North Shore Times (New Zealand)
Inhumanly big home loans
Your choice: 30-year slavery to a mortgage, or lifetime slavery to landlords.
Young Kiwi couples face this stark choice, thanks to the political failure to deal with the housing crisis, but young Brits can go one better.
Their choice: 40-year mortgage, or lifetime of rent slavery.
In Britain borrowers can now get 40-year mortgages.
One of the great ironies of the modern world is that as mortgages have got longer, working lives have become more precarious. In that 40-year timeframe, robots and artificial intelligence are forecast to take half of all jobs.
It’s not so long since we in New Zealand went from 25-year mortgages to 30-year ones, and I doubt we will follow in Britain’s mad footsteps, though I have no doubt borrowers would accept it.
‘‘When we were offered the 40-year term we were overjoyed and elated to be offered anything
GOLDEN RULES
❚ Keep debt to sane limits ❚ Make extra repayments ❚ Kill debt fast
at all,’’ one young couple told the BBC.
This couple felt victorious. They had achieved home ownership! Their mortgage repayments were ’’manageable’’.
But longer mortgages just let people pay more for homes. And 40 years is an inhumanly long time to stay on the mortgage treadmill, stay fully employed, maintain a home, dodge financial crises, cope with interest rate spikes, while raising a family and saving for retirement.
‘‘A longer term means lower payments,’’ a mortgage broker friend told me. ‘‘Sounds great for cashflow.’’
It does. The bank’s.
On $500,000 at 5 per cent, he said, repayments would be around $2410 a month on a 40-year loan, compared to $2684 a month on the 30-year term.
The longer the term, the more interest.
‘‘In this case that’s another $190,000,’’ he said.
It’s a stark illustration of why borrowers should always pay off loans in the shortest time
‘‘My generation never had to borrow such inhuman sums.’’
possible.
Even without 40-year mortgages, New Zealand home lending seems bonkers to me.
Pretending to be a 30-year-old successful couple earning $65,000 each (no kids, two cars) I had a play on the ANZ mortgage calculator.
‘‘We estimate you could borrow up to $773,000’’, it said (subject to current lending criteria).
With mortgage payments of $4531, the couple would be paying $54,372 of their after tax annual income of $104,960 on mortgage repayments.
In my book, this imaginary couple need to set their sights lower, though to buy anything at all in Auckland with a 20 per cent deposit now requires a loan of around half a million dollars, which is still far, far too high.
My generation never had to borrow such inhuman sums to buy places.
With a half million-dollar loan a couple would need to generate extra income fast: take in lodgers, work second jobs, drive hard in their career, live on the smell of an oily rag, perhaps even have fewer children than they had hoped.
Unless, of course, their plan was to live with the debt, and bank on capital gains continuing for decades to come to bail them out at retirement, in which case a 40-year mortgage would probably sound like an attractive, and sane, option to them.