This obsession with the need to own your home is slightly baffling to me, and always has been. I’d like to say that it’s a Kiwi thing, but the lunacy seems to extend to other countries as well. Or at least that was my experience in Australia and the US.
I understand the feeling that renting gives a person a slight feeling of unease, especially if your landlord is the kind of arsehole who’ll boot you out on a whim, or because they want their mates to move in… This happened at a flat I was living in on Tasman St. But compared to the hell that is repaying 150% of the initial borrow then renting isn’t all that bad. After all, as long as you’re not the sort to get jumpy about the prospect of moving into another house then the prospect isn’t something to keep you away at night.
Frankly, the Weekend Dominion Post scare story is as annoying as it is fatuous, with its emphasis on the ‘crippled’ couple who have to fork out a whopping great $800 per week on the house. But they’re happy because ‘it’s theirs’. Well, I say you’ve been sucked into the mortgage trap.
For starters $130k per annum is a pretty good income. There are plenty of people who would love to bring that home. One of my brothers is bringing home a meagre $16 per hour. Work that out in yearly income while you stop your damn whinging…
Plus, the figures presented by the DomPost simply don’t add up.
The Millers supposedly saved $35k over two years. Let’s assume that’s a full two years. Now, I don’t think that’s actually all that great a savings record. If they’re willing and able to pay $800 a week for a mortgage then they should have been willing to save that much per week as well, less rent.
So working off the DomPost’s “two years”, we can guess that this couple saved $35k divided by 104 weeks, for approximately $340 a week. And then you factor in the rent money.
I think the old conventional wisdom “rent money is wasted money” is only true is your rent is about the same expense as the mortgage. In this couple’s case they’ve obviously made a big jump to the mortgage price, and that money is wasted money. By why! I hear you shout. A mortgage is money in the bank! You have the security of an appreciating home!
Well, I agree with you, but only partially. Let’s make the very large assumption that this couple was living in a small one-bedroom flat, and paying about $200 per week. The difference between what they’re paying now ($800 per week), and the rent is $600. That’s a huge jump right?! $600 smackers out of the budget?!
Nope. They were already parting with $340 a week in savings. This money has to be factored in, because although it’s “savings” it’s dedicated mortgage money. The money is gone once you buy the house, and you keep spending it in the form of mortgage payment. The actual increase in cost is $260 a week. (rent $200 + saving $340 + pound of flesh to bank $260 = $800).
The question I ask myself is this. Why weren’t they saving the extra $260 in the first place?
If they know that the minimum they could handle living in, and afford, was about $350k (but they foolishly went $420k), then why not save as if you’re already living there?
The handy Raboplus savings calculator says that at current interest rates they could have saved $62,000 in two years if were also banking that extra $260. This would have dropped their current mortgage payments by about $65 a week, and saved them $45,000 over the lifetime of the mortgage. Again, this works off the assumption that they’re paying cheap rent.
This story is extremely misleading. Yes, I can see that they can’t afford to have a child because one income will drop out, and suddenly they can’t afford to eat, pay utilities, and pay the mortgage. So… why burden yourself with the $800 per week albatross?
It’s just typically Kiwi thinking. It’s like 4 million Hare Krishna all chanting house, house, house, house, and to the detriment of bringing up kids.
Here’s some big news people, renting ain’t all that bad. Sure you lose some security, but once you factor in repairs, mortgage, constantly rising rates, insurance and unexpected circumstances then you’re not actually that much better off with a house.
And generations of children have been brought up in rental homes.
What’s more galling is the amount these people earn. The stated income is $130k per annum. That means they’re bringing home a whopping $800 per week, each. Sure, the mortgage is too expensive, but that’s just a reason to avoid one, not a reason to give up hope.
For a reasonable rental in a nice suburb you could expect to pay no more than $400 per week. That leaves them $400 spending should one of them leave the workforce. A bare-bones electricity + phone they might lose as little as $40 per week to utilities (an average of $120 electricity monthly, phone of $40, no internet, no SkyTV). They’d want to be living like goddamn kings to not be able to live on that money…
So bad news “lovely couple of Wilton”. That newspaper has made you look like whingers.
But, instead of staying renting in their $200 place and making $31k a year (or making $26k in a $300 rental, or $21k in an ostentatious $400 rental) , this couple has spent $41k per year on a mortgage, and they’ve only got 25 years of that bullshit left to go!
And worse, they’re only 26 and 28!! Another two years of saving, but saving as if you’re paying that mortgage, will mean they’ll still have stacks of time to churn out a few rug-rats.
Like all Kiwis obsessed with owning they’ve fallen into the trap of giving the bank huge amounts of money every year instead of saving. If they saved the money they might have nearing a whopping $180k in 6 years, and then be well into that much, much smaller mortgage.