Opinions on Mortgage Affordability

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#2406893 25-Jan-2020 22:05

Obraik:

I'd love to buy a house but due to my partner having a somewhat specialist job that seems to only exist in Auckland, we had to move from Christchurch a few years ago. We're now resigned to the fact that even though we earn a pretty decent income, a decent house is just well out of our reach while we live here. If we were willing to make some large sacrifices such as the neighbourhood, the size of the property and giving up some of our hobbies, then yes, we could probably get something like one of those copy-paste town houses in Flat Bush. However, I don't see the point of owning a house at the expense of all that while also having a mortgage that leaves no room for anything else with the risk that if either of us ended up not working then we'd be screwed.

Instead, we're going to continue renting in Auckland in a decent sized property in a nice neighbourhood while looking to see how we can make our way back to Christchurch where we could get the house and land we want for around $400k-$500k, which would be well within our reach and would have us in a mortgage where it wouldn't be the end of the world if one of us ended up out of work for a period.

I can understand why you would feel that way. Equally it's a very dangerous game when you don't own a house. If I was in your situation I'd be looking to buy a rental property in Christchurch. It forces a certain level of discipline which didn't exist for me before I owned a house.

I'll give you a concrete example. I live in the middle east but have a property in Auckland. I have a generous housing allowance that would allow me to rent a 5 bedroom executive 400m2 house. I've chosen to rent something more modest for 3/4 of that as it allows me to also top up my NZ mortgage payments. For me a certain level of pressure is a good thing.

YMMV

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Obraik

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#2406899 25-Jan-2020 22:11

Handle9:

I can understand why you would feel that way. Equally it's a very dangerous game when you don't own a house. If I was in your situation I'd be looking to buy a rental property in Christchurch. It forces a certain level of discipline which didn't exist for me before I owned a house.

I'll give you a concrete example. I live in the middle east but have a property in Auckland. I have a generous housing allowance that would allow me to rent a 5 bedroom executive 400m2 house. I've chosen to rent something more modest for 3/4 of that as it allows me to also top up my NZ mortgage payments. For me a certain level of pressure is a good thing.

YMMV

I think the risk in renting is pretty low in comparison. I'm in my early 30s now so it's something I've been doing for the last 10 years or so now and haven't had any pain from it.

I don't really have any interest in owning a house that I'm not living in, plus I'd miss out on the first home owner grants that are available.

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tdgeek

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#2406905 25-Jan-2020 22:38

Obraik:

Handle9:

I can understand why you would feel that way. Equally it's a very dangerous game when you don't own a house. If I was in your situation I'd be looking to buy a rental property in Christchurch. It forces a certain level of discipline which didn't exist for me before I owned a house.

I'll give you a concrete example. I live in the middle east but have a property in Auckland. I have a generous housing allowance that would allow me to rent a 5 bedroom executive 400m2 house. I've chosen to rent something more modest for 3/4 of that as it allows me to also top up my NZ mortgage payments. For me a certain level of pressure is a good thing.

YMMV

I think the risk in renting is pretty low in comparison. I'm in my early 30s now so it's something I've been doing for the last 10 years or so now and haven't had any pain from it.

I don't really have any interest in owning a house that I'm not living in, plus I'd miss out on the first home owner grants that are available.

The risk in renting is that rents go up, and thats a noticeable issue now. House prices are strengthening again. The risk that I think Handle was alluding to, was the risk you take if you dont own, you are foregoing hedging against more property value gains. You can lock in todays income multiplier.

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#2406911 25-Jan-2020 23:51

tdgeek:
Obraik:

I think the risk in renting is pretty low in comparison. I'm in my early 30s now so it's something I've been doing for the last 10 years or so now and haven't had any pain from it.

I don't really have any interest in owning a house that I'm not living in, plus I'd miss out on the first home owner grants that are available.

The risk in renting is that rents go up, and thats a noticeable issue now. House prices are strengthening again. The risk that I think Handle was alluding to, was the risk you take if you dont own, you are foregoing hedging against more property value gains. You can lock in todays income multiplier.

Yip. I know a number of people who felt the same way about renting in Auckland 10-15 years ago. They are still renting and very limited ability to buy a house they want to live in, despite having very good jobs.

No one knows what the market will really do, it's a lottery at best. Wealth preservation and growth relies on owning assets rather than holding cash.

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#2406914 26-Jan-2020 01:47

Sure, but that property in Christchurch for $400-$500k is over $2mil in Auckland. There's no way I'm signing up for $7-8k a month mortgage repayment.

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Handle9

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#2406918 26-Jan-2020 02:35

Hence the suggestion that you buy an asset in the market you want to live in. It maintains your relative buying power in that market.

It's your money, do with it what you want, I'm just sharing what I would do.

Obraik

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#2406919 26-Jan-2020 02:45

Handle9: Hence the suggestion that you buy an asset in the market you want to live in. It maintains your relative buying power in that market.

It's your money, do with it what you want, I'm just sharing what I would do.

Yeah but as I mentioned, doing that means I miss out on the new home owner grants. It also doesn't change the fact that I'm still renting in Auckland and adds a whole bunch of other risks, such as bad tenants.

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quickymart

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#2406927 26-Jan-2020 07:48

As well as being evicted because the landlord wants to move in themselves - something I had happen to me. Majorly frustrating.

TwoSeven

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#2406937 26-Jan-2020 09:05

i think they really need to be looking at bringing the rental costs down for quality places, and getting rid of the low quality market. Things like reducing rates and compliance costs for service based housing (rentals) having a good landlord/tenant registration scheme and shifting away from fixed term leases (that have break penalties) as well as encouraging longer term leases (with suitable notification periods).

I would also like to see the introduction of better motorway and high speed rail to the satellite towns to allow people to move out of the cities but still have a good commute time.

i don’t think there is a large city on the planet where houses are affordable, so to try and push the idea that it should be here, doesn’t make sense to me.

I’d also like to see the re-introduction of the old school state housing scheme - but use modern flatpack to make the houses (and have housing that meets peoples needs re garaging, green space and good urban design). I don’t think pushing it out to the market to decide all that stuff was a good idea.

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alasta

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#2406941 26-Jan-2020 09:21

Obraik: It also doesn't change the fact that I'm still renting in Auckland and adds a whole bunch of other risks, such as bad tenants.

This is a point worth emphasising. Last year I was forced out of the rental that I had been living in for seven years due to anti-social tenants moving in upstairs from me.

Out of curiosity I had a look at the database of Tenancy Tribunal rulings to see how common it is for tenants to go rogue, and some of what I read absolutely blew my mind.

irpegg

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#2406943 26-Jan-2020 09:24

Obraik:
Handle9: Hence the suggestion that you buy an asset in the market you want to live in. It maintains your relative buying power in that market.

It's your money, do with it what you want, I'm just sharing what I would do.

Yeah but as I mentioned, doing that means I miss out on the new home owner grants. It also doesn't change the fact that I'm still renting in Auckland and adds a whole bunch of other risks, such as bad tenants.

One piece of advice, if you're in Auckland do NOT bother with first home grants. I held out trying to find a house under 600k so i would get my free $10,000 for a year. The stock at under 600k however was abysmal and just completely run down rentals that slum lords had let renters thrash. As soon as you go over 650k, you get actually nice houses that are maintained, so it becomes a matter of free $10,000 grant vs spending $50,000 repairing rotten floors and mold.

dejadeadnz

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#2406977 26-Jan-2020 11:43

Obraik:

Yeah but as I mentioned, doing that means I miss out on the new home owner grants. It also doesn't change the fact that I'm still renting in Auckland and adds a whole bunch of other risks, such as bad tenants.

I don't really want to take side on this debate (not enough information to form a firm view one way or another on what's best for your present circumstances) but aspects of your thinking demonstrate the clear and well-known psychological bias of valuing the perceived loss of something concrete over any loss of an opportunity to avoid a bigger loss or make a bigger gain in the future. At some point you have to be conscious of the numbers, if you time the market wrong or keep waiting till it's the right time to access the grants, by the time you currently think it's the right time to buy/you'll be eligible, the grants criteria might change, the banks might have different lending rules, and all sorts of other things.

A lot of your decision-making process strikes me as rather emotional/intuition-based -- it's your life but I'd go and take a serious financial advice and then decide.

dejadeadnz

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#2406982 26-Jan-2020 12:06

timbee:

One piece of advice, if you're in Auckland do NOT bother with first home grants. I held out trying to find a house under 600k so i would get my free $10,000 for a year. The stock at under 600k however was abysmal and just completely run down rentals that slum lords had let renters thrash. As soon as you go over 650k, you get actually nice houses that are maintained, so it becomes a matter of free $10,000 grant vs spending $50,000 repairing rotten floors and mold.

Yes and no. If you are the typical Kiwi and absolutely insists on living only in a house with a yard, I'd venture that you're right. However, if someone is open to apartments and perhaps aren't looking at having a family immediately, there are brand new apartments available for less than $600K which have gazillion times better temperature profiles, insulation, interior design, and what not than your average 1960s-built "classic Kiwi home". Yes, they are smaller and, yes, the owners might have to actually have to look at flowers and all that at a public park and share the space with one's neighbours (shock and horror).

Also, the likes of Williams Corporation offer small new buid freehold units (with no BC) for sale in Auckland for well under $600K with pretty darn good internal specifications. But if anyone's gonna off plans, they better take some serious legal advice -- I took a look at Williams Corporation's standard contract and special conditions and would not advise anyone to sign them. Now I acknowledge that there's still lots of failures in the Auckland and NZ property market at large and homes remain way too expensive. But lots of Kiwis are hamstrung also by their own biases.

And, yes, before people say it, things are obviously a bit different if you have a larger family but lots of people in Europe and Asia live in apartments without anyone dying and they have way better social indicators in NZ.

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#2407018 26-Jan-2020 14:33

dejadeadnz:

However, if someone is open to apartments and perhaps aren't looking at having a family immediately, there are brand new apartments available for less than $600K which have gazillion times better temperature profiles, insulation, interior design, and what not than your average 1960s-built "classic Kiwi home".

And no-one can live in them.

The reality is with appartments is there is generally no public transport that is on-time and takes less than three days to get half a mile down the road, or that turns up and isn’t over crowded and doesn’t result in one getting soaked when its raining.

Appartments I think need to be built with single and double garages, that a not only wide enough to get out of the car but where there is enough space to store other stuff like hobby equipment.

i would expect a one or two bedroom apartment to have at least a single garage and anything bigger to have a double.

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mattwnz

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#2407068 26-Jan-2020 17:19

alasta:

Obraik: It also doesn't change the fact that I'm still renting in Auckland and adds a whole bunch of other risks, such as bad tenants.

This is a point worth emphasising. Last year I was forced out of the rental that I had been living in for seven years due to anti-social tenants moving in upstairs from me.

Out of curiosity I had a look at the database of Tenancy Tribunal rulings to see how common it is for tenants to go rogue, and some of what I read absolutely blew my mind.

Due to the low interest rates, a lot of mum and dad older investors who would have normally put their money in term deposits to get a reasonable low risk return, are buying up houses, and having to become landlords. Although the rental returns are quite low depending on location and size of the house, they are probably relying on capital gains. Even insurance costs take a big chuck of the rent, due to the number of bad tenants there are. A lot also seem to be buying houses in more resort areas, and hiring them out as Air BNBs, but that has similar risks. But that also removes those houses from the housing stock, meaning less houses for people to live in. A lot have also put their money into the stock market, which I suspect is one reason it has risen so much over the last few years, and massively over the last 6 months. I do fear that something has to crash, because house prices can' t continue to rise by more than wages forever. Currently it is fueled by low interest rates, but they have to rise eventually. Plus the more houses prices rise, the bigger deposit people need to buy, and the more money they will have to pay back to the bank. It is not as though the property has actually done anything to gain that value, it is solely supply and demand.

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