Mary Holm: Moving house — why it's best to try before you buy

It's risky to be caught out with your old place unsold, and paying a mortgage on your new home. Photo / Getty Images

OPINION:

Q: I am about to move and sell my current home that I have only a small mortgage on. I would like to go to a different area and thought that I might rent before buying. Would you advise this?

A: Definitely, for two reasons.

The first is that renting gives you a chance to be sure you like the area. I've heard of people buying in a new region — perhaps a place where they've had great holidays and are now retiring — only to find the locals aren't welcoming, or the medical facilities are too distant, or there's a lack of activities they enjoy.

The second reason is that it's always wise to sell a home before you buy a new one, simply because then you know how much money you have for your purchase.

This is tricky sometimes. You might want to move only if you can find a new place with certain characteristics or in a certain area, and houses like that don't come on the market often. So you feel you have to grab one before you've had a chance to sell your old place.

Or you might just pop into an open home out of curiosity and fall in love with the place.

But it's risky to buy first and assume your old home will sell for at least a certain amount.

If it doesn't sell, you may find yourself paying high interest on bridging finance, as well as your old mortgage. In the end, in desperation, you sell the old place for way less than you hoped to get, leaving you with a bigger-than-expected mortgage on the new place. I know. I've been there.

Sometimes you can ease the situation by making an offer on the new home conditional on selling the old home for at least a certain price. Or you might arrange a long settlement date, so you have heaps of time to sell the old place. But sellers are often not keen on such provisions, and they might go with another buyer's unconditional offer.

Buying first is especially worrying in the current house market, in which average house prices are starting to fall. You might see the price you hope to get for your current home slipping considerably.

Which brings me to another point. While I don't believe in trying to time markets, it seems likely that this year will be a better one for sitting on the home ownership sidelines than the last couple of years have been.

Weekend blues

Q: I am a regular reader of your page in the Saturday Herald. I was disappointed last week to see that your page had a coloured background.

I am in my early 70s with reasonably good eyesight (I visited my optician this week for a checkup and found that my sight has improved slightly over the past few years). I nevertheless found reading your article much more taxing (no pun intended).

I have discussed this situation with my contemporaries over the past few years and they all have difficulty reading text on a coloured background, especially a darker one. Other than that, keep up the good work.

A: Actually, I really liked last weekend's layout in the paper version of the Weekend Herald. It was imaginative and different, and I didn't find the pale blue background made it hard to read.

But you did, and that's not good, so I've forwarded your email to the layout person. He says he will keep your comments in mind in future.

After receiving your email and quite a few other letters from unhappy pensioners — see below — I decided this was a good time to run the following!

More fun than money

Q: My wife and I are in our late 60s. We've had a wonderful life together, heaps of kids and grandkids, lots of fun, but despite our best efforts never really made the grade as great savers.

We have managed to have our house mortgage-free at retirement and have $40,000 in savings. This is for things like when the house needs painting or the oven breaks down. At the moment it's sitting in the bank earning bugger all. We approached one broker who was very polite but said they didn't deal in such small sums!

We haven't touched it since retirement but need it accessible just in case. Any suggestions where it might be better off? We live very happily on Super and a part-time job I have.

A: What a great attitude to life.

Unfortunately there are not many choices for your money, other than leaving it in the bank, given that you want quick access to it and you can't predict when. You don't want an investment whose value can sometimes fall.

I wouldn't go for non-bank term deposits. There's a reason why they pay higher interest — they are riskier. But you could try a KiwiSaver cash fund. Anyone of any age can now join KiwiSaver and, while you won't get government contributions because you are past 65, you can withdraw money any time you want.

Cash funds invest in bank deposits and similar investments, but a fund may be able to get higher returns than you can because of its size.

To find a cash fund, go to the Smart Investor tool on sorted.org.nz. Click on "Compare", then "KiwiSaver Defensive Funds" — the lowest risk category. I suggest you sort by "Fees (lowest first)", and select from the low-fee ones.

Some defensive funds come with somewhat higher risk, which you don't want. So look for the funds with "Cash" in their names. Even then, some so-called cash funds also hold bonds. You can find this out by clicking on the fund's name, to get its details. Scroll down to "Top 10 Investments", and make sure they are all cash.

Too complicated? If you stay in the bank, interest rates are likely to increase a bit over the next months. And you can make sure you're getting the best of the bank offerings by going to interest.co.nz. Click on "Saving" and you'll get the different banks' rates on savings accounts and term deposits.

And keep enjoying those grandkids.

Pension problems

Q: With regard to the letter two weeks ago re people applying for NZ Super also applying for overseas pensions if they've lived and worked in another country, is this part of the process worth starting early? I can imagine it could take a while.

I worked in the UK for three years in the 1980s. I see the pensionable age in the UK is 66, so there would be no need to hurry this in my case, but in the Netherlands it's 65. How long before retirement would be a good time to contact MSD re starting the paperwork process?

A: You can't apply for NZ Super until 12 weeks before your 65th birthday. If you apply in that period, you'll start getting the full amount once you turn 65.

"An overseas pension you are not yet eligible for or not yet receiving will not impact the amount you receive," says Julia Bergman, general manager — disability, seniors and international policy at the Ministry of Social Development.

However, you'll be obliged to apply around that time for any overseas government benefit or pension that you may be able to get.

"Once you receive payments of an overseas pension or benefit, this will affect your NZ Super payment. Deductions will be made from the effective date your overseas pension commences."

Long-forgotten

Q: Worked in the UK 40 years ago for a short while. Been in NZ ever since.

To claim my NZ pension had to tell Work and Income the dates worked and my UK tax number. Know I left before an Easter. No idea on dates. No one would accept my application as did not know the tax number. Miraculously, a bit of paper turned up with number on.

A friend had to fly back to England to get her number. Some of us do not have numbers that we remember after many decades.

A: Of course you don't. Says Bergman: "If your overseas employment was a while ago and you're struggling to remember all of the details, then don't worry. You're only expected to provide this information to the best of your memory."

She adds, "We have dedicated staff who follow up on overseas pension entitlements. If you are eligible for payments, our team will get in touch to help you determine the best method for receiving them."

Maybe, though, the MSD could have been more helpful in your case. As for your friend, I'm afraid I'm a bit sceptical. Surely there was another way to get that information. Perhaps she had other reasons to go to England?

Too much paperwork

Q: My question Mary is "Why can't NZ bureaucrats make it easier to deal with overseas pension entitlements?" I think you were too soft in replying to the three recent pensioners worried about their Canadian pensions.

Many years ago, when I applied for NZ Super, I advised I had worked in the UK for two years in the 1960s. Sixteen years after advising them, Work and Income sent me a 54-page questionnaire that they legally required me to fill in to apply for a UK pension from 40 years ago.

Eventually the UK pension department wrote to me advising my pension would be £0.69 per week. Two years later they advised this was to be increased to £0.72 per week. After all that, Work and Income gave me the option of assigning my UK pension to them and leaving my NZ Super unaltered. I was happy to do this and forget about the whole palaver.

I have concluded that NZ and various overseas governments are unlikely to alter what appears to be a great theory. But it is being administered in a wasteful and stupid way.

Most NZ pensioners would be happy to just receive NZ Super and forget about pension entitlements arising from a short duration work experience overseas many years ago. By the way, I wouldn't be happy accepting your idea last week about spending my UK pension on a coffee because it would take me at least three weeks to save up for one!

A: Perhaps it's caffeine withdrawal that's making you crabby!

On your 16-year story, clearly something went wrong. "We'd need identifying details about this individual (and a privacy waiver) to comment on their specific situation," says Bergman. But you weren't being deprived in the meantime, so I don't think this is worth pursuing. Let's just conclude that the system isn't perfect.

On New Zealanders being happy to forget their overseas pension entitlements, of course they would be, given that they don't end up with more money. The excess goes to the government.

But the law says NZ Super applicants have to apply for the overseas money. And in light of the generosity of NZ Super, I think it's fair enough.

The aim of the policy is "to ensure that all eligible NZ residents get an equitable level of state pension, whether the pension is fully funded by New Zealand, partially funded by New Zealand and another country, or fully funded by another country," says MSD.

"The intent of the policy is that New Zealanders who have only lived in New Zealand are not financially disadvantaged compared with others who have worked overseas, or migrants who may have entitlement to overseas pensions."

I've received several other letters on this topic, including a couple from people worried about how their situation would be dealt with. But there were also two people — one who had lived in Canada and the other in the UK — who reported that once their situation was set up, it works well.

I've got one more Q&A on overseas pensions that I'll run next week. It includes good news for some superannuitants, and info on how to contact MSD. Apart from that letter, I think we've had enough on this topic. Thanks to everyone who has written.

- 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 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 or click here. 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.