Boomers staying mortgaged

Travel comes before house

New Zealanders are spurning the opportunity to pay down their debt faster in a low interest rate environment and are instead leveraging up to buy more property.

New data from research firm Myvalocity shows the number of mortgage-free properties around the country has dropped from 39 per cent to 35 per cent over the past decade.

Every region has seen a drop, apart from the Far North and Kawerau.

Myvalocity chief executive Carmen Vicelich said the trend seemed to be due to the number of new investors entering the market.

Her data shows at least 10,000 new landlords have bought property over the past five years, purchasing more than 26,000 residential properties between them since 2011.

She said low interest rates and New Zealanders’ love of property had changed the dynamics of the market.

‘‘Many of the baby boomer generation have owned their own property for a long time,’’ she said.

‘‘They have the tenure and have also made good capital gains to be in a position to discharge their mortgage before retirement as previous generations have done.

‘‘But what we are seeing is a new global trend emerging where people are choosing to stay in the market longer. Rather than discharge their mortgage, they’re taking advantage of the low interest rates to leverage their increased equity and buy more property.’’

New Zealand households increased their mortgage debt by a net $19 billion or 9.2 per cent in the year ended August 2016 – the fastest annual growth for more Young New Zealanders are being told they can have their OE and a house, too.

A new survey from Warehouse Money shows more than half of those aged 18 to 29 who are saving for something are putting money aside for travel. Another 47 per cent were saving for a first home.

Hadyn Halls, executive general manager for Warehouse Money, said it suggested young people were more interested in travelling than getting into property.

‘‘The shift of young people saving for travel, more so than for a house deposit, could be due to the increase in loan-tovalue restriction rates, combined with the rising cost of owning a home,’’ he said.

‘‘As home ownership seems

than eight years.

Squirrel Mortgages chief executive John Bolton said the baby boomer generation had changed the property landscape by adopting it as their main investment for retirement.

‘‘Many of the baby boomer generation have invested wisely in property in the last 15 years as their equity and disposable income has increased. While that has meant many of them are working longer and still hold mortgages, in the long term they will be able to sell down some of their properties so their remaining investments generate positive cashflow income for retirement.’’

David Boyle, group manager of investor education at the Commission for Financial Capability, said it was daunting to think of people borrowing more as the interest rate cycle seemed to increasingly out of reach, it’s possible that younger Kiwis are looking to gain life experience and are putting off settling down.’’

Financial adviser Liz Koh said she would suggest to young people that they buy a house before leaving, and rent it out while they were overseas. That would give them an asset to come home to.

This was easier thanks to Kiwisaver, she said.

If they could also get a low-deposit loan – either through a Welcome Home Loan or by using one of the banks’ 10 per cent of new loans allowed to be issued without 20 per cent deposit – they could buy an entrylevel property. be coming to an end.

The Reserve Bank has indicated that there may not be any further official cash rate cuts and the banks are largely no longer passing on reductions in the OCR anyway.

He said many people had not retained their previous mortgage payments as rates came down, which would have given them a chance to pay off their loans faster.

He urged new investors to think about how they would manage if interest rates rose over the coming years. ‘‘This may be the first time they’ve felt wealthy because their own properties have gone up in value as well and they are leveraging up but that can come back to bite people if they can’t meet the repayments or if they are unable to get the properties tenanted.’’