Buying a house can be tricky when you're older, and the banks will only lend for a limited time. Photo / Getty Images
OPINION:
SEE YOU NEXT YEAR
Every December, in my last column for that year, I thank everyone who has written in. That includes the grumpy ones. Actually, I especially like the grumpy letters. Nothing like a good argument! And every year I say how sorry I am that many letters didn't make it into print. Each year it gets worse. Receiving more letters is great. Not being able to publish many of them is not. But do keep trying. Note, too, that sometimes I include a letter I received months earlier, because it goes well with a more recent one. So don't give up watching out for yours. A special thanks for all the kind comments many of you make about the column. They lift my spirits. Have fun over the holidays, everyone. It's time for a few smiles and laughs. See you again on January 30.
Q: I lost a reasonable amount of money when selling a property before this boom, as I took a job in another area of the country and had been paying rent and a mortgage. I have just over $200,000 in the bank earning 1 per cent whilst I pay $13,000 a year in rent.
As I turn 60 soon, time is against me, as my bank will not give me a mortgage for longer than 10 years.
I do not want to become one of the growing group of older women without a secure roof over my head. I contribute 10 per cent to KiwiSaver and my current annual income is about $62,000.
I'd love some advice on how to either grow the deposit or get back into the market in an area (Waikato) that I'd like to retire to, which at current housing prices looks increasingly difficult. Many thanks.
A: On growing your deposit, the only way to do that fast is to go into high-risk investments, in KiwiSaver or elsewhere. Such investments are fine with money you don't plan to spend for at least 10 years, but that's not you. There's too big a chance over just a few years that your balance will fall.
If you hope to buy again fairly shortly, I suggest you keep your $200,000 in bank term deposits and put up with the low interest.
So what else might you do?:
• You could try to get a 15-year mortgage from another lender. Payments would be somewhat lower than on a 10-year loan.
For example, a $300,000 loan at 2.65 per cent would cost you $2842 a month over 10 years but $2015 a month over 15 years.
"Most lenders will check a person's ability to service a mortgage to age 70 or 75 nowadays," says mortgage adviser Bruce Patten of NZFSG. "This is based on someone's realisable timeframe they are likely to be able to work until."
He adds, "if you can display a reasonable exit strategy, ie, 'I have a business which will be sold when I retire', or 'I am due an inheritance in the future', or 'I will sell the house when I retire', some lenders will allow you to take a loan over a longer period." But that doesn't sound like you, unfortunately.
• Stay renting, but buy a rental property in a relatively cheap area so you are still in the property market.
"With a good-sized deposit of $200,000 you would be able to buy something where the rent completely covers the mortgage," says Patten. "And depending on how much rent you are paying, you might be able to pay it down quicker.
In the meantime, your KiwiSaver account will be growing, with 10 per cent contributions — good on you! By the time you've paid off the rental, you may have enough to buy a small place where you want to live.
• Pair up with someone in a similar situation and buy a house together.
"This is something that is becoming more common now as people look for ways to buy," says Patten. "Make sure you have an agreement as to how you undo this should something go wrong."
I couldn't agree more. State in writing what will happen if one of you wants out, or becomes unable to make your financial contribution, or dies.
• Use KiwiSaver help for previous homeowners. See the next Q&A. You could reduce your assets to the cutoff level by putting your $200,000 into KiwiSaver.
THE BANKS SAY NO
Q: I have just turned 60 with no debt or dependents and minimal expenses. As a previous homeowner who no longer owns a home, I qualify for the KiwiSaver withdrawal and $5000 home start grant. I earn less than the maximum $85,000 income allowed under that scheme, and have less than the maximum assets allowed of $80,000.
I currently have flatmates and would continue to do so if I bought a home. I have a confirmation letter that I would have family living with me who would pay $250 a week and my employer would pay me $125 a week for office space.
I have sought pre-approval for a $400,000 home purchase with 20 per cent deposit. But I've been turned down by two major banks, using a mortgage broker. Any suggestions please?
A: You do, indeed, tick the boxes for the KiwiSaver help for previous homeowners. The rules are the same as for first homeowners — with different house price caps for different regions and so on. But there is also a maximum asset total of $80,000 to $120,000 (excluding KiwiSaver), depending on where you live.
Note that you may be able to get not only a $5000 grant but — if you buy a newly built home — a $10,000 grant. For more on this help see here. However, mortgage adviser Patten sees two issues for you.
"The first one is the age of the applicant. Again, the term the banks will be assessing the loan over will be 10 to 15 years, which will probably make it prohibitive to borrow $400,000.
"The other issue is that with a 20 per cent deposit, the banks will take boarder income into account for servicing. However, most of them have a limit of one to two boarders and a maximum amount per week that they will allow as a payment (this is then also scaled to 75 per cent of the amount, the same as rent is for someone buying a rental property).
"Some lenders do not count family members as boarders either, and they won't use storage rental as an income source.
"An option may be to ask your mortgage broker to approach one of the non-bank lenders. Although they operate under the same responsible lending criteria, they are more open to accepting all sources of income. If you can show the ability to service the loan over a 15-year term they may be more open to helping you."
Beyond that, you might consider some of the ideas above. Perhaps the two of you could buy together, although you would have to be in the same part of the country. Get back to me if you want me to give you one another's email addresses. House buyer matchmaking would be a first for this column!
One final comment, which I hesitate to say as it might make you two angry. But an alternative is to decide to happily rent through retirement.
A while back a couple wrote to me wondering if they should sell their home and do this. The money that would otherwise go into housing could be used for rent and other spending.
The main concern might be the worry that your landlord could kick you out. But you both would surely be highly desirable tenants, and you might be able to negotiate long-term leases that suit both sides.
THE LIMITS OF SOUTHERN CROSS
Q: My husband and I (70 and 68) have been insured with Southern Cross Health for 29 years and have Kiwicare 80 per cent cover.
Having private health insurance doesn't necessarily save you from big medical bills. Southern Cross will not fund a drug unless it is Pharmac approved, and if it is Pharmac approved then you can get the drug for free publicly anyway.
The drug can be Medsafe approved, and approved by Pharmac for other illnesses, but if Pharmac have not approved it for your illness then neither will Southern Cross.
It seems Southern Cross will only fund already publicly funded drugs. It just gives you sometimes quicker access to treatment or more salubrious surroundings.
In 2018, my husband was diagnosed with cancer and the treatment recommended was chemotherapy (public funded) along with Herceptin (not public funded).
To our surprise and dismay, Southern Cross would not approve funding for Herceptin, as it is not Pharmac-approved for my husband's particular cancer. Ironically, they would cover 80 per cent of administering the Herceptin to him.
The drug company Roche played the part that we thought Southern Cross should have. After 14 treatments of Herceptin, Roche provided the drug for free (as long as the patient's disease had not progressed).
To date we have paid $84,166 (excluding our insurance premiums). Without Roche's help we would have paid $389,023 by now (if we had been able to afford it!). Thank you Roche.
We do continue our Southern Cross membership because they pay 80 per cent of administering Herceptin to my husband, and the benefit outweighs the premium cost.
A: Gosh, tough times for you two, made tougher by the expense — even with Roche's help.
So what is Southern Cross's side of the story?
"Cancer drugs can be incredibly expensive, so Southern Cross Health Insurance (SCHI) has to find ways to manage these expenses," says CEO Nick Astwick.
"One of the ways we do this is by limiting the cover we offer to chemotherapy drugs that have been approved by Pharmac, as these drugs have been proven to deliver the best health outcomes at a fraction of the cost of other patented medicines available.
"SCHI policies generally only cover chemotherapy drugs that are not Pharmac-approved for up to $8000 to $10,000 in a claims year.
"We also offer unlimited cover for surgical treatment and radiotherapy, and pay for the administration of many non-Pharmac approved drugs (when there may not be cover for the cost of the drugs) on the majority of our plans. We're happy to see this particular member has been able to take advantage of this."
Astwick adds that Southern Cross has recently released Cancer Cover Plus upgrades, "which enable members to increase the level of cover for cancer treatment to $100,000 or $300,000, and this includes more cover for non-Pharmac approved chemotherapy drugs.
"We also offer two trauma products, Critical Illness and Cancer Assist, that provide a lump sum cash payment if you're diagnosed with a qualifying cancer."
I wonder if you knew about those upgrades and products — although they would of course have increased your premiums.
The truth is that healthcare is getting cleverer and cleverer, but also more and more expensive. If health insurance is to cover every expense, hardly anyone will be able to afford it.
Having said that, the way some people face huge bills because their illness happens to need drugs not covered by Pharmac seems awfully unfair.
That's a problem for the Government to fix. Maybe we all have to pay more tax.
But this is getting a bit far from what's normally covered in this column. So no more letters on this please.
INSURANCE IS A GODSEND
Q: I have been a member of Southern Cross since 1st May 1973 (original membership certificate attached.) I had a little dig at them in 2001 relating to premiums. But I would just like to clarify that I have no beef with them as they have been a godsend to me through major surgery followed by seven weeks of oncology radiation.
A: Good on you.
- Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary's advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.
OPINION: You need to consider interest, taxes and fees.