Net debt effect
Mega mortgages, tiny mortgages. They’re all the same to Kiwi homeowners’ financial wellbeing.
Property panic and recent massive price rises have created a weird relationship between the size of people’s mortgages and their sense of financial wellbeing.
The ANZ Financial Wellbeing report, issued last week, found there was ‘‘no clear relationship between the size of mortgage debt and financial wellbeing’’.
‘‘Even mortgage debt of over
$250,000 did not result in lower financial wellbeing,’’ it found.
It can’t be true that the massively mortgaged feel as financially well as those with tiny home loans, can it?
Apparently the answer to that is ‘‘yes’’, but time may yet prove that owing $300,000 on a house worth $800,000 only feels similar to owing $100,000 on a house worth
$600,000, as long as interest rates remain low and the dole queues don’t lengthen.
The report, which scored people’s financial wellbeing from 0 to 100, was clear on the behaviours that raised a person’s financial wellbeing score.
The biggies were: Save regularly; do not borrow for daily expenses, which many on higher incomes continue to do; and go mortgage-free on the family home as soon as you can.
But it found the size of a person’s mortgage did not necessarily lead them to have a lower a financial wellbeing score.
Perhaps that’s because the great financial wellbeing divide in cities such as Auckland and Wellington has been between owners and renters, not those who owe a reasonable amount, and those who owe a small fortune.
Being trapped into rental housing, as home prices and rents have raced up, has been a recipe for financial instability and a bitter feeling of being left behind.
The report was clear on this effect. ‘‘Those with a mortgage on their home had an average
It can’t be true that the massively mortgaged feel as financially well as those with tiny loans, can it?
financial wellbeing score of 59, while those who rented had a score of 49,’’ it said.
Mortgage size is also often linked to a household’s income, and some with larger mortgages may be attacking them aggressively, leading to them feeling very much in control.
Many also may simply not care about the mortgage, and plan to sell one day to clear the debt in the happy belief that prices always go up, or at least won’t go down.
The Financial Wellbeing report comes after a period in which it has not merely been good to be an owner – in fact, it’s been awesome.
What the real long-term relationship between the size of people’s mortgages and their financial wellbeing really is remains a moot point.
In good times, when jobs are relatively easily come by for the skilled, people with mortgages by and large aren’t worried about maintaining payments. Instead a person’s financial wellbeing is drawn from the gap between the estimated sale price for their house and the amount they still owe on the house.
But for people with mortgages big, or small, the report indicates there is a massive financial wellbeing boost (and presumably a life happiness boost) from paying them off. ‘‘Those who were mortgage-free had an average financial wellbeing score of 77 out of 100,’’ the report found.
This feels more like a timeless relationship between financial wellbeing and the mortgage.