Life feels relatively normal at the moment. Kiwi homeowners who are still on mortgage deferrals could be living in the eye of a financial storm with their debt rising and property values faltering.
When we went into lockdown, the Government announced that homeowners (including landlords) whose income was affected by Covid-19 could defer paying their mortgage for up to six months.
When first announced, a tidal wave of people applied for the deferral because it was poorly worded as a "holiday", says mortgage broker Jeff Royle of iLender. Deferrals are not a get-out-of-jail-free card. The unpaid principal still has to be repaid later and the interest is added to the mortgage as a lump sum. That means they owe even more and payments would need to be increased once the "holiday" finished.
"When it finally sank in that it was going to be added to their loan, a large number said 'actually I don't need to do that'," says Royle.
Six months of deferral on a $750,000 loan at 3.25 per cent costs around $9792, says Loan Market mortgage broker Craig Pettit. When faced with the cost, clients who could chose other options, says Pettit.
Those who had overpaid their mortgages in the past to get ahead can reduce monthly repayments until they've eaten up the overpayments. The next best option is to go interest-only, so at least you're not adding to the overall debt, says Pettit. The third and least desirable option was to take the deferral.
It can be very easy to fall into a set-and-forget pattern once you've applied for something. Keeping the repayments in your pocket when money is tight will feel good. Sadly it will come back to bite. Every week or month more on the deferral adds to the outstanding debt.
Many borrowers who needed that deferral restarted payments as soon as they humanly could, say the mortgage brokers. Likewise, clients who get in touch with their lenders directly will hear the same story. The sooner you can start to make repayments the better.
Those who haven't restarted payments will need to think long and hard about the future. It could tip some over the financial precipice if they could barely afford their mortgages before and won't be returning to full income for whatever reason. "There are going to be causalities," says Royle.
It's likely that there may be an extension to the scheme, come September, says Pettit. "This is uncharted territory." Eventually, however, the mortgage has to be paid.
If property prices fall, says Pettit, it's not going to take long before the outstanding debt rises and we start seeing borrowers in negative equity, where they owe more than the value of the property. This makes lenders nervous.
Royle has been approached by more than one new customer who is in trouble. One has three properties and can't pay the mortgage. Lenders will do their best to help, he says.
It does get to the point, however, where the debt is rising too fast and the only option is to sell the property. This is always best done off your own bat than left to the bank.
It's not just homeowners who might find themselves with large housing-related debts to repay. The New Zealand Property Investors Federation found earlier this month that 7 per cent of tenants had stopped paying rent altogether. Many believed their landlords were getting a free mortgage.
Several landlords I spoke to, including Andrew Bruce, president of the Auckland Property Investors Association, and Nick Gentle, who moderates the Property Investors Chat Group NZ, had experience of tenants who wanted to stop paying rent in lockdown because they thought landlords were having a mortgage "holiday".
How the Tenancy Tribunal will deal with tenants who stopped paying rent because of the misnomer that their landlords had a freebie is anyone's guess. Dare I say it, landlords are people too, who in most cases need the rent to pay mortgages, rates, insurance maintenance and so on.