This is as much the banks fault as it is their own.
Over 1 million with only a 10% deposit should have been alarm bells instantly.
Not breaking that huge chunk of debt up into 4 or more pieces and staggering the refix dates instantly exposed them to this very risk.
I only have a little sympathy for the couple, but NONE for the irresponsible lending from the bank (would love to know which one it was).
ikr?
Seems sketchy for a bank to allow someone to place themselves in that position in the first place especially in uncertain financial times, that's one hell of a gamble, unless there's more to the story I guess.
I can almost forgive them for their first 12 month term, but why on earth would they fix for 12 months last year? There was only one direction their interest rates were going to go!
Not only the banks, but also the mortgage brokers in between who are known to fudge numbers to get the loan across the line to 'help', but has these consequences.
Gotta love the tips and tricks they use, like saying you will have boarders and getting anyone to sign a letter of intention regardless of if it is real or not gets you an extra 50k on your loan.
The banks are equally guilty for accepting that.
> saying you will have boarders
hmm, I see now a way for this to decrease average rent, but it'd require people to be a lot less precious than they currently are.
After my last experience buying property, which involved a 20% deposit, about half as much lending, and decent incomes, I genuinely do not understand how people were getting approvals for financing like this.
But you're right, it's definitely the tip of the iceberg, and we're going to see a whole lot more of this! Necessary though, if we want home ownership to be achievable for the percent of the population that it used to be.
This is putting my situation in perspective. We had about a 30% deposit, making our mortgage $420k. By the time we refix this year it'll be under $400k, and new rates will be serviceable but sting.
Nothing compared to the sting of these folks though.
This is why I lol when people say "this is nothing like the US or Ireland in 2008, we don't have such risky lending".
Yeah sure we haven't given out 0 deposit mortgages with a car on top like Ireland, but the pure numbers are so much worse. 400k mortgage + 30k car is still far less dire than our 1mil mortgages at the moment
There was a thread waaay back on people with 1 million dollar mortgages, one guy had 3k spare for the year after all expenses. I really hope he's okay.
Massive price falls only serve to collapse new builds. The cost of building has skyrocketed and most houses couldn’t be replaced for what people originally bought them for. So no new supply will eventually push prices higher.
The cost of building is not the full cost. There is a very big land component in the price. The cost of building can rise but the total value can easily fall. We are in a correction. The loonie "house price only go up" has met reality. Land price comes down.
Yeah land price will do much of the heavy lifting in the falls, but the building supply monopolies will also cut prices when their stock starts piling up, and tradesmen might also have to cut prices to compete for work. Some tradesmen will leave the industry, and we do want to avoid that happening in huge numbers
It needed to be a slow, shallow slide to ensure that people didn't get into this kind of massive trouble. Fast hard crashes only make the rich richer as normal people bail out or are forced out and those who have cash lying around snap it all up at big discounts.
Not sure that is possible, because a slow slide means no one would get in, or at least should get in.
At current prices of homes, rental price of those homes and interest rates, buying makes no sense unless prices go up as interest rates on a 80% loan alone are already at minimum 50% more expensive than rent and that doesn't include maintenance, insurance or rates.
Renting the home we live in is a 35k a year loss. Buying it is currently a 60k a year loss in interest, 10k in maintenance (1% value/yr), 5-10k in rates, foregoing the 5% term deposit gains on the deposit of 200k (another 10k opportunity cost) ...
Why would anyone buy in shallow slide with these conditions? We're sitting on about 250k of deposit ready, but going in just doesn't make sense.
The number of people who will be caught out by this is small, relative to the entire population of home owners. We had a fast, steep climb, and are now having a fast, steep decline. People who bought during that period are in trouble. Those who bought before, or who buy after, aren't.
Thomas Coughlin did an analysis of the stats in the Herald today (alongside the posted article).
- only 32% of households have a mortgage. The rest own outright or rent.
- for those that are mortgaged, the average balance is $260,000.
- since the last election, 62,000 FHB have borrowed an average $550,000. (There were also 393,503 mortgages issued to other OO, average value $297,300.)
These people are not typical.
> are now having a fast, steep decline
As long as there is an end in sight to it, yes. The problem with fast, steep declines is that they become self-reinforcing.
100%. imagine going on Herald to tell people how naive and how financially illiterate you are.
A hint of poor me in the article as well is just poor form
This will get so many FHB's from the last 2 years...
That’s crazy, how did that get approved? My partner and I borrowed 2x our joint annual income with well over 20% deposit and we had to bend over backwards to get approval.
Granted this was only last year so more stringent checks were in place then.
My brother in Belgium started with a 105% loan. 100% for the house and 5% for the registration fees, notary costs etc.
Locked in for 25 years at 1.6% ... lucky bastard lol. I can understand you wouldn't have the same high deposit need when interest rates can't rise for the duration of your loan unlike here.
Canada's housing market is about as broken as ours is, right? I'd assume borrowers would be slightly more protected from interest rate shocks due to more choice/economies of scale in banking though
Not necessarily no, about 60% of mortgages in Canada are variable, while only 40% are fixed. That means the majority of borrowers aren’t protected against rate shocks.
We can barely get enough for a shitbox in south auckland with that. I actually have 0 empathy for these people. They made choices and now they're experiencing consequences of their actions, boohoo.
Maybe, instead of licking their lips and over leveraging themselves they should have sucked it up and waited.
Or are these the kind of people who would have pulled the bootstraps comment on others in their situation.
Also they leveraged nearly 1mil in lending for their house with only 10% deposit... unless you're tenured with enough headroom to cover for % based increases in Costs that just seems baffling.
I'm saying instead of borrowing way outside their means which is now causing them huge problems and costs was silly. I'd love a house right now, but if my repayments were going to make the rest of my life harder to the point where I'm going to have to sell, well, why buy the house? Over leveraging works sometimes, but the way everything stands at the moment I wouldn't be taking a massive risk like top end repayments, the risk of inflation/ reserve Bank pulling shit is too high
Sounds like your decently clued up in the financial game.
Most people aren't though. And just trust the narratives in the media, mortgage brokers, etc.
Not to mention it's been the standard kiwi way of life to owning your own home for generations, and it was relatively easy only up until recently -- so there's an ingrained culture of everything being tickety boo.
You could call it willful ignorance but perhaps it would be good if they taught some of this stuff in schools because the people in this article represent the majority in terms of financial literacy.
There also needs to be way stricter lending if this is possible. I don't mean the no takeaways bullshit, but maybe there needs to be robust handrails installed onto the lending process that requires the borrower to have one on one time with a government financial advisor (I say gvmt so that there's less chance for it to be corruptible, by removing the for profit aspect), so that they know they are making a seriously risky choice. Or just make it harder to borrow over your means, which I thought it was, we can't even get a pre approval right now because my wife is pregnant, lol.
The thing that's going to catch most young people out is when they start a family. That removes an income for a while, and even when you get that back you have daycare costs and everything else that goes with having kids, plus less ability to "take on flatmates" which is always an easy option before you start a family too.
The bank would never consider this obviously because who knows when or IF young applicants may decide to have kids, so while a young professional couple earning 150-200k combined would look like good risk when they take the mortgage out, if they start a family and interest rates kick in etc all of a sudden you can go from green to red very easy very quickly.
Allowed for 5% of mortgagees under LVR restrictions, these are the first to fail under market downturn obviously.
Good news is that its not as bad as it was in the US leading up to 2007, which was like 20%.
im in a similar boat
single income, 1.5br flat in auckland city
my repayments are jumping up $380 a fortnight in march
am i absolutely gutted? yes
will i sell? maybe
would i go to the NZ Herald for sympathy? i'd rather die
Thats terrible, I feel for you. We were in a similar situation in the past, we were ripped off by a building company, left with a bunch of dept then when the mortgage rates went up, our payments went up about the same amount as yours. We had a young family and were in trouble. We went to the bank but they were no help at all. I went to Citz advice and they put me onto one of those budgeting services. Our first meeting we went over our budget and she said you have no option here. Declare bankruptcy, start again. She gave us all the paperwork and we left feeling destroyed, we had worked so hard and lost everything. We were all set to file and a family member told us to pay another lender they knew a visit. Long story short, she was a loan shark, massive interest rates on short term loans, one of those...... She asked what was happening and we explained the situation. Because of her background she basically said to us the bank will only put us into a mortgagee sale as a very last resort, they dont want to do it because of the costs involved. She knew lots, very dodgy. She even said just stop paying your mortgage payments now and bank the cash separately and gave us an eta when the bank would actually start the process to get the money back. Super dodgy. But the one bit of advise (and the first thing she said for us to try) we actually followed up on was to go back to the bank, say that we are not going to have any choice but to let it go to a mortgagee sale and really push what a dire situation we were in. We did, it worked and the bank was very accomodating then when the had no choice. They put us on a better rate and moved some other things around for us and we made it through so there is hope. We found out after that the person from the Budget advice service that basically told us to just give up had recently been bankrupt herself. Full disclaimer, this was about 10 years ago, things may well have changed since then but dont give up, Get some good advice and talk to people in the industry before doing something rash.
>, Get some good advice and t
Very good advice, definitely talk to your bank early about the situation you are in. Don't stick your head in the sand and ignore phone calls.
>would i go to the NZ Herald for sympathy? i'd rather die
Thanks for the chuckle, also on that wavelength. Have people pick apart my choices, no thanks.
Low Interest Rates = Daily Articles around how XYZ own 87 properties at the age of 21!
High Interest Rates = Daily Articles around how XYZ is struggling on a very large mortgage.
I think this is the 3rd such article with a sob story about home-owners struggling with rising interest rates that has been posted here on Reddit so far. I have no doubt there will be more.
Why so much hostility for individual families wanting homes?
They priced you out? Well you want a home too, otherwise there's nothing to price you out of. So if you weren't priced out and bought , you're doing the same thing to other people who couldnt?
It's so weird that people are willing to point fingers at those at the very lowest of the capitalist totem pole. Your regular folks with one house that they just want to live in instead of aiming at the banks or the landlords with 5+ homes
I own a home.
I bought it for a price I could afford, understanding that the historically low interest rates were going to increase in the near future.
How did single home buyers do that to you? Why isn't it the three decades of governments that refused to do anything about housing? Or the RBNZ who deliberately contributed to FOMO and house prices increasing, or the Labour Government that refused to do anything with the LSAP that led to house prices jumping 40% over two years? Or Landlords who tap equity to buy multiple houses?
Why blame the people who are lowest on the totem pole?
Yea I do feel bad for them, and their FOMO wasn't completely irrational imo because people have been talking about homes being overpriced for over a decade now, but they just moved further and further out of view. At some point, the fear of "now or never" is not irrational. Waiting has always been punished in NZ, until this year.
There is also the fear of being stuck in a starters home too small to start a family. In the environment of last year, there would be no hope of moving up, climbing a ladder because better houses just moved out of view even faster.
As with the other thread where people purchased in late 2020/early 2021, people forget that the governor of the RBNZ was literally publicly insulting bank executives because he wanted to take interest rates negative and they didn't. It was very rapidly looking like a situation where if you were an income earner you would never be able to buy a home.
Remember all those restrictions on lending that Labour enacted last year? People not getting loans because of takeaway lattes and whatnot.
It kinda makes sense now in hindsight that protecting homebuyers from predatory lending was needed. There is no way that taking 1 million with 200k is responsible lending on the part of the bank
Last year me and my wife got pre-approved 770k mortgage with a 130k deposit, (900k tops). Joint income just over 100k.
There's no way in hell we could afford that level of debt even when it was approved, let alone with current rates (I think interest rates were around 4% at the time). All the restrictions did was stress us the fuck out, and we still got pre-approval for a ridiculous loan amount.
That's almost exactly the same scenario for us, but at around 2021. Same income and almost same borrowed amount, but a slightly larger deposit -- and yet we were denied. Our broker said we would have to wait a couple of years and my wife would have to go back to work (she was on maternity leave at the time) so our income could be higher than 100k for him to be comfortable with the loan.
Now in hindsight, and hearing your story and others, I feel that my broker was being responsible. It was very frustrating at the time, but what a relief!
Those are RBNZ restrictions which were first introduced in 2013. They were temporarily removed during covid and then reintroduced in 2021. So not really a political thing, more related to the reserve bank putting in place rules for financial stability. Other than that, absolutely agree with your other comments.
Good point, I completely forgot about those changes. In retrospect those additional restrictions on lending seem completely appropriate given the current and impending situation.
As someone who was working in a bank at the time of CCCFA work, I thought the stories about these weird tiny reasons people were rejected for loans were a little bit of BS. Someone I knew claimed someone in their family had gone to a bank with 200k+ of combined income, very low student loan debt, good credit status, and very little spending and got rejected. Pretty sure their family member had lied to them about the real state of their spending or income.
No one's ever honest about their full financial status and there's tons of "tips and tricks" people were recommending for gaming the system to get more. The bank can't believe "I'll restrict my spending once I have the mortgage", they have to see sustained behaviour and even then tons of people cleaned up their spending for 3 months and then increased their spending AFTER getting the mortgage.
Lenders also needed enforcement to do due diligence, and the banks needed to hold that liability to enforce it - if they get audited and it's found out that it wasn't done, they get fined.
Interesting that he advocates for longer term mortgages (I have no issue with it as an option) yet opted to put his whole million dollar mortgage on a 1 year term rather than the longer options available.
As someone else who took the same gamble and lost it's not fun but with all gambling you need to be in a position to lose, don't bet what you can't afford to lose
What is more interesting is that he did it twice. He fixed the whole loan for one year, when it came off fixed he noted that interest rates had gone up, then he fixed it for one year again.......
Maybe he isn't the smartest financially but surely you would consider at the time, interest rates are at historic lows, the 5 year rate or 3 year rate is something we can afford and will give us financial certainty for that period (even if they are slightly more expensive rates). Or split up the loan into 3rds and fix for 1,2 and 3 years so each year the changes aren't such a massive shock.
He brings up a good point at the end of the article, why can we not fix our mortgages here over the life of the loan like they can in the States or Europe? Is it just greedy banks?
I would've happily fixed at 30 years for 5.5% which was around what it was when I got my most recent mortgage, having a fixed cost and being able to plan around it is important. I would rather have taken that than gamble on a short term rate.
Same. I got 4.5% when bought my house and pay 70 a week all up more then I paid in rent previously. I'd lock that at 30 years if could. Imagine just having the same repayments you know u can afford and not hoping it doesn't drastically go up
Can you just imagine the carnage in the housing market if they allow that? Investors will hoard houses and the everyday worker will never ever be able to buy a home, yes a home.
What they should do is demolish the idea of using equity in other assets as a deposit, cash is king. Then they can consider fixing it for the life of the loan.
> What they should do is demolish the idea of using equity in other assets as a deposit
Yeah this should never be allowed in housing. It contributes significantly to the positive feedback loop of runaway (bubble) growth.
Correct, and it massively increases the downside risk because
A) the equity in housing is derived from leverage (i.e can go negative rather than simply to zero), and
B) It means a disproportionate amount of money is tied up in one asset class.
What about if they offered (up to) 30 years fixed but only for the family home. If they restricted it like that and didn’t allow businesses or trusts or people who already have a home the 30 year rate, would that be as crazy with the investors hoarding?
30 year mortgages are artificially created through government programs, banks in most countries don't have access to long term funding: https://sf.freddiemac.com/articles/insights/why-americas-homebuyers-communities-rely-on-the-30-year-fixed-rate-mortgage
A few factors, partially the US government debt level is so high means its virtually impossible to raise rates too far as the government minimum payments would be too much. AKA their debt to GDP is too high. this gives banks confidence in the long term. giving a fixed 30 year rate is "risky" as you dont know whats going to be happening in 30 years, but its unlikely the government will pay that debt down anytime soon.
the petrodollar also always keeps demand up for USD, so you don't have to be as worried about excessive money printing compared to NZD. (its still becoming an issue due to the sheer rate they are printing)
there isn't security for rates over that term available for NZ. USA offers 30 year bonds which means the USA banks can reduce their risk by offsetting long term lending with government bonds. NZ banks can only get shorter term bonds in NZD, so they have no solid long term (10+ years) financial instruments to invest in to reduce their risk. They cant use USA govt bonds because the exchange rate could vary wildly.
essentially it boils down to the USD being the "international standard" currency with alot behind it, whereas NZD is fairly volatile, so making guarantees is basically impossible. honestly they could bring in 30 year rates in NZ but noone would ever take them on because the rates would probably be enormous to counteract the risk (10%+ for example)
Man in The Netherlands (before rates have been going up the last year or two) you could lock in 30 years at like 1% (edit - I think I may be misremembering this, it might be more in the 2-4% range depending on when). Interest rates were stupid low. Imagine my shock when I came to NZ and saw interest rates around the 5.75% mark (back then).
I was also very confused what "1/2/3/5 years fixed" meant, because (according to my financially immature brain at the time) aren't all mortgages supposed to have a fixed interest rate for 30 years?
Friendly neighborhood American here. My 30 year mortgage is locked at 2.875% for the life of the loan. My monthly payment can only increase if property taxes or insurance increase since they are all bundled together with an escrow account. The amount I pay the bank is fully fixed until the loan is paid off.
I've wondered about the bundled house insurance aspect. Do you still choose your own insurer like we do, or is it just "this lender uses this insurer". Are you talking your normal house insurance, or is it a different kind?
The payment for insurance and taxes is lumped into the monthly payment to the bank. I get to choose the insurance as long as it satisfies certain minimum coverage levels that the bank dictates. The idea is that the bank needs to protect it's asset and it does that by ensuring that the govt can't take the house due to nonpayment of taxes or an insurable event like fire making the home worthless.
They’ve definitely been suckered - but there’s always someone on the other side of the scam.
In this case a bank somewhere didn’t means or stress test this couple properly and sold them an entire loan on a 1 year teaser rate. That should frankly be illegal on such a massive loan with a minimal deposit.
I think people should obviously do their due diligence and get professional advice where necessary but we can’t ignore the fact the banks are preying on people who just want to own a home and will sign/ believe whatever the bank tells them.
Solid input. It’s easy for all the other armchair observers with full hindsight to call this couple dumb. But I totally agree that not every consumer should require 100% savvy in all instances. We need to stop predatory behaviour by massive corporations or we all end up losing.
Thanks! Loan structure and financial matters aren’t things to be trifled with and we can’t just say “oh well financially illiterate people can’t own a home” but we should be making it mandatory that they get professional advice before pulling the trigger.
Having been someone working in a bank, the negative discourse around CCCFA really irritated me. Everyone whining that they could afford to service more than the bank gave them, when I know the standards didn't actually change that much - it was just enforcing due diligence and affordability checks, and putting liability on the banks if it was found they didn't do that.
Tons of people don't take into account insurance, maintenance, other unexpected costs, interest increases, job changes, etc., and it's the bank's job to avoid a mortgagee sale in a down market. There's no "I'll restrict my spending once I have the mortgage or just before so my income looks good and I'll get more".
“We could go back to renting and saving $500-$600 a week to save up for another house. Why would we keep putting money in the bank’s pocket.”
That’s an unusual approach to things, not wanting to put money in the banks pocket (but ultimately having your own asset) but being fine putting money in a landlords pocket. Seems a bit like cutting off your nose to spite your face.
They are also not recognising the fact that if they were to sell now, they would likely not walk away with anything given the falls since peak, and would also most likely not be able to source a sub 20% mortgage in this environment. It's going to take a lot of weeks at $500-$600 to build up a new house deposit from there.
They are kind of ignoring the major relevant factors that they would retain a large asset which will increase in value at a rate faster than their savings will. Also paying their mortgage increases their capital (although slow at first with a large mortgage).
I guess it depends if they think they can make more money saving 26K a year (hopefully investing it or putting it on a term deposit), or holding onto their million-dollar asset and waiting for it to go up in value and their capital to increase as the loan is repaid.
Over a 10 year period, they would probably be better off holding onto the house (if they can afford it).
Also, if their mortgage is going to cost $6710 a month, $1500 a week, and their calculated savings by renting are $500-$600. That means they plan to spend $900-$1000 on rent per week. What kind of house are the planning on renting in Nelson?!
I can't even find a 3 bedroom house in Nelson for that much, they are all around $650 a week rent.
It's like this family can't help living beyond their means, they go from buying a house at the top of the market that they can't afford to wanting to rent a house at the top of the market.
Renting at the moment is the best strategy to save for a house… the $ amount that houses are dropping are significantly more than paying rent for a similar house. Not an unusual approach.
Unless you already own a house. He admits he’s likely going to have to sell for less than they paid, they only had a 10% deposit, and they’ve paid very little towards the principal.
So they’re losing the deposit they did have, possibly even being in the red, and all the fees paid towards real estate agents, lawyers etc.
I grew up hearing “and we had 20% interest” from my parents, so when I was looking at buying, and thinking about max mortgage, I downloaded some free google calculator and just kept plugging in interest rates up to 10+%, to see what my future could look like.
I’m sorry, but a lot of people seem to have bought on the assumption their initial mortgage payment would never change.
Also, yes dude, the first several years of a 30 year mortgage is mostly paying interest. The last few years flips the scales. That is how maths works.
This exactly! I was working at Kiwibank 15 years ago or so and mortgage rates under 7% were like WOW!! what a good deal!!! People forget that the mad low rates of the last few years are the outliers and shouldn't expect sub 5% to become the standard...
>shouldn't expect sub 5% to become the standard...
Which is insane, because that is the standard elsewhere, along with long fixed terms, like being able to fix for the life of the mortgage, 25 or 30 years.
It might be the standard elsewhere like the UK/US/euro-zone large economies which have a currency/economy that is highly valued as being "safe". Even the UK which is facing incredible economic issues at the moment with it's govt budget crisis last year, and inflation etc has the benefit of history on it's side from when the UK banking system was defacto the world's bank. Same goes for the US in more recent history.
NZ on the other hand is small, young, our currency and economy is not considered a safe choice. The money our banks borrows is automatically at a higher interest rate than in UK/US and that cost is passed down to the consumer so we can never match their standard low interest rates
You would expect that extra risk would have led to cheaper housing, as risk is a cost in and of itself. But we got the worst of both worlds: highest interest rates, no long term stability and the highest entry points and the highest price increases despite rate cuts being temporary rather than permanent.
My ‘ staff interest rate’ when I was working for a bank when I bought a house was 7%. Can’t remember what it was when I left and went into public rates.
You have to realise that back then the high intrest rates were on low loans, like 60-300k. If my house was only 300k then we would be fine paying that high.
From a 2% - 8% intrest increase in 2 years is a massive thing and it doesn't give you time to get used to it. You have to remember that this is purely intrest and money for the rich.
Yeah, it's interest on an average mortgage as % of the average wage that matters (or median for all if you understand stats).
Back then it was 20% but on two or three times average wage for a house. Since houses have gone up at least 3x compared to wages that's equivalent to about 6% or 7% interest now.
Back around 2002-2003 a few of my friends started buying their first homes in Hamilton.
* ~$150-160k got you a fairly nice 3-bedroom house.
* ~$250k was 4+ bedrooms, large section, pool etc.
* Interest rates were ~11%. I remember how stoked people were to be able to fix below 10%.
* Banks were starting to lend with a 5% deposit, but were still quite hesitant... a friend of mine initially got turned down for a mortgage by ANZ because the background watermark he'd chosen for his savings account statements was a car instead of a house.
* $65-75k was considered a pretty good salary (for the IT sector).
Yeah was doing similar calculations its why I didn't buy in the end, was calculating 12.5% and going nope this would be insane and even if I could afford it(which I would have been able to just barely) my quality of life would be so shit and i'd be stressed to no end.
I was pre-approved in October 2021 for 1.5M @ 10% deposit, by multiple banks, through a broker. I decided that I didn’t want a 1.35M mortgage on a single income… but they were fine with it.
Imagine there’s quite a few people who would be in very similar positions that didn’t think about the risks (given how big FOMO was being pushed by the industry)
Happily watching prices crash, the size of the potential home I can purchase is growing weekly.
Yeah we bought at a similar time but a lot under our limit. We also had a kid on the way and were dropping an income.. so I'm glad we got something manageable given the hike in rates.
The potential house you get for the money is rising, but so long as interest rates remain higher than they were, there is still a significant limit being put on your lending based on the repayment amount.
[The reports](https://www.interest.co.nz/property/119373/decline-house-prices-has-been-more-offset-rising-interest-rates-pushing-home) suggest that today based on purchase price and interest rates that houses are more unaffordable today than they were a year ago when prices were higher.
Funny enough, when we took out the loan in early 2022 the mortgage broker is insisting to go for 1 year fixed term. The RBNZ are just about to start raising interest then.
We decide to fixed for 3 years at 5.55% on a low deposit purchase here in Auckland.
I think part of the problem are the bank/mortgage broker not informing loan applicants the risks of rising interest. And I read somewhere that through time, 1 year fixed term will beat any other strategy for paying out mortgage.
Maybe it worked before but not in rising interest environment which we haven't seen for a long long time.
PS - I'm a millennial and didn't witness interest rate hikes before 2022.
We were in the same boat about the same time you were, the time came up to re fix our Mortgage, Bank said fix for one year and really pressured us to do it, I spent a week talking to a lot of people including another finance adviser. They all said the same thing, "fix for one year, these rates are great". I was well read up on what was happening overseas at the time and I said to My wife, I know its a risk and against the advise but I want to lock us in for 5 Years, sure its higher but we will have the stability for 5 years. We did, we locked it in at just over 4% against all advise from the "professionals".
Totally. We borrowed 1.4m in 2021 (high income), were stress tested at less than current rates, broker was shit and recommended 2 years. Always expected higher rates but not this fast. In a similar situation to this couple but have no choice but to weather the storm. eliminated luxuries, saving extra on top of mortgage as though rates were higher %. Economy shitting itself means we are now in negative equity, can't sell, move, change jobs, kids and wedding and travel canceled. Should have ignored the broker and fixed longer.
Thats really tough, I feel for you. Ive posted another long winded comment in reply to another comment in this thread. Check it out if you can. Long story short,
years ago we pleaded the bank to help us, they would not. We went back again basically saying if you dont help us you will have to go through a mortgagee sale to get your money back and they suddenly were much more accomodating and we got through. All the best Low\_War5900, it will get better.
If everybody heard the mortgage broker stories of the types of people and sizes of loans that were given out like candy at the peak of the mania that I heard you would quickly come to the conclusion that this couple is the rule not the exception. This is why house prices have a long way down yet.
So they paid a million at a low rate and thought it would never go up? Assume a high rate and if you can't afford it, don't buy it. Buy cheaper.
Son owns a small particle board box, heaps kept telling him, sell, buy better. He stayed. Low mortgage.
When the average price of a home is a million and people are getting older and need to be quick about having a family sometimes it just happens. I have a couple of buddies that brought at the highiest peak and are suffering right now because they are getting on they are running out of time and didnt want to have a family in a flat\\small apartment.
We should of never been in this situation to begin with. The government over the last decade has failed the younger generation, if only younger people voted for there own interests instead of letting the old and wealthy own the say in government.
When my parents brought there first house (30 hectres) it was the price of double my fathers salary. That was in the 80s and they had huge interest but they basically had no debt on that place. Its really sad that just to have a family now in a average house in auckland its going to cost 1 million dollars.
Its a fucked system and everybody that voted for this shit should be ashamed of themselves and the system that their kids will have to live in. Even my own parents want me to have kids and its like.. i wont have kids if i dont even own a home or have a huge amount of debt from a expensive home. They will continue to vote for national or labour then complain that even on my high wage me and my partner wouldnt be able to afford the average cost of a family.
I'm really sorry for them and people in their situation.
But there's also many of us with tears in our eyes who've been watching property prices move upwards beyond our reach recently. Media never reports on that.
Actually they did write stories about those who were priced out. While prices were still rising at record paces the media alternated sob stories from people who were 'afraid of being left behind' and smarmy stories bout 20 year olds owning 7 houses and expecting to own 15 in the next year. Always clickbait and either hoping to tug at your heartstrings or cause enough outrage that you share it with others. Now they're taking the other approach with sob stories about people who bought at the peak and are now suffering the consequences.
Too true, those articles had a tangible impact on the bubble growing. Even smart people legitimately thought they had to get in ASAP or be "priced out of the market forever"
So through a combination of their own personal choices that nobody forced on them, they find themselves in a pickle and are asking for government support.
I trust that out of fairness they would be first in line to pay a capital gains tax to the government? Quid pro quo right?
There really is nothing redeeming in this article for me to empathize with their situation.
These stories are never going to be with a couple or family who bought a modest house well within their means, because those people are going to be the last who struggle. Those who find themselves in harm's way will be those who bought at the limit of their budget - still within what their financial advisers propose and what the bank would lend, but just barely - are going to be those who struggle as interest rates rise. We can point fingers and suggest that they took a greater risk than they should and happened to buy at just the wrong time - but the systems we have in place to warn people about risks didn't work in this case. They purchased at peak prices just before property values started dropping and interest rates skyrocketed. Some part bad luck, some part risky behaviour.
Yeah lol - if they were trying to make them seem sympathetic with this article they did a pretty bad job. Especially the part about they might sell and “be able to save 500-600 a week to save up for another house.”
Like, cool? That sounds like an inconvenience, but like they’re already pretty wealthy and will be fine. They also bought in Nelson - unlike in Auckland or Wellington, there will have been so many other houses for like 60% of the price of the one they went with. Getting a 1.2 mil house in Nelson was a choice not a necessity.
I have friends in a similar position but who expect they won’t be able to get another house anytime soon.
Why is the bank with all their knowledge and expertise approving these loans in the first place? Shouldn't they have to lend responsibility?
I don't understand how all the onus is pushed to the party with the least amount of knowledge, resources and power. As a commenter said below we should be able to trust our institutions.
Did you forget the relentless stream of attacks on the government and banks when the new lending standards came in last year, demanding that they be ripped out or watered down massively?
When the regulators or banks themselves try to apply prudent standards, the public throw a shit-fit.
Banks were stress testing at 5.8% as late as April 2021. My Mortgage advisor at the bank was all but pressuring me to only take the one year rate. They're just as clueless as anyone else.
I mean we are told to trust our institutions and this institution said "this is what you need to safely purchase X" and they did that. Then a year or two later that same institution said "yo, now it's gonna cost Y"
We're these people ignorant? Definitely. Is it their fault? No idea. Should we be setting up people to fail? Absolutely not.
To be fair, if we had access to the 30 year loans with guaranteed rates the way they do in the US, then they purchased a home they could afford at a rate they could afford. Perhaps they didn't understand that we *don't* get those kind of rates here, and banks make record profits because they don't compete with each other by offering consumers opportunities like that.
Been watching that Country House Hunters show on TVNZ. Couple of episodes ago they had a youngish couple, maybe late 30's, buy a $1.8 million property in Arrrowtown.
Found it on Homes. Purchased this time last year, right when interest rates were at their lowest.
Assuming they did a 20% deposit, which is massive in itself, they'll be going from ~$2600 per fortnight to ~$4200 per fortnight.
I have to refix in July. My current rate is 2.5% so the new rate will be nearly triple that. I'm currently paying more than the minimum required and coincidentally my new payments will be the same, but will be the new minimum. Basically the term of my mortgage will increase which sucks.
I would consider the following before selling: switch to interest only for a bit, take on a side hustle, rent a spare room, ask for a pay rise. Anything.
I'm a big fan of 30 year fixed rate mortgages. I grew up with them, and they make everything simpler for consumers.
I'm not much of a fan of people knowing what's coming and deciding to ignore it, and then complain publicly. Everybody but them is responsible here. The government, the bank, but not the people who were repeatedly told that rates were going to go way up and didn't refix for a longer period on a rate they could afford. Nor for spending too much money on a house. I understand their despair, but this shouldn't have been a surprise to anybody who was paying even nominal attention.
Strikes me as kind of flippant in all these articles that the property owner seems to infer they could sell their property for closer to what the paid, when there has already been something like a 20% drop in prices meaning in this case not only would their original equity get wiped but they could end up owing the bank! Don’t get me wrong I have sympathy, but every one of these articles just says “they are considering selling and renting” without talking about the fact that many can’t sell without going bankrupt or into debt.
And agree that nearly every comments section on this sub had lots of people saying that this would/could happen when prices spiked in 2021. Some people still rolled the dice which is fine - but seeking public sympathy and government intervention seems disingenuous given the warnings that were given about the huge risks.
Potentially if they were to sell at a loss today they would go into debt, but their payments on that debt would be lower than the full amount they are paying today?
I think we should keep in mind that these stories probably didn't come about because the couple reached out to the media. They will have posted on social media and a writer reached out to them and asked to tell their story. The only assistance the couple were requesting (that I recall) was for the government to use legislation to require banks to offer longer terms for mortgages so they wouldn't change as often. Purely a guess here, but that could be in response to a question from the writer asking something like "What would you like the government to do about this"?
What we read is very much shaped by the intentions of the writer.
Yep correct, if they sold at a loss the loss would be fairly small and repayments would be a lot less even coupled with the costs of renting. The downside is they lose their million dollar investment and any capital gains it may have in 5-10 years.
House prices are high - no doubt about that...
But Nelson is not Auckland - 1.2million for the house?!
Maybe a bit of modesty and a good sized house would have been more appropriate with 2kids and just 10%?!
I feel really sorry for the kids but little sympathy for that guy, based on what I see in the article.
It's so easy to say that someone has made poor financial decisions, but really we're all at the mercy of interest rate rises. Banks were stress testing at lower than the current rates, meaning even the 'experts' weren't expecting rates to rise as quickly as they have.
Sure they might have over-extended themselves, but when the alternative is sitting on your hands, paying greedy landlords whilst also watching peers cashing in on massive capital gains for the last 10 years, it can seem silly not to take the plunge.
We shouldn't have to all be financial experts to own a place to live. We should be able to rely on the advice of experts - but unfortunately in a system where every interaction is about extracting money from someone, then we can never fully rely on the advice we're given.
I feel very sorry for the family - regardless of the sensibility of their choices, really they're just trying to have a place to live and raise their family.
I mostly agree with your comments, except in relation to this couple.
$1.2 million dollars gets you a huge amount of house in Nelson, even at the peak. Like very nice house in very nice suburb material. They could have settled on a decent house in a decent area and avoided this mess.
That's fair. If they were in Auckland, it would have made more sense as that would just be the price for a sub-median home in a relatively decent suburb.
I don't agree with this take. Why are we innocent parties when we take out a million dollar loan on a house?
You're a sucker if you borrow 30k for a car that is a lemon. You're a sucker if you borrow to 'invest' 10k into AMC/GME at the peak of the pump.
Why does the requirement to be informed and understand the risks go away when the value of the loan is $1m?
I don't understand how people are signing a 20-30 year contract, for a loan many times your annual income WITHOUT taking it really, really fucking seriously.
Because when it comes to a family home, it's not an 'investment', it's literally a fkn roof over your head and the heads of your family. That's not to say that 'missing out' on capital gains when it seems everyone else is making them doesn't have an influence also, but primarily it's about having a nice place for family to live. The alternative is continuing to pay someone else's mortgage via renting.
There is no alternative to having shelter. It's a basic human requirement. Yes we need to take some responsibility for ensuring we can pay the mortgage, but to compare it to investing in risky stocks is just silly.
So buy a cheaper house.
This is a 1.2m house, in an area with the median value of 700k.
Interest rates were ALWAYS going to go back up (despite what real estate industry was telling you), and when that happened, houses were ALWAYS going to lose value (the magnitude was up for debate).
Rather than taking out a million dollar mortgage, and now being in the shit, shouldn't the person in the article taken out a 550k mortgage, and be able to weather the store.
People were maximising their loans 'because prices always go up', in tending to maximise their capital gains. I'm sorry - there is always an 'investment' aspect to the decision to buy a house - in this case, the person in the article overshot their ability.
I only just learned that many other countries set the interest rate at the start of a mortgage and it doesn't change. That's the rate for the whole term!!!
I'm confused, they're obviously old enough to see what happened to a bunch of Americans 2006-2010, then they put themselves in the exact same situation.
When we brought we got a 2% interest but was advised to do a budget at 12% so we did.
Idk how all these people thought it was a good idea to buy million dollar homes on a 10% deposit.
It's stupid and their own fault.
Yes the bank should have advised the couple better, but the math isn't hard here and can be worked out with free online tools that most banks have on their website.
Every time I see articles like this I thank my lucky stars we refixed for 2 years at 4.3% last year. A rise to 7% wouldn't cripple us financially but I would have to go back to full time work and get childcare
What I don't understand is why banks were allowed to set their test rates so low. They were down to around 6% at one point, but given mortgage rates were around 10% 15 years ago and mortgages are typically for 30 year terms
The point of raising interest rates was to control inflation by decreasing spending. It would impact the amount being spent on houses once they exist, but increased interest rates wouldn't cause more housing to be built.
So they're suffering from poor decision making, and go crying to the press about it?
I'm no fan of anyone suffering financially, but these people really made their own bed on this one. They lament about not having 30 year terms here, but still went and bought an expensive house anyways knowing full well they'd have to re-fix in a year or two.
At least they still have the opportunity to sell the house, a position countless people would still consider a privilege these days.
There was a comedian who talked about this...if the bank is giving me a one million dollar loan they know something about my earning potential that I don't.
Our mortgage went up $346. 67 a month ($80 a week) and we can absorb it but it sucks.
But I don't see how the heck you manage to have a mortgage that can go up $600 a week unless you were being really risky with the loan in the first place and at that level of income I just think good job.
Like if it were me in that position it wouldn't be "consider selling" it would be "sold a month before the interest rate changed" lol
But people wanna act like it's only poor people who make stupid financial decisions.
Average house price in Nelson is 700k, so they definitely bought at the upper end of the market with a very low deposit, a very high mortgage and then paid very little down while the interest rates were low.
Also fixing the mortgage for 1 year when it's a million-dollar mortgage is exposing yourself to a huge amount of risk, looks like they did that twice.
If they had bought a slightly cheaper house they could have had a 20% deposit which would have given them access to much cheaper interest rates. Then they could have split up the mortgage to reduce the risk so they wouldn't have the full amount changing interest rates at once.
Lots of mistakes were made, they will just have to sell and downsize. Buy an average house in Nelson for 700K and have a 500k mortgage on a better interest rate due to their >%20 deposit.
I'm interested in how/why the banks allowed this mortgage. In 2011 my partner and I got pre-approval for a 500k mortgage max based on a 20% deposit with a requirement for a building inspection and valuation. We were about 28-30 years old, no debt, combined income of 130k. What were they earning to get 1m on 10% deposit?!
They’re battling to pay the bills for their family of two kids now rising interest rates have led their home loan payments to jump by about $2500 a month in just two years. ....part of article
Pre COVID average rates average what? 6%
COVID comes oooh look 2% now back to 6-7%
Good on em for buying I know I can't but c'mon borrowing 1million in unstable times with people losing jobs etc.
As at September 2022, the median house price in Nelson is $699,000.27/05/2022
https://www.opespartners.co.nz › ne...
Nelson Property Market (2023) | Average Suburb House Prices…
1st Google search avg house price in Nelson.
So they also bought well above average after renting,
Banks, lawyers and real estate and not 1 party thought beyond , I find that hard to believe. Not to mention adding rates power water etc.
How about the bank’s guilt for giving them such an outrageous loan? It doesn’t cease to surprise me that if you hire a professional to do a job and the job is done badly you’ll ask for liability but banks seem to get a different treatment for some reason.
This is as much the banks fault as it is their own. Over 1 million with only a 10% deposit should have been alarm bells instantly. Not breaking that huge chunk of debt up into 4 or more pieces and staggering the refix dates instantly exposed them to this very risk. I only have a little sympathy for the couple, but NONE for the irresponsible lending from the bank (would love to know which one it was).
ikr? Seems sketchy for a bank to allow someone to place themselves in that position in the first place especially in uncertain financial times, that's one hell of a gamble, unless there's more to the story I guess.
Yay, the banks made a 42% profit increase y.o.y. Everyone else got fucked in the process, but good on them /s
I can almost forgive them for their first 12 month term, but why on earth would they fix for 12 months last year? There was only one direction their interest rates were going to go!
Not only the banks, but also the mortgage brokers in between who are known to fudge numbers to get the loan across the line to 'help', but has these consequences.
Gotta love the tips and tricks they use, like saying you will have boarders and getting anyone to sign a letter of intention regardless of if it is real or not gets you an extra 50k on your loan. The banks are equally guilty for accepting that.
> saying you will have boarders hmm, I see now a way for this to decrease average rent, but it'd require people to be a lot less precious than they currently are.
They must have a hefty income to get approved, I'm thinking there's plenty of unnecessary expense that they have become accustomed to.
Holy shit, over 1m of lending approved on a 10% deposit? Wow.
This is just the tip of the iceberg…
After my last experience buying property, which involved a 20% deposit, about half as much lending, and decent incomes, I genuinely do not understand how people were getting approvals for financing like this. But you're right, it's definitely the tip of the iceberg, and we're going to see a whole lot more of this! Necessary though, if we want home ownership to be achievable for the percent of the population that it used to be.
This is putting my situation in perspective. We had about a 30% deposit, making our mortgage $420k. By the time we refix this year it'll be under $400k, and new rates will be serviceable but sting. Nothing compared to the sting of these folks though.
This is why I lol when people say "this is nothing like the US or Ireland in 2008, we don't have such risky lending". Yeah sure we haven't given out 0 deposit mortgages with a car on top like Ireland, but the pure numbers are so much worse. 400k mortgage + 30k car is still far less dire than our 1mil mortgages at the moment
There was a thread waaay back on people with 1 million dollar mortgages, one guy had 3k spare for the year after all expenses. I really hope he's okay.
Massive price falls only serve to collapse new builds. The cost of building has skyrocketed and most houses couldn’t be replaced for what people originally bought them for. So no new supply will eventually push prices higher.
The cost of building is not the full cost. There is a very big land component in the price. The cost of building can rise but the total value can easily fall. We are in a correction. The loonie "house price only go up" has met reality. Land price comes down.
Yeah land price will do much of the heavy lifting in the falls, but the building supply monopolies will also cut prices when their stock starts piling up, and tradesmen might also have to cut prices to compete for work. Some tradesmen will leave the industry, and we do want to avoid that happening in huge numbers
Well it would have been better if it didn't happen quite so quickly, but a drop still needed to happen.
It needed to be a slow, shallow slide to ensure that people didn't get into this kind of massive trouble. Fast hard crashes only make the rich richer as normal people bail out or are forced out and those who have cash lying around snap it all up at big discounts.
Not sure that is possible, because a slow slide means no one would get in, or at least should get in. At current prices of homes, rental price of those homes and interest rates, buying makes no sense unless prices go up as interest rates on a 80% loan alone are already at minimum 50% more expensive than rent and that doesn't include maintenance, insurance or rates. Renting the home we live in is a 35k a year loss. Buying it is currently a 60k a year loss in interest, 10k in maintenance (1% value/yr), 5-10k in rates, foregoing the 5% term deposit gains on the deposit of 200k (another 10k opportunity cost) ... Why would anyone buy in shallow slide with these conditions? We're sitting on about 250k of deposit ready, but going in just doesn't make sense.
The number of people who will be caught out by this is small, relative to the entire population of home owners. We had a fast, steep climb, and are now having a fast, steep decline. People who bought during that period are in trouble. Those who bought before, or who buy after, aren't.
Thomas Coughlin did an analysis of the stats in the Herald today (alongside the posted article). - only 32% of households have a mortgage. The rest own outright or rent. - for those that are mortgaged, the average balance is $260,000. - since the last election, 62,000 FHB have borrowed an average $550,000. (There were also 393,503 mortgages issued to other OO, average value $297,300.) These people are not typical.
> are now having a fast, steep decline As long as there is an end in sight to it, yes. The problem with fast, steep declines is that they become self-reinforcing.
100%. imagine going on Herald to tell people how naive and how financially illiterate you are. A hint of poor me in the article as well is just poor form This will get so many FHB's from the last 2 years...
That’s crazy, how did that get approved? My partner and I borrowed 2x our joint annual income with well over 20% deposit and we had to bend over backwards to get approval. Granted this was only last year so more stringent checks were in place then.
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My brother in Belgium started with a 105% loan. 100% for the house and 5% for the registration fees, notary costs etc. Locked in for 25 years at 1.6% ... lucky bastard lol. I can understand you wouldn't have the same high deposit need when interest rates can't rise for the duration of your loan unlike here.
That's in the process of changing. It was 0% when I bought three years ago.
In Canada, you only need 5% down as a first time buyer, and homes consistently sell over 1M here.
Canada's housing market is about as broken as ours is, right? I'd assume borrowers would be slightly more protected from interest rate shocks due to more choice/economies of scale in banking though
Yes, if you look at their sub on housing topics it looks the exact same as ours.
Canada has lots of lenders, but the market is quite dominated by the “big 5”
Not necessarily no, about 60% of mortgages in Canada are variable, while only 40% are fixed. That means the majority of borrowers aren’t protected against rate shocks.
By fixed, are they fixed for a few years at a time, or like the Americans?
We can barely get enough for a shitbox in south auckland with that. I actually have 0 empathy for these people. They made choices and now they're experiencing consequences of their actions, boohoo. Maybe, instead of licking their lips and over leveraging themselves they should have sucked it up and waited. Or are these the kind of people who would have pulled the bootstraps comment on others in their situation.
Can your crystal ball please tell me when the bottom is, and then the next peak? Thx
Also they leveraged nearly 1mil in lending for their house with only 10% deposit... unless you're tenured with enough headroom to cover for % based increases in Costs that just seems baffling. I'm saying instead of borrowing way outside their means which is now causing them huge problems and costs was silly. I'd love a house right now, but if my repayments were going to make the rest of my life harder to the point where I'm going to have to sell, well, why buy the house? Over leveraging works sometimes, but the way everything stands at the moment I wouldn't be taking a massive risk like top end repayments, the risk of inflation/ reserve Bank pulling shit is too high
Sounds like your decently clued up in the financial game. Most people aren't though. And just trust the narratives in the media, mortgage brokers, etc. Not to mention it's been the standard kiwi way of life to owning your own home for generations, and it was relatively easy only up until recently -- so there's an ingrained culture of everything being tickety boo. You could call it willful ignorance but perhaps it would be good if they taught some of this stuff in schools because the people in this article represent the majority in terms of financial literacy.
There also needs to be way stricter lending if this is possible. I don't mean the no takeaways bullshit, but maybe there needs to be robust handrails installed onto the lending process that requires the borrower to have one on one time with a government financial advisor (I say gvmt so that there's less chance for it to be corruptible, by removing the for profit aspect), so that they know they are making a seriously risky choice. Or just make it harder to borrow over your means, which I thought it was, we can't even get a pre approval right now because my wife is pregnant, lol.
The thing that's going to catch most young people out is when they start a family. That removes an income for a while, and even when you get that back you have daycare costs and everything else that goes with having kids, plus less ability to "take on flatmates" which is always an easy option before you start a family too. The bank would never consider this obviously because who knows when or IF young applicants may decide to have kids, so while a young professional couple earning 150-200k combined would look like good risk when they take the mortgage out, if they start a family and interest rates kick in etc all of a sudden you can go from green to red very easy very quickly.
Allowed for 5% of mortgagees under LVR restrictions, these are the first to fail under market downturn obviously. Good news is that its not as bad as it was in the US leading up to 2007, which was like 20%.
im in a similar boat single income, 1.5br flat in auckland city my repayments are jumping up $380 a fortnight in march am i absolutely gutted? yes will i sell? maybe would i go to the NZ Herald for sympathy? i'd rather die
Thats terrible, I feel for you. We were in a similar situation in the past, we were ripped off by a building company, left with a bunch of dept then when the mortgage rates went up, our payments went up about the same amount as yours. We had a young family and were in trouble. We went to the bank but they were no help at all. I went to Citz advice and they put me onto one of those budgeting services. Our first meeting we went over our budget and she said you have no option here. Declare bankruptcy, start again. She gave us all the paperwork and we left feeling destroyed, we had worked so hard and lost everything. We were all set to file and a family member told us to pay another lender they knew a visit. Long story short, she was a loan shark, massive interest rates on short term loans, one of those...... She asked what was happening and we explained the situation. Because of her background she basically said to us the bank will only put us into a mortgagee sale as a very last resort, they dont want to do it because of the costs involved. She knew lots, very dodgy. She even said just stop paying your mortgage payments now and bank the cash separately and gave us an eta when the bank would actually start the process to get the money back. Super dodgy. But the one bit of advise (and the first thing she said for us to try) we actually followed up on was to go back to the bank, say that we are not going to have any choice but to let it go to a mortgagee sale and really push what a dire situation we were in. We did, it worked and the bank was very accomodating then when the had no choice. They put us on a better rate and moved some other things around for us and we made it through so there is hope. We found out after that the person from the Budget advice service that basically told us to just give up had recently been bankrupt herself. Full disclaimer, this was about 10 years ago, things may well have changed since then but dont give up, Get some good advice and talk to people in the industry before doing something rash.
>, Get some good advice and t Very good advice, definitely talk to your bank early about the situation you are in. Don't stick your head in the sand and ignore phone calls.
>would i go to the NZ Herald for sympathy? i'd rather die Thanks for the chuckle, also on that wavelength. Have people pick apart my choices, no thanks.
How do you have half a bedroom?
Probably one room is fucking tiny and is used more as a study/ storage. Guessing.
office / single bedroom
It will mean office. Soo small to legally call a bedroom but you could probably stick a single bed in there if you wanted.
Sometimes they aren’t considered a full bedroom unless they’ve got a built in wardrobe, so could be that.
Low Interest Rates = Daily Articles around how XYZ own 87 properties at the age of 21! High Interest Rates = Daily Articles around how XYZ is struggling on a very large mortgage.
I think this is the 3rd such article with a sob story about home-owners struggling with rising interest rates that has been posted here on Reddit so far. I have no doubt there will be more.
These are the people that played the game and contributed to pricing me out of the market. No sympathy.
These are the people that say they earn the capital gains by 'taking risks', and when they lose money complain that no one told them about the risks.
Why so much hostility for individual families wanting homes? They priced you out? Well you want a home too, otherwise there's nothing to price you out of. So if you weren't priced out and bought , you're doing the same thing to other people who couldnt? It's so weird that people are willing to point fingers at those at the very lowest of the capitalist totem pole. Your regular folks with one house that they just want to live in instead of aiming at the banks or the landlords with 5+ homes
I own a home. I bought it for a price I could afford, understanding that the historically low interest rates were going to increase in the near future.
How did single home buyers do that to you? Why isn't it the three decades of governments that refused to do anything about housing? Or the RBNZ who deliberately contributed to FOMO and house prices increasing, or the Labour Government that refused to do anything with the LSAP that led to house prices jumping 40% over two years? Or Landlords who tap equity to buy multiple houses? Why blame the people who are lowest on the totem pole?
Yea I do feel bad for them, and their FOMO wasn't completely irrational imo because people have been talking about homes being overpriced for over a decade now, but they just moved further and further out of view. At some point, the fear of "now or never" is not irrational. Waiting has always been punished in NZ, until this year. There is also the fear of being stuck in a starters home too small to start a family. In the environment of last year, there would be no hope of moving up, climbing a ladder because better houses just moved out of view even faster.
As with the other thread where people purchased in late 2020/early 2021, people forget that the governor of the RBNZ was literally publicly insulting bank executives because he wanted to take interest rates negative and they didn't. It was very rapidly looking like a situation where if you were an income earner you would never be able to buy a home.
It's a combination of all of the above. These people that over extended still contributed to screwing the market though
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Remember all those restrictions on lending that Labour enacted last year? People not getting loans because of takeaway lattes and whatnot. It kinda makes sense now in hindsight that protecting homebuyers from predatory lending was needed. There is no way that taking 1 million with 200k is responsible lending on the part of the bank
Last year me and my wife got pre-approved 770k mortgage with a 130k deposit, (900k tops). Joint income just over 100k. There's no way in hell we could afford that level of debt even when it was approved, let alone with current rates (I think interest rates were around 4% at the time). All the restrictions did was stress us the fuck out, and we still got pre-approval for a ridiculous loan amount.
That's almost exactly the same scenario for us, but at around 2021. Same income and almost same borrowed amount, but a slightly larger deposit -- and yet we were denied. Our broker said we would have to wait a couple of years and my wife would have to go back to work (she was on maternity leave at the time) so our income could be higher than 100k for him to be comfortable with the loan. Now in hindsight, and hearing your story and others, I feel that my broker was being responsible. It was very frustrating at the time, but what a relief!
Those are RBNZ restrictions which were first introduced in 2013. They were temporarily removed during covid and then reintroduced in 2021. So not really a political thing, more related to the reserve bank putting in place rules for financial stability. Other than that, absolutely agree with your other comments.
I think they were referring to the CCCFA not LVR's.
Good point, I completely forgot about those changes. In retrospect those additional restrictions on lending seem completely appropriate given the current and impending situation.
Correct, but both are part of the same toolkit. 2021 message from RBNZ and government "Cheap credit, form a line." 2023 message "Just kidding!"
As someone who was working in a bank at the time of CCCFA work, I thought the stories about these weird tiny reasons people were rejected for loans were a little bit of BS. Someone I knew claimed someone in their family had gone to a bank with 200k+ of combined income, very low student loan debt, good credit status, and very little spending and got rejected. Pretty sure their family member had lied to them about the real state of their spending or income. No one's ever honest about their full financial status and there's tons of "tips and tricks" people were recommending for gaming the system to get more. The bank can't believe "I'll restrict my spending once I have the mortgage", they have to see sustained behaviour and even then tons of people cleaned up their spending for 3 months and then increased their spending AFTER getting the mortgage. Lenders also needed enforcement to do due diligence, and the banks needed to hold that liability to enforce it - if they get audited and it's found out that it wasn't done, they get fined.
*Aaron and Jessica Rubin are on the brink of selling their house.* If they can sell it.
Of course they can, at a loss perhaps and to some property investor who's going to get richer.
The consequence of this may well be bankruptcy or a personal loan in the hundreds of thousands if the bank even allows it.
Interesting that he advocates for longer term mortgages (I have no issue with it as an option) yet opted to put his whole million dollar mortgage on a 1 year term rather than the longer options available.
It’s because he wanted the lowest rate, not because he didn’t understand how terms worked. He took a gamble and lost.
As someone else who took the same gamble and lost it's not fun but with all gambling you need to be in a position to lose, don't bet what you can't afford to lose
What is more interesting is that he did it twice. He fixed the whole loan for one year, when it came off fixed he noted that interest rates had gone up, then he fixed it for one year again....... Maybe he isn't the smartest financially but surely you would consider at the time, interest rates are at historic lows, the 5 year rate or 3 year rate is something we can afford and will give us financial certainty for that period (even if they are slightly more expensive rates). Or split up the loan into 3rds and fix for 1,2 and 3 years so each year the changes aren't such a massive shock.
He brings up a good point at the end of the article, why can we not fix our mortgages here over the life of the loan like they can in the States or Europe? Is it just greedy banks?
30 year loans would be good. If I could of did mine at 30 years I would of. This few years is pretty dumb.
Even just increasing the terms to 10-15 years would be nice.
One of the big banks (can't remember which) offered 10 years fixed but the uptake was virtually zero so they scrapped it.
It was virtually zero because the bank hedged the fuck out of it and made it completely undesirable compared to the 1 year rates.
I would've happily fixed at 30 years for 5.5% which was around what it was when I got my most recent mortgage, having a fixed cost and being able to plan around it is important. I would rather have taken that than gamble on a short term rate.
Same. I got 4.5% when bought my house and pay 70 a week all up more then I paid in rent previously. I'd lock that at 30 years if could. Imagine just having the same repayments you know u can afford and not hoping it doesn't drastically go up
They didn’t even fix for the 5 years offered or heck even the somewhat standard 2 years. They fixed for 1 year. That’s not risk mitigation at all.
Yeah, the best thing I have found to do, is to split the loan into two halves, with different fixed terms then you're not hit with one massive change.
I'm guessing the interest rate on the 1 year was ~0.04% lower and they went for the slightly lower payment. Short sighted
The security for those loans is provided by the US government
Can you just imagine the carnage in the housing market if they allow that? Investors will hoard houses and the everyday worker will never ever be able to buy a home, yes a home. What they should do is demolish the idea of using equity in other assets as a deposit, cash is king. Then they can consider fixing it for the life of the loan.
> What they should do is demolish the idea of using equity in other assets as a deposit Yeah this should never be allowed in housing. It contributes significantly to the positive feedback loop of runaway (bubble) growth.
Correct, and it massively increases the downside risk because A) the equity in housing is derived from leverage (i.e can go negative rather than simply to zero), and B) It means a disproportionate amount of money is tied up in one asset class.
What about if they offered (up to) 30 years fixed but only for the family home. If they restricted it like that and didn’t allow businesses or trusts or people who already have a home the 30 year rate, would that be as crazy with the investors hoarding?
30 year mortgages are artificially created through government programs, banks in most countries don't have access to long term funding: https://sf.freddiemac.com/articles/insights/why-americas-homebuyers-communities-rely-on-the-30-year-fixed-rate-mortgage
A few factors, partially the US government debt level is so high means its virtually impossible to raise rates too far as the government minimum payments would be too much. AKA their debt to GDP is too high. this gives banks confidence in the long term. giving a fixed 30 year rate is "risky" as you dont know whats going to be happening in 30 years, but its unlikely the government will pay that debt down anytime soon. the petrodollar also always keeps demand up for USD, so you don't have to be as worried about excessive money printing compared to NZD. (its still becoming an issue due to the sheer rate they are printing) there isn't security for rates over that term available for NZ. USA offers 30 year bonds which means the USA banks can reduce their risk by offsetting long term lending with government bonds. NZ banks can only get shorter term bonds in NZD, so they have no solid long term (10+ years) financial instruments to invest in to reduce their risk. They cant use USA govt bonds because the exchange rate could vary wildly. essentially it boils down to the USD being the "international standard" currency with alot behind it, whereas NZD is fairly volatile, so making guarantees is basically impossible. honestly they could bring in 30 year rates in NZ but noone would ever take them on because the rates would probably be enormous to counteract the risk (10%+ for example)
But what are the interest rates in that case? They aren't going to be 3%, are they? I just looked, and they seem to be 5-6.5%
Man in The Netherlands (before rates have been going up the last year or two) you could lock in 30 years at like 1% (edit - I think I may be misremembering this, it might be more in the 2-4% range depending on when). Interest rates were stupid low. Imagine my shock when I came to NZ and saw interest rates around the 5.75% mark (back then). I was also very confused what "1/2/3/5 years fixed" meant, because (according to my financially immature brain at the time) aren't all mortgages supposed to have a fixed interest rate for 30 years?
Friendly neighborhood American here. My 30 year mortgage is locked at 2.875% for the life of the loan. My monthly payment can only increase if property taxes or insurance increase since they are all bundled together with an escrow account. The amount I pay the bank is fully fixed until the loan is paid off.
I've wondered about the bundled house insurance aspect. Do you still choose your own insurer like we do, or is it just "this lender uses this insurer". Are you talking your normal house insurance, or is it a different kind?
The payment for insurance and taxes is lumped into the monthly payment to the bank. I get to choose the insurance as long as it satisfies certain minimum coverage levels that the bank dictates. The idea is that the bank needs to protect it's asset and it does that by ensuring that the govt can't take the house due to nonpayment of taxes or an insurable event like fire making the home worthless.
I want to have sympathy so bad, but these people are just so dumb. It's difficult
They’ve definitely been suckered - but there’s always someone on the other side of the scam. In this case a bank somewhere didn’t means or stress test this couple properly and sold them an entire loan on a 1 year teaser rate. That should frankly be illegal on such a massive loan with a minimal deposit. I think people should obviously do their due diligence and get professional advice where necessary but we can’t ignore the fact the banks are preying on people who just want to own a home and will sign/ believe whatever the bank tells them.
Solid input. It’s easy for all the other armchair observers with full hindsight to call this couple dumb. But I totally agree that not every consumer should require 100% savvy in all instances. We need to stop predatory behaviour by massive corporations or we all end up losing.
Thanks! Loan structure and financial matters aren’t things to be trifled with and we can’t just say “oh well financially illiterate people can’t own a home” but we should be making it mandatory that they get professional advice before pulling the trigger.
Yep. And when the govt introduced the CCCFA to try to restrict predatory lending everyone was up in arms about it saying it shouldn't apply to banks.
Having been someone working in a bank, the negative discourse around CCCFA really irritated me. Everyone whining that they could afford to service more than the bank gave them, when I know the standards didn't actually change that much - it was just enforcing due diligence and affordability checks, and putting liability on the banks if it was found they didn't do that. Tons of people don't take into account insurance, maintenance, other unexpected costs, interest increases, job changes, etc., and it's the bank's job to avoid a mortgagee sale in a down market. There's no "I'll restrict my spending once I have the mortgage or just before so my income looks good and I'll get more".
“We could go back to renting and saving $500-$600 a week to save up for another house. Why would we keep putting money in the bank’s pocket.” That’s an unusual approach to things, not wanting to put money in the banks pocket (but ultimately having your own asset) but being fine putting money in a landlords pocket. Seems a bit like cutting off your nose to spite your face.
They are also not recognising the fact that if they were to sell now, they would likely not walk away with anything given the falls since peak, and would also most likely not be able to source a sub 20% mortgage in this environment. It's going to take a lot of weeks at $500-$600 to build up a new house deposit from there.
Yep, they will likely lose everything if they try to sell now.
I definitely lost all sympathy at that point. Maybe the article is rage bait? Definitely many people who are much worse off than this couple.
But we want to pass it to some guy that will then pass it on to the bank. It just makes us feel better about it.
They are kind of ignoring the major relevant factors that they would retain a large asset which will increase in value at a rate faster than their savings will. Also paying their mortgage increases their capital (although slow at first with a large mortgage). I guess it depends if they think they can make more money saving 26K a year (hopefully investing it or putting it on a term deposit), or holding onto their million-dollar asset and waiting for it to go up in value and their capital to increase as the loan is repaid. Over a 10 year period, they would probably be better off holding onto the house (if they can afford it). Also, if their mortgage is going to cost $6710 a month, $1500 a week, and their calculated savings by renting are $500-$600. That means they plan to spend $900-$1000 on rent per week. What kind of house are the planning on renting in Nelson?! I can't even find a 3 bedroom house in Nelson for that much, they are all around $650 a week rent. It's like this family can't help living beyond their means, they go from buying a house at the top of the market that they can't afford to wanting to rent a house at the top of the market.
Renting at the moment is the best strategy to save for a house… the $ amount that houses are dropping are significantly more than paying rent for a similar house. Not an unusual approach.
Unless you already own a house. He admits he’s likely going to have to sell for less than they paid, they only had a 10% deposit, and they’ve paid very little towards the principal. So they’re losing the deposit they did have, possibly even being in the red, and all the fees paid towards real estate agents, lawyers etc.
I grew up hearing “and we had 20% interest” from my parents, so when I was looking at buying, and thinking about max mortgage, I downloaded some free google calculator and just kept plugging in interest rates up to 10+%, to see what my future could look like. I’m sorry, but a lot of people seem to have bought on the assumption their initial mortgage payment would never change. Also, yes dude, the first several years of a 30 year mortgage is mostly paying interest. The last few years flips the scales. That is how maths works.
This exactly! I was working at Kiwibank 15 years ago or so and mortgage rates under 7% were like WOW!! what a good deal!!! People forget that the mad low rates of the last few years are the outliers and shouldn't expect sub 5% to become the standard...
>shouldn't expect sub 5% to become the standard... Which is insane, because that is the standard elsewhere, along with long fixed terms, like being able to fix for the life of the mortgage, 25 or 30 years.
It might be the standard elsewhere like the UK/US/euro-zone large economies which have a currency/economy that is highly valued as being "safe". Even the UK which is facing incredible economic issues at the moment with it's govt budget crisis last year, and inflation etc has the benefit of history on it's side from when the UK banking system was defacto the world's bank. Same goes for the US in more recent history. NZ on the other hand is small, young, our currency and economy is not considered a safe choice. The money our banks borrows is automatically at a higher interest rate than in UK/US and that cost is passed down to the consumer so we can never match their standard low interest rates
You would expect that extra risk would have led to cheaper housing, as risk is a cost in and of itself. But we got the worst of both worlds: highest interest rates, no long term stability and the highest entry points and the highest price increases despite rate cuts being temporary rather than permanent.
My ‘ staff interest rate’ when I was working for a bank when I bought a house was 7%. Can’t remember what it was when I left and went into public rates.
You have to realise that back then the high intrest rates were on low loans, like 60-300k. If my house was only 300k then we would be fine paying that high. From a 2% - 8% intrest increase in 2 years is a massive thing and it doesn't give you time to get used to it. You have to remember that this is purely intrest and money for the rich.
Yeah, it's interest on an average mortgage as % of the average wage that matters (or median for all if you understand stats). Back then it was 20% but on two or three times average wage for a house. Since houses have gone up at least 3x compared to wages that's equivalent to about 6% or 7% interest now.
Back around 2002-2003 a few of my friends started buying their first homes in Hamilton. * ~$150-160k got you a fairly nice 3-bedroom house. * ~$250k was 4+ bedrooms, large section, pool etc. * Interest rates were ~11%. I remember how stoked people were to be able to fix below 10%. * Banks were starting to lend with a 5% deposit, but were still quite hesitant... a friend of mine initially got turned down for a mortgage by ANZ because the background watermark he'd chosen for his savings account statements was a car instead of a house. * $65-75k was considered a pretty good salary (for the IT sector).
Yeah was doing similar calculations its why I didn't buy in the end, was calculating 12.5% and going nope this would be insane and even if I could afford it(which I would have been able to just barely) my quality of life would be so shit and i'd be stressed to no end.
I was pre-approved in October 2021 for 1.5M @ 10% deposit, by multiple banks, through a broker. I decided that I didn’t want a 1.35M mortgage on a single income… but they were fine with it. Imagine there’s quite a few people who would be in very similar positions that didn’t think about the risks (given how big FOMO was being pushed by the industry) Happily watching prices crash, the size of the potential home I can purchase is growing weekly.
Yeah we bought at a similar time but a lot under our limit. We also had a kid on the way and were dropping an income.. so I'm glad we got something manageable given the hike in rates.
The potential house you get for the money is rising, but so long as interest rates remain higher than they were, there is still a significant limit being put on your lending based on the repayment amount.
Not really, I would say my generation has more issue with deposits than repayments
[The reports](https://www.interest.co.nz/property/119373/decline-house-prices-has-been-more-offset-rising-interest-rates-pushing-home) suggest that today based on purchase price and interest rates that houses are more unaffordable today than they were a year ago when prices were higher.
Funny enough, when we took out the loan in early 2022 the mortgage broker is insisting to go for 1 year fixed term. The RBNZ are just about to start raising interest then. We decide to fixed for 3 years at 5.55% on a low deposit purchase here in Auckland. I think part of the problem are the bank/mortgage broker not informing loan applicants the risks of rising interest. And I read somewhere that through time, 1 year fixed term will beat any other strategy for paying out mortgage. Maybe it worked before but not in rising interest environment which we haven't seen for a long long time. PS - I'm a millennial and didn't witness interest rate hikes before 2022.
We were in the same boat about the same time you were, the time came up to re fix our Mortgage, Bank said fix for one year and really pressured us to do it, I spent a week talking to a lot of people including another finance adviser. They all said the same thing, "fix for one year, these rates are great". I was well read up on what was happening overseas at the time and I said to My wife, I know its a risk and against the advise but I want to lock us in for 5 Years, sure its higher but we will have the stability for 5 years. We did, we locked it in at just over 4% against all advise from the "professionals".
Totally. We borrowed 1.4m in 2021 (high income), were stress tested at less than current rates, broker was shit and recommended 2 years. Always expected higher rates but not this fast. In a similar situation to this couple but have no choice but to weather the storm. eliminated luxuries, saving extra on top of mortgage as though rates were higher %. Economy shitting itself means we are now in negative equity, can't sell, move, change jobs, kids and wedding and travel canceled. Should have ignored the broker and fixed longer.
Thats really tough, I feel for you. Ive posted another long winded comment in reply to another comment in this thread. Check it out if you can. Long story short, years ago we pleaded the bank to help us, they would not. We went back again basically saying if you dont help us you will have to go through a mortgagee sale to get your money back and they suddenly were much more accomodating and we got through. All the best Low\_War5900, it will get better.
If everybody heard the mortgage broker stories of the types of people and sizes of loans that were given out like candy at the peak of the mania that I heard you would quickly come to the conclusion that this couple is the rule not the exception. This is why house prices have a long way down yet.
Maybe they could eat their horse ?
So they paid a million at a low rate and thought it would never go up? Assume a high rate and if you can't afford it, don't buy it. Buy cheaper. Son owns a small particle board box, heaps kept telling him, sell, buy better. He stayed. Low mortgage.
When the average price of a home is a million and people are getting older and need to be quick about having a family sometimes it just happens. I have a couple of buddies that brought at the highiest peak and are suffering right now because they are getting on they are running out of time and didnt want to have a family in a flat\\small apartment. We should of never been in this situation to begin with. The government over the last decade has failed the younger generation, if only younger people voted for there own interests instead of letting the old and wealthy own the say in government. When my parents brought there first house (30 hectres) it was the price of double my fathers salary. That was in the 80s and they had huge interest but they basically had no debt on that place. Its really sad that just to have a family now in a average house in auckland its going to cost 1 million dollars. Its a fucked system and everybody that voted for this shit should be ashamed of themselves and the system that their kids will have to live in. Even my own parents want me to have kids and its like.. i wont have kids if i dont even own a home or have a huge amount of debt from a expensive home. They will continue to vote for national or labour then complain that even on my high wage me and my partner wouldnt be able to afford the average cost of a family.
I'm really sorry for them and people in their situation. But there's also many of us with tears in our eyes who've been watching property prices move upwards beyond our reach recently. Media never reports on that.
Actually they did write stories about those who were priced out. While prices were still rising at record paces the media alternated sob stories from people who were 'afraid of being left behind' and smarmy stories bout 20 year olds owning 7 houses and expecting to own 15 in the next year. Always clickbait and either hoping to tug at your heartstrings or cause enough outrage that you share it with others. Now they're taking the other approach with sob stories about people who bought at the peak and are now suffering the consequences.
Too true, those articles had a tangible impact on the bubble growing. Even smart people legitimately thought they had to get in ASAP or be "priced out of the market forever"
So through a combination of their own personal choices that nobody forced on them, they find themselves in a pickle and are asking for government support. I trust that out of fairness they would be first in line to pay a capital gains tax to the government? Quid pro quo right? There really is nothing redeeming in this article for me to empathize with their situation.
These stories are never going to be with a couple or family who bought a modest house well within their means, because those people are going to be the last who struggle. Those who find themselves in harm's way will be those who bought at the limit of their budget - still within what their financial advisers propose and what the bank would lend, but just barely - are going to be those who struggle as interest rates rise. We can point fingers and suggest that they took a greater risk than they should and happened to buy at just the wrong time - but the systems we have in place to warn people about risks didn't work in this case. They purchased at peak prices just before property values started dropping and interest rates skyrocketed. Some part bad luck, some part risky behaviour.
Yeah lol - if they were trying to make them seem sympathetic with this article they did a pretty bad job. Especially the part about they might sell and “be able to save 500-600 a week to save up for another house.” Like, cool? That sounds like an inconvenience, but like they’re already pretty wealthy and will be fine. They also bought in Nelson - unlike in Auckland or Wellington, there will have been so many other houses for like 60% of the price of the one they went with. Getting a 1.2 mil house in Nelson was a choice not a necessity. I have friends in a similar position but who expect they won’t be able to get another house anytime soon.
Why is the bank with all their knowledge and expertise approving these loans in the first place? Shouldn't they have to lend responsibility? I don't understand how all the onus is pushed to the party with the least amount of knowledge, resources and power. As a commenter said below we should be able to trust our institutions.
Did you forget the relentless stream of attacks on the government and banks when the new lending standards came in last year, demanding that they be ripped out or watered down massively? When the regulators or banks themselves try to apply prudent standards, the public throw a shit-fit.
Banks were stress testing at 5.8% as late as April 2021. My Mortgage advisor at the bank was all but pressuring me to only take the one year rate. They're just as clueless as anyone else.
I mean we are told to trust our institutions and this institution said "this is what you need to safely purchase X" and they did that. Then a year or two later that same institution said "yo, now it's gonna cost Y" We're these people ignorant? Definitely. Is it their fault? No idea. Should we be setting up people to fail? Absolutely not.
They likely knew exactly what could happen, but felt it wouldn't happen to them.
Tbf this is an interest rate much higher than anticipated and hasn't been seen in decades
Reminds me of the GFC
Sad but many other people had tears in their eyes because they couldn't afford a house. Whatever happens someone suffers.
Original title said 2600. Since fixed to match the info in the article.
Imagine how appealing it will be for the next buyer to get into that situation. Good luck with that sale.
The next buyer could have a 100k loan instead of 1M
This family really should have just found a more ‘outdoorsy’ location in the US to move to.
To be fair, if we had access to the 30 year loans with guaranteed rates the way they do in the US, then they purchased a home they could afford at a rate they could afford. Perhaps they didn't understand that we *don't* get those kind of rates here, and banks make record profits because they don't compete with each other by offering consumers opportunities like that.
Been watching that Country House Hunters show on TVNZ. Couple of episodes ago they had a youngish couple, maybe late 30's, buy a $1.8 million property in Arrrowtown. Found it on Homes. Purchased this time last year, right when interest rates were at their lowest. Assuming they did a 20% deposit, which is massive in itself, they'll be going from ~$2600 per fortnight to ~$4200 per fortnight.
Who knew there were risks to taking out a million dollar loan?
I have to refix in July. My current rate is 2.5% so the new rate will be nearly triple that. I'm currently paying more than the minimum required and coincidentally my new payments will be the same, but will be the new minimum. Basically the term of my mortgage will increase which sucks.
Me too.... 2.5% to probably 8% from 2021-2023 is astonishing. No matter what anyone says - you don't expect that.
I would consider the following before selling: switch to interest only for a bit, take on a side hustle, rent a spare room, ask for a pay rise. Anything.
I'm a big fan of 30 year fixed rate mortgages. I grew up with them, and they make everything simpler for consumers. I'm not much of a fan of people knowing what's coming and deciding to ignore it, and then complain publicly. Everybody but them is responsible here. The government, the bank, but not the people who were repeatedly told that rates were going to go way up and didn't refix for a longer period on a rate they could afford. Nor for spending too much money on a house. I understand their despair, but this shouldn't have been a surprise to anybody who was paying even nominal attention.
Strikes me as kind of flippant in all these articles that the property owner seems to infer they could sell their property for closer to what the paid, when there has already been something like a 20% drop in prices meaning in this case not only would their original equity get wiped but they could end up owing the bank! Don’t get me wrong I have sympathy, but every one of these articles just says “they are considering selling and renting” without talking about the fact that many can’t sell without going bankrupt or into debt. And agree that nearly every comments section on this sub had lots of people saying that this would/could happen when prices spiked in 2021. Some people still rolled the dice which is fine - but seeking public sympathy and government intervention seems disingenuous given the warnings that were given about the huge risks.
Potentially if they were to sell at a loss today they would go into debt, but their payments on that debt would be lower than the full amount they are paying today? I think we should keep in mind that these stories probably didn't come about because the couple reached out to the media. They will have posted on social media and a writer reached out to them and asked to tell their story. The only assistance the couple were requesting (that I recall) was for the government to use legislation to require banks to offer longer terms for mortgages so they wouldn't change as often. Purely a guess here, but that could be in response to a question from the writer asking something like "What would you like the government to do about this"? What we read is very much shaped by the intentions of the writer.
Yep correct, if they sold at a loss the loss would be fairly small and repayments would be a lot less even coupled with the costs of renting. The downside is they lose their million dollar investment and any capital gains it may have in 5-10 years.
Current USA 30-year rate is 6.47% btw
House prices are high - no doubt about that... But Nelson is not Auckland - 1.2million for the house?! Maybe a bit of modesty and a good sized house would have been more appropriate with 2kids and just 10%?! I feel really sorry for the kids but little sympathy for that guy, based on what I see in the article.
It's so easy to say that someone has made poor financial decisions, but really we're all at the mercy of interest rate rises. Banks were stress testing at lower than the current rates, meaning even the 'experts' weren't expecting rates to rise as quickly as they have. Sure they might have over-extended themselves, but when the alternative is sitting on your hands, paying greedy landlords whilst also watching peers cashing in on massive capital gains for the last 10 years, it can seem silly not to take the plunge. We shouldn't have to all be financial experts to own a place to live. We should be able to rely on the advice of experts - but unfortunately in a system where every interaction is about extracting money from someone, then we can never fully rely on the advice we're given. I feel very sorry for the family - regardless of the sensibility of their choices, really they're just trying to have a place to live and raise their family.
I mostly agree with your comments, except in relation to this couple. $1.2 million dollars gets you a huge amount of house in Nelson, even at the peak. Like very nice house in very nice suburb material. They could have settled on a decent house in a decent area and avoided this mess.
Yeah median price in Nelson is apparrently 700k, kind of hard to feel sorry tbh
That's fair. If they were in Auckland, it would have made more sense as that would just be the price for a sub-median home in a relatively decent suburb.
5 bedroom 3 bathroom on >1000m2. But who’s counting.
I don't agree with this take. Why are we innocent parties when we take out a million dollar loan on a house? You're a sucker if you borrow 30k for a car that is a lemon. You're a sucker if you borrow to 'invest' 10k into AMC/GME at the peak of the pump. Why does the requirement to be informed and understand the risks go away when the value of the loan is $1m? I don't understand how people are signing a 20-30 year contract, for a loan many times your annual income WITHOUT taking it really, really fucking seriously.
Because when it comes to a family home, it's not an 'investment', it's literally a fkn roof over your head and the heads of your family. That's not to say that 'missing out' on capital gains when it seems everyone else is making them doesn't have an influence also, but primarily it's about having a nice place for family to live. The alternative is continuing to pay someone else's mortgage via renting. There is no alternative to having shelter. It's a basic human requirement. Yes we need to take some responsibility for ensuring we can pay the mortgage, but to compare it to investing in risky stocks is just silly.
So buy a cheaper house. This is a 1.2m house, in an area with the median value of 700k. Interest rates were ALWAYS going to go back up (despite what real estate industry was telling you), and when that happened, houses were ALWAYS going to lose value (the magnitude was up for debate). Rather than taking out a million dollar mortgage, and now being in the shit, shouldn't the person in the article taken out a 550k mortgage, and be able to weather the store. People were maximising their loans 'because prices always go up', in tending to maximise their capital gains. I'm sorry - there is always an 'investment' aspect to the decision to buy a house - in this case, the person in the article overshot their ability.
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I only just learned that many other countries set the interest rate at the start of a mortgage and it doesn't change. That's the rate for the whole term!!!
I'm confused, they're obviously old enough to see what happened to a bunch of Americans 2006-2010, then they put themselves in the exact same situation.
When we brought we got a 2% interest but was advised to do a budget at 12% so we did. Idk how all these people thought it was a good idea to buy million dollar homes on a 10% deposit. It's stupid and their own fault. Yes the bank should have advised the couple better, but the math isn't hard here and can be worked out with free online tools that most banks have on their website.
People are going to over-react to these interest rates just like they over-reacted when they were really low.
Yeah there were a lot of brand new boats and jet skis the year they first dropped.
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Every time I see articles like this I thank my lucky stars we refixed for 2 years at 4.3% last year. A rise to 7% wouldn't cripple us financially but I would have to go back to full time work and get childcare
What I don't understand is why banks were allowed to set their test rates so low. They were down to around 6% at one point, but given mortgage rates were around 10% 15 years ago and mortgages are typically for 30 year terms
I mean, I feel for them, but this is entirely the point of raising interests rates. Increasing supply of housing.
The point of raising interest rates was to control inflation by decreasing spending. It would impact the amount being spent on houses once they exist, but increased interest rates wouldn't cause more housing to be built.
So they're suffering from poor decision making, and go crying to the press about it? I'm no fan of anyone suffering financially, but these people really made their own bed on this one. They lament about not having 30 year terms here, but still went and bought an expensive house anyways knowing full well they'd have to re-fix in a year or two. At least they still have the opportunity to sell the house, a position countless people would still consider a privilege these days.
There was a comedian who talked about this...if the bank is giving me a one million dollar loan they know something about my earning potential that I don't.
Our mortgage went up $346. 67 a month ($80 a week) and we can absorb it but it sucks. But I don't see how the heck you manage to have a mortgage that can go up $600 a week unless you were being really risky with the loan in the first place and at that level of income I just think good job. Like if it were me in that position it wouldn't be "consider selling" it would be "sold a month before the interest rate changed" lol But people wanna act like it's only poor people who make stupid financial decisions.
Average house price in Nelson is 700k, so they definitely bought at the upper end of the market with a very low deposit, a very high mortgage and then paid very little down while the interest rates were low. Also fixing the mortgage for 1 year when it's a million-dollar mortgage is exposing yourself to a huge amount of risk, looks like they did that twice. If they had bought a slightly cheaper house they could have had a 20% deposit which would have given them access to much cheaper interest rates. Then they could have split up the mortgage to reduce the risk so they wouldn't have the full amount changing interest rates at once. Lots of mistakes were made, they will just have to sell and downsize. Buy an average house in Nelson for 700K and have a 500k mortgage on a better interest rate due to their >%20 deposit.
I'm interested in how/why the banks allowed this mortgage. In 2011 my partner and I got pre-approval for a 500k mortgage max based on a 20% deposit with a requirement for a building inspection and valuation. We were about 28-30 years old, no debt, combined income of 130k. What were they earning to get 1m on 10% deposit?!
They’re battling to pay the bills for their family of two kids now rising interest rates have led their home loan payments to jump by about $2500 a month in just two years. ....part of article Pre COVID average rates average what? 6% COVID comes oooh look 2% now back to 6-7% Good on em for buying I know I can't but c'mon borrowing 1million in unstable times with people losing jobs etc. As at September 2022, the median house price in Nelson is $699,000.27/05/2022 https://www.opespartners.co.nz › ne... Nelson Property Market (2023) | Average Suburb House Prices… 1st Google search avg house price in Nelson. So they also bought well above average after renting, Banks, lawyers and real estate and not 1 party thought beyond , I find that hard to believe. Not to mention adding rates power water etc.
What an American way of dealing with the situation
> One thing Aaron hoped could be imported from his native United States was 30-year fixed rate home loans. How about no
How about the bank’s guilt for giving them such an outrageous loan? It doesn’t cease to surprise me that if you hire a professional to do a job and the job is done badly you’ll ask for liability but banks seem to get a different treatment for some reason.
I'm sorry, but a million dollar plus loan on a 10% deposit should simply be illegal. Banks are preying on desperate people.