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2865 posts

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  # 2384527 3-Jan-2020 10:56
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Tabuti:

 

Hi Paul

 

Happy to have a chat, i'm a Financial Adviser and long term Geekzoner :)

 

15 years in the banks and self employed for the past 3

 

Send a private message if you want, lots of people will have opinions but would pay to have a qualified one.

 

Cheers

 

 

@Tabuti thanks for the offer, but I started this thread for general opinions. As far as our own mortgage is concerned, we are happy with how the numbers stack up and have built in plenty of buffer.


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  # 2384655 3-Jan-2020 16:12
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Handle9:
eracode:My wife and I bought our first home in 1978 when we were in our mid-20’s. The absolute numbers were certainly much smaller - but the ratios of price, deposit required, income, servicing etc, were quite similar to those in effect today. However a major difference was that interest rates then were 2 to 3 times today’s 4% levels. In that regard today’s first home buyers have an advantage..


What a load of nonsence. In the 1970s average income to price ratio was around 2-3. Saving a deposit was not just possible but reasonably straight forward. Yeah you had to go without a few luxuries but it was doable. You could also buy an entry level house in an area relatively close to work.

Today you are looking at 9 times average household income. Of course you had high interest rates but you also had significant wage inflation. Today you have eroding household income due to stagflation.

We bought out first house in the early 2000s. It cost $225k for a smallish 3 bedroom. Today that house is well over $800k. Incomes haven't kept pace with that in anyway, which makes saving the deposit less and less attainable.

No one said buying a house was easy in the 1970s but it was a realistic goal for an Auckland family on a modest income. Today it's almost a pipe dream.

 

TBH there is truth in what you say. Looking back, when we bought the first house in 1978 it cost $45k at a time when we were earning about $11k between us. So the house price was about 4x annual earnings (from main jobs). I was wrong when I inferred that the income to house-price ratio was much the same then as today.

 

However, buying a house in the 70’s was difficult in other ways. You couldn’t just walk into any bank and arrange a home loan. You had to have banked with them for years and have built up brownie points. We banked with Auckland Savings Bank (well before it was re-named ASB Bank). You put in an application, waited several weeks while they deliberated in on it, and hoped it would be approved.

 

Regardless of the value of the house you were buying, ASB would not lend more than $25k to anyone for any residential property. They would lend up to 2/3rds of the purchase price, to a max of $25k. If you needed to borrow more, there was a thriving and important group of second-tier lenders who would lend to you - at much higher rates - against a second-ranking mortgage security. In those days, the main banks let their borrowers have second mortgages on their homes (up to a point). Fortunately that doesn’t happen today.

 

We were lucky to have accumulated a deposit of $15k (and with no Bank of Mum and Dad). We got a $25k first-mortgage home loan from ASB and a $5k second-mortgage loan from a finance company - to be repaid P&I monthly over five years.

 

Our finances were not necessarily desperate but we both had part-time secondary jobs for a time while we repaid the second mortgage. The idea of having a family at the time was not an option.

 

I didn’t mean to make light of the difficulties faced by first home buyers today - it’s obviously extremely difficult. However it’s always been difficult - but yes, more difficult now.

 

I was more getting carried away with having a crack at Winston’s reported comment.

 

 

 

 





Sometimes I just sit and think. Other times I just sit.


 
 
 
 


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  # 2384657 3-Jan-2020 16:19
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Would it not be nice if we could do what the Americans can do and have 30 year fixed rates of 3.25%....!? Imagine how much better that would be for everyone's budgeting.






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  # 2384667 3-Jan-2020 16:46
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Geektastic:

 

Would it not be nice if we could do what the Americans can do and have 30 year fixed rates of 3.25%....!? Imagine how much better that would be for everyone's budgeting.

 

 

Yes - and on the renter’s side of the table, residential rental leases for 30 year terms - as they have in some European countries. (I think someone may have mentioned this earlier). Much more certainty in life.





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1404 posts

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  # 2384669 3-Jan-2020 16:48
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Handle9:
eracode:My wife and I bought our first home in 1978 when we were in our mid-20’s. The absolute numbers were certainly much smaller - but the ratios of price, deposit required, income, servicing etc, were quite similar to those in effect today. However a major difference was that interest rates then were 2 to 3 times today’s 4% levels. In that regard today’s first home buyers have an advantage..


What a load of nonsence. In the 1970s average income to price ratio was around 2-3. Saving a deposit was not just possible but reasonably straight forward. Yeah you had to go without a few luxuries but it was doable. You could also buy an entry level house in an area relatively close to work.

.

i am not sure I can agree with this.  I seem to remember in the 80s  the personal tax rate getting over 60% for over $38k ($150k today) and it was 33% over 6000. (About $23k).  

 

I think the direct tax rate now is a lot lower, although remember we have GST now as well.

 

Also, in 1975 the population of NZ had just hit 3m people and net migrations was just starting to go negative (more people leaving) so there would not have been the pressure on housing there is today.

 

now the population is approaching 5m and last year the net migration was about 55000 (arrivals minus departures) and I think todays purchasing power is a lot lower today than it was.

 

 





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Master Geek


  # 2384670 3-Jan-2020 17:01
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Geektastic:

 

And no, the answer is not "tax housing as well".

 

 

 

 

Yeah, it pretty much has to be, because other than taxing housing (at least non-owner occupied housing, if not all of it), the only way to get rid of the advantages housing investment currently has over other investments would be to ban/severely limit  leverage (mortgages).  Otherwise no other investment can compete.


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Master Geek


  # 2384675 3-Jan-2020 17:11
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Handle9:

 In the 1970s average income to price ratio was around 2-3. Saving a deposit was not just possible but reasonably straight forward. Yeah you had to go without a few luxuries but it was doable. You could also buy an entry level house in an area relatively close to work.

 

 

 

For most in the 70's and 80's you didn't really even have to save a deposit.  You capitalized the Universal family benefit for your first child (received it as an up-front lump payment instead of weekly payments for Xyears) and that was the majority of your deposit.  Add 6 months of reasonable savings and boom, done.  Dress nice and go beg the bank manager for a mortgage.


 
 
 
 


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  # 2384677 3-Jan-2020 17:13
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TwoSeven:

 

Handle9:
eracode:My wife and I bought our first home in 1978 when we were in our mid-20’s. The absolute numbers were certainly much smaller - but the ratios of price, deposit required, income, servicing etc, were quite similar to those in effect today. However a major difference was that interest rates then were 2 to 3 times today’s 4% levels. In that regard today’s first home buyers have an advantage..


What a load of nonsence. In the 1970s average income to price ratio was around 2-3. Saving a deposit was not just possible but reasonably straight forward. Yeah you had to go without a few luxuries but it was doable. You could also buy an entry level house in an area relatively close to work.

.

i am not sure I can agree with this.  I seem to remember in the 80s  the personal tax rate getting over 60% for over $38k ($150k today) and it was 33% over 6000. (About $23k).  

 

I think the direct tax rate now is a lot lower, although remember we have GST now as well.

 

Also, in 1975 the population of NZ had just hit 3m people and net migrations was just starting to go negative (more people leaving) so there would not have been the pressure on housing there is today.

 

now the population is approaching 5m and last year the net migration was about 55000 (arrivals minus departures) and I think todays purchasing power is a lot lower today than it was.

 

 

Apart from personal tax rates, the 1980’s saw some horrendous home loan rates. There are are historical rates available on the RBNZ website. Here’s a sample:

 



 

In 1976, home loan rates first hit 10%. They continued to climb and by Jan 1980 they reached 13%. They stayed in the range 13 - 20% right through the 80’s and didn’t get back below 12% until late 1991. They stayed above 10% until mid-1998.

 

Some people seem to think that if you bought a house 30 or 40 years ago, everything was easy. It may have been easier in some ways - but not in others, as these rates indicate. High rates went on for decades and didn’t make life easy.

 

People who bought homes in the 1970’s might have had a lower income-to-price ratio than today - but they then faced a tough time with these 10++% rates over the next 20 years.





Sometimes I just sit and think. Other times I just sit.


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  # 2384679 3-Jan-2020 17:18
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What is your point?


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  # 2384681 3-Jan-2020 17:20
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TwoSeven:

Handle9:
eracode:My wife and I bought our first home in 1978 when we were in our mid-20’s. The absolute numbers were certainly much smaller - but the ratios of price, deposit required, income, servicing etc, were quite similar to those in effect today. However a major difference was that interest rates then were 2 to 3 times today’s 4% levels. In that regard today’s first home buyers have an advantage..


What a load of nonsence. In the 1970s average income to price ratio was around 2-3. Saving a deposit was not just possible but reasonably straight forward. Yeah you had to go without a few luxuries but it was doable. You could also buy an entry level house in an area relatively close to work.

.

i am not sure I can agree with this.  I seem to remember in the 80s  the personal tax rate getting over 60% for over $38k ($150k today) and it was 33% over 6000. (About $23k).  


I think the direct tax rate now is a lot lower, although remember we have GST now as well.


Also, in 1975 the population of NZ had just hit 3m people and net migrations was just starting to go negative (more people leaving) so there would not have been the pressure on housing there is today.


now the population is approaching 5m and last year the net migration was about 55000 (arrivals minus departures) and I think todays purchasing power is a lot lower today than it was.


 



What don't you agree with?

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  # 2384716 3-Jan-2020 18:45
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noddy76:

 

Handle9:

 In the 1970s average income to price ratio was around 2-3. Saving a deposit was not just possible but reasonably straight forward. Yeah you had to go without a few luxuries but it was doable. You could also buy an entry level house in an area relatively close to work.

 

 

 

For most in the 70's and 80's you didn't really even have to save a deposit.  You capitalized the Universal family benefit for your first child (received it as an up-front lump payment instead of weekly payments for Xyears) and that was the majority of your deposit.  Add 6 months of reasonable savings and boom, done.  Dress nice and go beg the bank manager for a mortgage.

 

 

Capitalising Family Benefit didn’t work and wasn’t an option if you couldn’t afford to have children and weren’t receiving Family Benefit.





Sometimes I just sit and think. Other times I just sit.


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  # 2384732 3-Jan-2020 20:05
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eracode:

 

Apart from personal tax rates, the 1980’s saw some horrendous home loan rates. There are are historical rates available on the RBNZ website. Here’s a sample:

 



 

In 1976, home loan rates first hit 10%. They continued to climb and by Jan 1980 they reached 13%. They stayed in the range 13 - 20% right through the 80’s and didn’t get back below 12% until late 1991. They stayed above 10% until mid-1998.

 

Some people seem to think that if you bought a house 30 or 40 years ago, everything was easy. It may have been easier in some ways - but not in others, as these rates indicate. High rates went on for decades and didn’t make life easy.

 

People who bought homes in the 1970’s might have had a lower income-to-price ratio than today - but they then faced a tough time with these 10++% rates over the next 20 years.

 

 

I wish we had the high rates of inflation now as we did back then. As long as you can survive for a few years, the inflation reduces the cost of the money borrowed in real terms.

 

Here's an article written in 2009 regarding the affordability of houses then and touching on the lowering of the value of the loan in real terms.

 

https://www.interest.co.nz/news/44330/opinion-why-golden-oldies-are-wrong-housing-less-affordable-now-1987-and-1975-corrected

 

 

 

 

 

 

 

 


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Master Geek


  # 2384758 3-Jan-2020 20:41
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eracode:

 

 

 

Apart from personal tax rates, the 1980’s saw some horrendous home loan rates. There are are historical rates available on the RBNZ website. Here’s a sample:

 



 

In 1976, home loan rates first hit 10%. They continued to climb and by Jan 1980 they reached 13%. They stayed in the range 13 - 20% right through the 80’s and didn’t get back below 12% until late 1991. They stayed above 10% until mid-1998.

 

Some people seem to think that if you bought a house 30 or 40 years ago, everything was easy. It may have been easier in some ways - but not in others, as these rates indicate. High rates went on for decades and didn’t make life easy.

 

People who bought homes in the 1970’s might have had a lower income-to-price ratio than today - but they then faced a tough time with these 10++% rates over the next 20 years.

 

 

 

 

Of course you forgot to mention that wage inflation was on similar levels..

 

https://nzhistory.govt.nz/culture/the-1970s/overview

 

In 1975 the average weekly wage was $95 (equivalent to $920 in 2018). This rose to $157 by 1979,

 

 

65% wage inflation in 4 years?  ~14% per annum.  So that mortgage that took say half of your income in 1975 ($47.5/week) by 1979 took up only 30% of your wage?  Yeah, that really sucks..

 

(Edit: and of course savings rates for the deposit were not that far below mortgage rates..  so the deposit wasn't such a huge hurdle even if you were one of the few that didn't capitalise the universal family benefit.)

 

 


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  # 2384764 3-Jan-2020 20:58
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noddy76:

 

eracode:

 

 

 

Apart from personal tax rates, the 1980’s saw some horrendous home loan rates. There are are historical rates available on the RBNZ website. Here’s a sample:

 



 

In 1976, home loan rates first hit 10%. They continued to climb and by Jan 1980 they reached 13%. They stayed in the range 13 - 20% right through the 80’s and didn’t get back below 12% until late 1991. They stayed above 10% until mid-1998.

 

Some people seem to think that if you bought a house 30 or 40 years ago, everything was easy. It may have been easier in some ways - but not in others, as these rates indicate. High rates went on for decades and didn’t make life easy.

 

People who bought homes in the 1970’s might have had a lower income-to-price ratio than today - but they then faced a tough time with these 10++% rates over the next 20 years.

 

 

 

 

Of course you forgot to mention that wage inflation was on similar levels..

 

https://nzhistory.govt.nz/culture/the-1970s/overview

 

In 1975 the average weekly wage was $95 (equivalent to $920 in 2018). This rose to $157 by 1979,

 

 

 

@noddy76 The first quote box is from me - as showing. Are you also attributing the second quote box to me? It doesn’t say who you are quoting. It might be inferred or implied that it’s from me - but it’s not mine.





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  # 2384784 3-Jan-2020 21:03
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eracode:

 

 

 

The first quote box is from me - as showing. Are you also attributing the second quote box to me? It doesn’t say who you are quoting - but it’s not from me.

 

 

 

 

It may have been edited (I can't tell), but, it's showing to me that it is quoting  https://nzhistory.govt.nz/culture/the-1970s/overview

 

Edit - it's in your quote that it is referencing the site, but, may not be clear to all.

 

 


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