that you took my money for no good reason during a national emergency. And its horrifying that you seem to think being in business somehow absolves you of any personal moral responsibility for the decisions you make. As for it being about 'survival' you just said above you didn't need it.

Its a difficult one. On reflection personally I don't have a problem Hook took the subsidy. At the end of the day Cindy directed everyone to stay home. I don't agree with it myself and have had zero assistance but I am sucking it up.
At the start 80000 people were going to die according to Cindy and her data modeler. Turned out to be rubbish.
Lots of businesses could have stayed open such as butchers, the warehouse etc and it cost the owners extreme losses. We allowed tenants 50% rent reduction (all commercial) that were shut down then we had a listed essential business operating and open and who were withholding 100% rent and opex. It has cost me and family crazy amounts of money but what can you do. We are sucking it up. You could argue well we could afford to. But we have planned to withstand economic shock for a long time following a rule I would never be dependent on the kindness of friends let alone strangers ever. Strangers being the bank.

The important thing to understand about models is that the fact that 80000 people didn't die doesn't prove a model which predicted that was wrong. The point of those models are to help us predict what would happen if we didn't take action precisely so we can take action to avoid the prediction coming true.

BS. Look at the countries that have done nothing and the death rate is not 80000 in a population of 5m. Does not even come close anywhere. New York state 32713 deaths on a population of 20 million. In USA hospitals get USD39k to report a death as covid so these numbers may be inflated. Modelling is only as good as its assumptions and that Hendy guy's model were totally flawed but nobody talks about that now...

The model was obviously flawed, it was based on a mathematical algorithm of exponential infection and death rates that even at the time were dubious as to whether that was happening. We took the most extreme action unnecessarily due to the woeful unpreparedness of the Health system and imo panic at the highest levels.

Hooray Hook. We AGREE ON SOMETHING. haha

Haha, YEAH!! Two things actually - lol

Nice one. Chat soon

Oh get a room :)

Well as a business owner I'm not that concerned about your moral outrage. The "national emergency" was created by a Govt that didn't have a plan other than locking the entire country down, they caused the loss of trade - they can subsidise it. Save your drum beating for Destiny Church. The "survival" was in the context of the rest of the sentence i.e I have no obligation to run my business on a "right thing to do" model, I do have an obligation to run it profitably Besides.. I didn't take "your" money, I repatriated a very small portion of the significant sum of "my" money that I've paid to the Govt over many years.

It's pretty clear you dont give a crap about morals, Hook, but thanks for being explicit about it I guess. Being "in business" does not give you a free pass on behaving like a decent human being, regardless of what you seem to think.

Well that's your opinion bud and you're quite entitled to it. Suggesting that I'm not a decent human being because I availed myself of a Govt stipend that slightly offset the losses caused by the same Govt's overreaction is drawing a fairly long bow imo. But hey, it's a free world

Change of topic....this buyer got a bargain https://www.stuff.co.nz/life-style/homed/real-estate/122902600/original-...
That propaganda being run by the One Roof etc for the real estate industry to create FOMO is driving crazy decisions...

That's just plain insanity - 700K??? Shows how off the wall GVs are too. All I can say is WHY WOULD YOU!! There's some beautiful old villas in New Plymouth that could be picked up for a similar price. Solid native, 4 bedroom, character homes.

The agent had 100's of buyers lined up.

I think there's a saying about certain types of people and how easily they are parted from their money - this seems to bear that out.
On that note we'll chat later - ciao

Dammit, reported you by accident, whoops.

$700k with that heritage listed shitebox on it.. nuts. Could understand it if the cottage could be bulldozed and the site developed into 3 townhouses.

Ashley Church should be crucified on the top of Bluff Hill.

I've been living frugally for the last 8 years, paying 45% of my salary in rent and managing to save 30% each month, and have just hit the magic $100,000 mark as a 20% deposit on a $500,000 house.

8 years ago, when the median house price was $350,000, that $500,000 would have bought a nice house in a decent suburb. Now, when the median house price is $650,000, it might get me a lower quartile priced house in a not so decent suburb and that probably needs thousands of dollars more in remedial work to bring it up to code. That's if I can out-bid the property investors leveraging their existing capital to pay $100,000 over RV for these straight-to-rental purchases.

I'm already working flat out in order to earn a respectable 3% salary increase year-on-year. I don't buy barista coffees or eat out. I don't travel except to work and back. I don't drink or socialise. I've been driving the same car for 8 years. I shop at KMart and Pack'nSave. Just not sure where else I can make cuts.

You probably can't if your income is around $45k ish as I estimated from working back your numbers, saving 30% at that income level is doing pretty well. Look at other ways to increase your income (career change?), or get a flatmate/move into a flat to reduce that living cost.

Sorry Pragmatist. My income is much higher than that. I've "averaged" saving 30% over the last 8 years, but there were several months where I was unable to save at all or my savings went backwards due to unexpected costs.

As for the other things. I've tried them all and came away with some bad experiences with flatting, and with the job market as it is now is not a good time for a career change. At this point, drastic measures like changing jobs or houses are just not on the cards.

I guess what I'm trying to indicate is that even as a middle class white-collar worker, doing what I can to save up the deposit as expected, the housing market has other ideas and is doing it's best to make things harder.

100,000 / 8 = 12,500
12,500 / 0.3 = 41,667
41,667 net ~= 51,000 gross

So average $51K income based on your numbers, without considering any return on those savings.
If you've averaged 30% savings over those 8 years and your income is higher than $51K now then presumably you saved less than 30%/month early on and more than 30%/month now. If you keep that up for another year or two then you should be in good shape to purchase.

Yes and what's little known is you actually only need 5% genuine deposit savings, not 10% to buy a house. The other 5% can be made up with borrowed funds from second tier lenders. Then be refinanced later.

yes look at what $700k gets you. a doer upper that will require Hugh maintenance cost going forward

Give FHB 12% interest rates on savings and the corresponding 15% mortgage rates and it won't be a problem. Except of course the median house price would have to fall to circa 3x household income as a result.

Which makes me wonder, why did people in the 70's and 80's have to take out multiple mortgages to buy a house? Surely all they needed to do was save a couple of years wages with term deposit rates around 12 - 15%? When you consider a house deposit today is a similar multiple of an individual's salary, and interest rates are much much lower, yet it's perfectly fine to expect people to save this much just for a down payment?

I think those who push the "frivolousness" narrative need to look in the mirror.

LVRs were different. Often first mortgage providers would only lend to 66% of RV so you borrowed at higher rates for the amount over that.

Yes, but my question is why did people borrow for a house if interest rates were so crippling as we are often told today? Could they just not save a couple of years wages and buy the house outright? Today a single wage earner would need to save the same multiple of income just for a deposit, with MUCH lower deposit rates.

My theory is the people that are so vocal about how "hard" it was back then are not overly sophisticated, suffering from the Dunning-Kruger effect.

The only mortgage providers were Life Insurance Companies with whom you had to have life insurance, or Building societies with whom you had to have a savings history, and they didn't pay much if anything on savings balances, and for second mortgages you were off to your solicitor, and usually there was just the one income coming in. And, society "expected" the bloke to support the wife and children at home

Society expected teh husmband to support the wife and kid. (and gave them universal child benefits...)

Mum bought an ex-state house with a pretty small deposit, definately under 20%, think it was more like 10%, but cbf hauling the paperwork out to check

See reply below

Yip and no RWT on savings for a first home

To create change we need to solve the GREAT NEW ZEALAND RIP OFF and make houses cheaper and in greater supply......houses prices are controlled by limiting land development by Council district plans and preventing imported building materials being used easily. Building materials are controlled by a few companies. Said companies have lobbied to have in legislation NZ durability testing via Branz or other for every product. Allowing sale of building materials for double Australia and even triple USA price making building extremely expensive for relatively poor quality. They also pay your friendly builder a kick back for you buying over priced materials in the form of rebates in cash or kind. If competitors manage to get in said companies use politically lobbying to get dumping tariffs put on imported products shutting them down. If NZ scrapped durability testing and accepted say testing that met standard in California then materials would plummet. The said companies would say the materials would not be of the same quality but the truth is the local products are cheap and nasty at exorbitant prices.
An example of thousands of houses in the US is this one is in Arlington Texas (where I lived for a while) in the Dallas Fort Worth area. Arlington is one of the fastest growing cities in the US you get this for USD310,000 or NZD462,000
https://www.zillow.com/homedetails/4702-Willow-Park-Dr-Arlington-TX-7601...?
This demonstrates the madness that has been going on in New Zealand for too long.

" If NZ scrapped durability testing and accepted say testing that met standard in California then materials would plummet. " yeah great idea. bring in materials from a completely different climate. Leaky building syndrome all over again. Man you talk some rubbish! Your entire comment is riddled with complete lies and misinformation.
As for your example - This link would explain why they're cheaper
https://livingwage.mit.edu/counties/48113

Hello Hook. Nice to see you. Was waiting for some jousting from you....
California has one of the most stringent building codes in the world. I have no problem using their materials and has a wide range of climates. You dont need special gib board for different climates do you? NZ charges 250% more than USA for it. Just one example.
Leaky building was more to do with poor building standard, untreated timber and designs best suited for the Spain not somewhere that pisses down half the year. Your conclusion doe not stack up why its cheaper. Check this house about 20 minutes drive away https://www.zillow.com/homedetails/4300-Armstrong-Pkwy-Dallas-TX-75205/2... . Billionaires Row in Highland park. Dallas Fort Worth has super rich, average and poor. But houses are way cheaper in general terms and better quality.

The point I was trying to make and the question I'd ask is what is the affordability index? Looking at house prices in isolation doesn't infer that because houses are cheaper building materials are cheaper. In NZ the materials cost is not the main driver of price. Comparing material costs between Dallas and Auckland using our current fx rate (which is elevated) shows about NZ250/m2 in their favour, so about 10% cheaper. It's the land costs and consents that make houses so much more expensive in NZ, not the materials
Incidentally I agree with you about LBS causes but I've seen some "american style" homes built here recently and they didn't have treated timber framing either - everything was imported from the states in containers by the developer.

We get ripped off for everything here in NZ. Construction material, banking, petrol, supermarkets, power, insurance etc.

Hook - 27 billionaires in Dallas Fort Worth thats why those houses are so cheap....
27 Dallas-Fort Worth billionaires etch names in 2020 global rich list
They’re among 2,816 of the world’s wealthiest men and women. https://www.dallasnews.com/business/2020/03/02/27-dallas-fort-worth-bill...

I'm not following your lead about the number of Billionaires driving house prices down? I don't see the connection

You were suggesting that the house prices were so cheap due to low wages etc. But its actually an extremely rich area of the US. You have low wages but also lots earning in the millions. Its simply way cheaper to build in Dallas Forth Worth than in NZ. Its the fastest growing area in the USA.

I'm not disputing that houses are effectively cheaper but you were inferring that was due to the building material cost difference, which appears to not be that much. They obviously have different supplyside drivers than we have - cheaper land (and probably more of it), cheaper labour, lower regulatory burden and thus cheaper, perhaps more competition?. Cheaper building materials? - not so much

BTW - I have a friend in California who owns an electrical fitout business, tells me he doesn't bother hiring permanent staff because when he drives out of the supply depot he can pick up casual labour for a couple of bucks an hour any day of the week and there's always a queue waiting.

If you did a comparison you would be shocked. Yes labour is cheap but the materials are so much cheaper its not even funny. We may learn this with our food prices too when Costco finally opens in Auckland. Re the building materials costs one of the heads of Ngāi Tahu went to the US and did a doco with TV3 comparing the costs of building materials in the USA vs NZ and why they are so inflated. Worth a watch if you can find it.

I have a friend in construction in California, he builds for $80 a sq foot but gets as low as $50 for a budget job. Everything in NZ is crazy expensive.

I had some involvement with a company years back that did huge developments in Dallas Fort Worth and cheapness of materials was crazy compared to NZ. This is a new house land, building and landscaping https://www.zillow.com/community/rockingham-estates/2084662489_zpid/ for NZD437k

That's almost the exact house we had in California

Did it cost you $2m like in Auckland?

270k It was in a nice area alongside golf club.

The duopoly in the NZ building materials market is the cause as well as the statutory protection's they have. NZ durability testing and even if you can get this for imported product then the ComCom will help them. You cant import and compete without the mafia getting the ComCom placing a dumping tariff on you.
Do you know how much rebates are paid to the big housing companies by the NZ Building Materials Suppliers?

Sorry - accidentally hit report

It would be good if the report feature required a field to be filled in with an explanation and the option to cancel.

or just shift the REPORT button to the right hand side under the Thumbs-up, so you have to move the mouse over that side to make a good/bad comment. Thumb-Down Icon.?

The other day I contacted interest.co.nz about the report button, they said they're working on a solution.

Just needs a popup with confirm/cancel

This is irresponsible even for your own standards. The most basic economic knowledge is out of your grasp yet you keep making these type of comments on these forums, let's hope nobody will take them seriously.

I agree, I think the door is closing at a rapid rate. Soon the rich defined by land ownership and poor working class will be so entrenched in our society. Sad we are moving into a class system. We will continue to see the negative social implications in the years to come. Anyone who can stretch their way into Adrian Orrs team should do so as soon a possible.

Covid, delay our moves across the ditch for now. So waiting for normal border to resume. So we decided to bring our skill across to OZ, the risk always there but so far the comparisons lean towards more there than here; wages/salary, house correction, grocery bills, less bail out/unreasonable subsidies/grants, education discrimination to name a few.

Is the implication here seriously that because having a high LVR mortgage turned out okay over the past 10 years, it's a good idea to get one now?

I'm about to drive from Kaikoura to Christchurch. Reckon I will drive mostly looking in that shiny thing up and to the left from the drivers seat. Rear vision mirror I think it's called. What could possibly go wrong?

You'll look ahead, of course, but might get rear-ended by a fully loaded logging truck you didn't see coming up behind you, with number plates reading " LO LVR" if you don't use all the tools the vehicle offers?

Problem is that the article doesn't advocate using all the tools. It simply suggests that since we haven't encountered a bend for the past 10 kilometers, we can now remove the steering wheel.

there’s a decimal point typo in the 10% deposit figure Greg.

The only way this ponzi can keep going is if new entrants come in at the bottom to requisition the surplus properties from the hard working boomer cohort who are now now downsizing their well deserved investment portfolios.

The only way this ponzi can keep going is if new entrants come in at the bottom to requisition the surplus properties from the hard working boomer cohort who are now now downsizing their well deserved investment portfolios.

Correct. Property bubbles do share a similar characteristic as well functioning markets. Prices are set at the margins.

Or perhaps they work on the GREATER FOOL THEORY.......

Nzdan
Why would boomers downsize their investment portfolios????
Those who have investment properties was always to fund their retirement and nothing has changed regards investment properties.
No yield having cash. Far better yield on that rental and providing that weekly income.
The word I'm hearing from the boomers I know is that they are more likely to be taking money out of that term deposit that is no longer giving them the return they expected - and most likely decreasing - to fund their retirement and looking at investment properties.
Retired Poppy would only argue otherwise to save face. :)

That's what Orr wants everyone to do. Take cash out and buy rental properties. Gains are tax free. Pushes prices up and others can borrow on equity created to buy a boat, car, 4k tv and holiday (in NZ though). House prices double every 10 years don't they?

Why would boomers downsize their investment portfolios????

Maybe because they need cash. Even the media is picking up on this now.

https://www.stuff.co.nz/business/prosper/finances/300114912/covid19-from...

Well they could be liquidating their assets at what they perceive the peak of the market, rid themselves of pesky annoyances such as tenants, maintenance etc.

Well they could be liquidating their assets at what they perceive the peak of the market

They probably don't realize it's not quite as easy as they think. Many investors don't spend the time thinking about existing markets (guilty as charged). Property investors don't necessarily understand it, particularly at times like these.

If a FHB serviceability is ok then a lower deposit is probably better than trying to save a bigger deposit and being left behind. There was once a minimum deposit needed to buy cars, that requirement has long gone.

MB
Agreed.
The reality is that with FLP RBNZ has stated a specific purpose is to reduce household lending costs.
So the immediate outlook: Mortgage rates down and house prices up.
As long as FHB have income and job security (and the message is that banks are tighter on this) and are prudent paying the mortgage down then they have little to fear - in fact an outlook for lower mortgage rates at the end of the term and likely capital gain.
In terms of mortgages, given RBNZ signals I wouldn’t be looking for more than a year, reviewing the term then and possibly looking into the option of a far longer term depending on what’s what in twelve months.
As for Foxglove’s earlier comment and buying all the toys, losing one job, and then needing to be bailed out by Mum and Dad - well, I have absolutely no sympathy for them at all.
One thing FHB are prone to do is to immediately make improvements - resist that temptation and pay the mortgage down a little first. That lessens or avoids the consequence of rising interest rates (currently seemingly less likely) or loss of a job, unexpected pregnancy. . .
As long as one can aero the mortgage, a correction in the market - which tend to be short term for a year or two - is not significant.

Risky as hell. But we have forced our young people into a corner and what else can they do.

KH
Life is full of risk.
Car accident, cancer, loss of job, fire, earthquake, marital breakdown, volcanic eruption, tsunami, . . . at least one of these most likely to happen in one’s lifetime.
Avoid risk, stay in bed .

Here's another one, "you gotta be in to win" - lotto

Who's selling?

Best question asked here for a long time! In the case of investors, we need to know if net investor share of property market is increasing or decreasing. Stated alternatively, are more investors buying or selling?
KeithW

The question that always needs to be asked! About anything....

Those smart enough to pass the hot potato the stupid FHB that believe the bulls*it in the mass media.

Andrew
“Who is selling?”
Seemingly not enough - my understanding is that listings are down and this is more than likely one of the current drivers.
While investors weren’t buying at height of Covid and some may have been selling, RBNZ figures show investor activity increasing and that is supported by Tony Alexander’s survey of REA. However, some investors may have been selling to consolidate and reduce debt; but currently with such low interest rates they are going to be better off. No use selling up - what would one do with that cash to get a reasonable/better return than property (and currently seeming most likelihood of CG)
Possibly a number of “Covid winners” who bought a few years back who now have far lower mortgage rates and have considerable capital gains are probably trading up - selling and buying.

I wonder if Landlords are thinking the new tenancy laws are not going to be a lot of fun. I have a friend who is looking to exit, he thinks he has made the money from residential houses, it's time to move on and lock in gains.

Andrew
Your point about some landlords wanting to move on . . . From my experience, they”life expectancy” of many landlords in the business is about 10 to 15 years. Normally there is some reason to prompt the timing.
As to the new tenancy law, this could prompt some. However the vast majority of landlords have good properties and tenants and consequently this may not be a major issue that some perceive.

So before a major financial event that will forever be written into the history books, it was unwise to lend to people at low LVR's. But as soon as it gets underway then we lend to them with encouragement. How bizarre.

Just been shopping for a rental property in or near central Auckland to put family in. I am not a novice but the unbridled enthusiasm of other purchasers scared the bejesus out of me. Raced back to Northland for some sanity. I am not challenging the prices ( though many were telephone number size ) just the manic state - seen it before - wish them well.

What was the demographic of other purchasers?

15
up

I can't believe how irresponsible this articles is. Encouraging people to get mortgages with less 10% LVR in the current economic environment is asking them to sacrifice their future for the short term interest of the banks. Shame!

I don't see how this article is doing anything other than just presenting the facts of the situation. Primarily we come here to get a feel for the current investment climate so we wouldn't want anything to be deliberately hidden from us. It's good to see the figures and analysis so we can make informed decisions.

Expressions like "it may be a risk worth taking" imply an analysis and presents an opinion and, in my opinion it would seem that it tries to influence the reader. While it is true that the article exposes some data, it also conveniently leaves some important one outside of the analysis, and while some of the assumptions might have been correct a few years ago they might not be in the current economic context.

Risk it is...

https://www.marketwatch.com/story/the-covid-19-lockdown-is-squeezing-rea...

For an average price in Auckland say for a million dollar house paying $100000 deposit and borrowing $900000 is a risk but who is right and who is wrong only time will tell so is wait and watch.

Richard
It is very most certainly unlikely banks would lend on your scenario.
For a starter I suspect that one looking at a $1m house would fail the bank’ stress test . . . and also most likely their income/saving record.

But there are 20-somethings earning over 100K. Or as a couple earning over 200K. While paying off student loans they haven't had time to save 200K yet, and would have been earning less in the past. These couples can afford a 900K loan.

Seems as thought if you're in neck deep in unproductive debt, and the rest of world isn't then you've got a problem. But if you're flush with cash, and the rest of the world is neck deep in unproductive debt then you've also got a problem.

For my second and third house, I maxed out all my credit cards(18%pa) in cash for the deposit
No questions from the bank, (obv didn’t tell them)
Don’t recommend it unless you’ve got some balls, the numbers stack up and you can back yourself
Never occurred to me to cry and whine and procrastinate on finance website forums luckily!!
This back when I was 19 or 20 yrs old, young & dumb
God, I’m glad I did though!!

12
up

Knew people in America who did that or very similar - got completely cleaned out when their bubble burst.

There were people here in NZ who did exactly the same thing buying commercial buildings in '86 - some were not here in '88. Lot of cheap buildings and high end cars available at seriously marked down prices.

Congratulations, you just invented meta-moaning!

Some people that did this later on were crying for social welfare after the GFC, it is not your fault though, banks should have known better. Good luck.

You skipped a step.. a trip to the roulette wheel to dump it all on red or black, you could have bought two houses instead.

Pic is nice - a young couple leap, stretching to get as close as they can to the apex of the ponzi heap.

The first home buying groups on Facebook are full of people asking for advice on how to get mortgages at 5%, obviously many people see no risks going forward.
I feel silly now worrying about my mortgage with “only” 20% equity initially.

Frankly, if they are young enough, its a high risk high reward strategy.. they have time to recover from a bankruptcy if it all goes pear shaped in the next couple of years, and if it doesn't then they will have enough equity, and time to recover if does go pear shaped later on down the track. The 35yo+ FHBs don't have that luxury.

Damning stuff. Replace Aussie with NZ and the story is quite similar.

Australia is one of many neoliberal, financialised, consumer-debt saturated, housing-bubble obsessed, low-productivity, low capital investment, infrastructure-poor Western economies. It was already stuck in the linked new normal of low wage, low GDP, and low productivity growth, and the lower quality jobs that come with it, albeit probably being 10-15 years behind the US on social and political polarisation. It is also being hit hard by Covid and a closed border, and by serious trade tensions with China.

The RBA has responded with zero rates and Yield Curve Control out to three years, the latter of which is not stopping the market pricing in more rates cuts next month. The RBA has also said it will be there to support fiscal spending as needed. In short, the government has the ability to expand the fiscal deficit to a threshold determined only by the capacity of AUD to hold up.

And what is the response? To tell banks to return to a housing bubble, exacerbating problems in society, making businesses less price competitive, starving non-housing firms of attention, making the banking system even more reliant on global wholesale money markets and, as the historical track record *everywhere* shows, eventually ending up in bad loans, which will be repackaged and sit with the taxpayer. And making a mockery of the idea of prudent regulation.

https://www.zerohedge.com/markets/australia-just-unveiled-something-wors...

Are you really advising people to risk a bankruptcy for potential capital gains? This is no joke.

For the curious reader, this is what would happen if your personal investment turns into custard.

https://www.insolvency.govt.nz/personal-debt/personal-insolvency-options...

As i said, high risk, high reward. Eating tofu and stuffing your savings into an account paying 1% interest (less tax) is the low risk, get eaten by inflation option if that idea scares you.. but you are likely to never get to the security blanket level of deposit you'll need unless you have a huge income.

As i said, high risk, high reward. Eating tofu and stuffing your savings into an account paying 1% interest (less tax) is the low risk, get eaten by inflation option if that idea scares you.. but you are likely to never get to the security blanket level of deposit you'll need unless you have a huge income.

So you think people should be gearing up on an uber-property bubble during a global pandemic that is destroying the economic systems as we know them?

I won't be taking your advice.

What he's saying are.
option 1) leverage up & buy a property, risk losing it all if the market crashes & you become jobless
option 2) sit on your hands & watch your savings be destroyed slowly by inflation

For a young couple with 100k those are your options. Now would you like to stake your 100k on red or black

Bingo.

Well there are some middle ground approaches too, but if you listen to OreoContraian and other daft boomers out of touch with reality you won't be buying this side of 2040.

I am not in the boomer age group. haha. I find the term stupid.

Wow this is a red letter day !!, that's 3 things we agree on. Actually I find the term insulting - I was brought up to respect my elders. BTW I'm not of that age group - I'm the next generation

Haha. Yes round 3 of agreement. I have spent a lot of time listening to Charlie Munger now 96 for great words of uncommon sense that one can apply in many situations. I also think you can learn a lot from authors who have long since died. Further time spent listening to grandparents about the past you can learn a lot as a kid onward even up to today. Mark Twain once said that “History never repeats itself, but it does often rhyme.”

What kind of world do you guys really live in? The vast majority of people in that age group are far from having that kind of savings, furthermore many are still paying off debt from their student loans. Even if there would be a deflactional process it would not grind that amount of money in a day. Dangerous advice it is what you give, God knows with what interest in mind, I really hope people will see your opinions as what it is, a joke.

Some people just get on with their lives and get stuff done. Plenty of people in their 20s with 50k each in kiwisaver that could buy as a couple.

Finish uni at 21, start on a 60k salary. 3% kiwisaver +employer match and govt $521 is $4100 per year, 5 years call it $30k in kiwisaver after modest gains, and same again outside KS if they managed to save $100/week. And hopefully they've had a payrise or two in that time.

Not everyone is a shelf stacker that rages against the neo-liberal system while wearing their Che Guevara shirt drinking organic fairtrade coffee.

Excuse me for painting a picture of reality that doesn't match your world of privilege and stereotypes.

You're painting a picture, but it seems a bit more surrealist than photorealistic.

"The amount of new mortgages taken out by first home buyers with less than a 20% deposit accounted for 44.3% of the total new mortgage lending to first home buyers in May this year."

Of the remaining 55.7% how many tapped the bank of Mum and Dad for a good chunk of their deposit ?

It has to be a huge number as low NZ wage, income tax and high living expenses make it an astonishing feat to save NZD100k.

Evidently RBNZ wants FHB to take more risks
Precisely risks that prev restrictions were designed to stop
2004-07 again
Usual playbook
Equity cannot drop of course
And young folk no risk of unemployment as gov and QE has solved our economic woes
Is anyone official factoring in a k shape or L shape course next year?
It is la la land

Suck them in then spit them out. https://youtu.be/qL-CZWc3RME

Talked to a friend who is an agent and she said there is almost nothing being listed and when it is vendors want moon money.

Had one house listed this week, wanting offers over, 12 offers due in Monday, crazy stuff. Numbers of sales has crashed.

Appears in Auckland that sales rate continuing apace but listings not as fast as last month, so total listings not increasing at expected Spring rate.
Who knows when the current spate of sales will slow but I suspect it will be in November.

There will be fewer listings over the next couple of weeks in my area (Eastern Suburbs) because it’s school holidays.

Doesn't really surprise me as we are seeing RBNZ action which is pulling rates lower and pushing prices higher ~ deliberately.

Only one thing now can put a dampener on things and that's the real economy pulling rents lower. Failing that we simply see house prices rises in line with mortgage rate cuts.

Glitz
“ . . we are seeing RBNZ action which is pulling rates down and pushing prices higher. . .”
Mmm . . . does that mean a problem for those who advocate sitting on their hands, but not so for those who are buying?? ?

I've been saying this for a while. That's exactly what it's like in Germany in main cities like Munich. When interest rates go to zero people stop selling houses. Only the complete crap that nobody wants goes up for sale. slow motion currency collapse. Preference for hard assets and debt over cash.

Many older people will have to sell their house to move into rest homes. The price that rest home licenses can sell is somewhat dictated by what the price of houses is in the market.

interesting read left me with so many questions
how at 66 is your house not paid off ? you were born in a good time for house buying where prices to income was only 3* wages and if you brought thirty years ago you should be debt free?
are you not collecting super as well as your wages?
why go to the newspaper to tell people you cant handle finances?

https://www.stuff.co.nz/business/prosper/finances/300114912/covid19-from...

I suspect that this is possibly more common that you might think.

J.C. - For once you and I agree.
It isn't a case of suspecting that it may be common - it is.
Take a walk around some council social housing estate to prove the point - a really sad situation.
However, most retirees are doing well and live ok on super alone . . . . provided they have their own home mortgage free.

That Stuff article doesn't sound like a really sad situation though, in fact it is the most bizarre one I have ever read, I feel dazed and confused.

She did spend $15k in a year or so on scented candles & etc.....
Prob got a nice romantic relationship
Moneys overrated sometimes
Maybe theyve been to South Sudan....

The article doesn't explicitly state it but I suspect they bought a second home for their daughter and grandchildren who possibly live there rent free (had invested in a second home).They claim to be bringing up a daughter, and two grandchildren. Otherwise why would they contemplate a mortgage holiday when their home is almost mortgage free and they earn over 100K? At the same time they complain that deposit interest rates are too low for, presumably, their excess money ( interest rates are almost zero, what are we supposed to do with our money? )The whole story just doesn't add up on so many levels. It seems like very poor journalism.

Im based in Sydney ,a couple of years ago I was surprised by an article that stated that people in Oz aged between 65 to 80 had an average debt of 180k,now i have no idea as to what that money was owed on ,ie investment property etc ,blowing the kids inheritance etc ;but, was pleasantly surprised that the average debt level was so high in this age group.
I remember studying accounting and my tutor said to me ,you see those people driving around in exotic cars ,you would be shocked at how indebted many of them are.

Agreed sharetrader; most tend to aim to be debt free for retirement.
One factor that suggest things why this is not the case here and that is being a "franchise holder". Many franchises are for the financially desperate (e.g. a recent redundancy with poor job prospects /qualifications, prejudice against older workers), purchase of the franchise is done by mortgaging the house, in many franchise situations they operate on very slim margins and are heavily in favour in those setting up franchise networks (i.e. rip offs), previously failed or poor businesses or franchises . . . .
Possibly other issues such as recent partnership following separation (can be financially crippling), poor money management skills . . . . . but don't suit the narrative of the article.
Lesson here that retirement can be a great time in life but one does need financial security.

I know of some boomers in social housing (e.g. council flats) who are just surviving rather than living.

In the current environment, I almost feel like FHBs are like lambs to the slaughter. FHBs are really critical to the whole price increases continuing. I feel like FHBs have almost had it drilled into them by the mainstream media that they must get on the housing ladder at any cost, and as long as they can service the mortgage, they will be fine. But how many of them are actually getting financial advice as to whether it is a good move for them, and the price of the house is too high, and they aren't getting themselves into too much debt. The price of houses IMO vs wages is not good.

And boomer parents who haven't lived through a property crash force feed them the property ladder narrative and FOMO until they jump in.

Yeap. Also IMO retirement villages are cashing in on this too, , because many parents will sell their family home and then move into a retirement village, where the price they pay for that license to occupy, is often related to houses prices and the amount they have risen by. If things crash, it could be like a house of cards. But I suspect retirement village will still do well. They can constrain supply to increase demand, or reduce the age eligibility.

How about the short term risk? - is it really no possibility of severe adverse reactions? Govt & RBNZ intervention guarantee, will that suffice to warrant immune from individual economic death? - May be, it's the best to shift to OZ as they willing to get some bitter pill medication of correction. As NZ FIRE economic conditions is declared too chronic to swallow any bitter medication pill.