Faye Loli and her partner John have just bought their first home in Auckland’s Clendon Park, making them the first members of their extended family to own a home.
There was no parental help available; no deposit cash gift, and no guarantee.
They did it all themselves, having started saving 10 years ago to get a place to call home.
“When we finally got it, it was like we won Lotto. It was a memorable day for us,” the camera-shy Loli says.
“We are the first ones in our extended family to buy a house. We have got to break the cycle.”
The pair got their loan through mortgage adviser The Go2Guys, which regularly helps people secure home loans to make their house-owning dreams reality.
But while Lotto winners get a very, very big cheque, first home buyers these days get a huge debt.
Loli and her partner opted to buy far out from the Auckland CBD, where Loli works for a bank, so they could avoid spending a million dollars on a house.
They had looked closer to the centre, and the memory still brings up strong emotions.
“It’s crazy. For a house in central Auckland, a normal house, it is $1.5 million. I mean, what the hell?” Loli says.
“I lived most of my life in Mount Roskill, but buying out in Clendon was in our budget.”
That allowed them to keep the mortgage down to a manageable $1300 every fortnight, or $33,800 a year.
“We only had to borrow $570,000,” Loli says.
Even six years ago, “only” was not a word that would be used about a half-million dollar home loan.
Back in October 2011, the media sales price for a home in Auckland city was just over half a million dollars, so mortgages were rarely as high.
Families living with big mortgages is one of the reason’s household debt has spiked to over 160 per cent of disposable household income, making it “our Greek problem”, as ACT leader David Seymour calls the house crisis-inspired debt mountain.
Couples who want to buy have little choice to accept it.
“I feel that amount is quite big, but just based on the income me and my partner make, it is something we can manage,” Loli says.
Julian Travaglia from New Zealand Home Loans (NZHL) thinks many people rationalise their huge loans by looking at the recent past.
He says the rationale goes something like this: “I expect that things will keep going that way the have, and in 10 years’ time, I will have got my mortgage down to $500,000, but my property will have gone up by $500,000. I expect the capital gain to make me wealthy.”
With huge loans, paying off the mortgage is not the route to wealth in this scenario. People expect time served with the mortgage will do that by default.
“That’s the underlying assumption people are making,” Travaglia says.
Carrying a big debt brings risk, and people need to think about “Plan B”.
What would happen if interest rates spiked up, or they lost their job, or fell terribly sick?
“Almost nobody says ‘What would I do if I ran into a bad patch,” Travaglia says.
Few younger people recall how hard things got for households in the 1980s and 1990s, and the Global Financial Crisis of the mid-2000s passed almost unnoticed in New Zealand except those with money in finance company debentures, or suckered into buying leaky and defective buildings.
“We haven’t seen those days for decades. People younger than 45 years old never expect it will get back to those times again,” Travaglia says.
“Even people who have been through that tend to forget.”
NZHL is a debt reduction service owned by Kiwibank, helping customers develop plans to repay their home loans as fast as they can, saving themselves a fortune in interest, and building financial stability.
As a banker, Loli doesn’t need convincing. She’s already going hard on the mortgage.
The couple are using their mortgage provider’s flexibility to increase payments by up 20 per cent extra in any year without facing penalty fees.
Paying off the mortgage faster than the bank requires can increase people’s ability to do the other things they need to in life, like saving for their retirement.
Big loans require working all the angles, including maximising income.
Some new home owners take in boarders, or work second jobs. Loli has two school-aged children, so neither is possible.
But she has some advantages. John’s skills mean he can maintain, and improve the property, at low cost.
Loli’s retired parents are able to take care of the school runs, and dinner.
The advantage of having parents able to help in kind, if not in cash, is worth a lot by enabling both parents to work.
There’s no hard and fast rule to knowing how much is too much to borrow.
Money Mentalist Lynda Moore says: “If it’s keeping them awake at night, then $570,000 is too much, but if it is ‘only’ $570,000 then they must have their coping strategies.”
Moore helps paying customers tackle the things in their money lives that are holding them back, helping people earn more, and make more of it stick.
The definition of what is an acceptable-sized home loan has changed over the decades, an evolution that will no doubt continue.
Moore bought her first home in the 1980s near the end of the era of Robert Muldoon’s prime ministership, which ended with New Zealand in recession.
“My first house cost $90,000, and the mortgage was $72,000. My parents were horrified at the huge mortgage I had,” she says.
Living with a large loan means having to spend up on insurances, and not only house and contents.
Life, trauma and income protection are all there to reduce the chance that should something terrible happen to one income-earner, the household can keep food on the table, and not lose the house.
Again, Loli ticks the right boxes.
The house and contents are insured, and so are the couple’s lives, just to ensure that should the worst happen, the surviving partner, and the children have a secure future.