Editorial: Wealthy but poor on a new mortgage

Statistics New Zealand find about 20 per cent of Aucklanders are paying 60 per cent of their incomes to service their mortgage. Photo / Getty Images

Opinion

We often read about the struggle of first-home seekers to get a foot on the first rung of the ladder with Auckland house prices at the level they are.

We do not often think about the struggle it must continue to be for those who have managed to afford a house.

Our Insight feature today gives a glimpse of their life. They are called "WHTMs" - wealthy hand-to-mouthers". Wealthy because they have a million-dollar house.

A third of Auckland's suburbs passed the million-dollar average in property values this week. But they are living hand-to-mouth because their mortgage takes most of their weekly incomes.

Statistics New Zealand find about 20 per cent of Aucklanders are paying 60 per cent of their incomes to service their mortgage. It used to be that 40 per cent was considered the upper end of affordability.

The older generation who bought houses under that rule of thumb will remember that paying a mortgage with 30 or 40 per cent of their household income did not leave much in reserve after ordinary living costs for a young family.

How their children manage with mortgages upwards of half a million, they can only wonder.

The WHTMs received a little relief this week when the Reserve Bank lowered the official cash rate to 2.5 per cent, the lowest it has ever been.

Floating rates on mortgages should come down accordingly. But the bank might not have lowered interest rates if it was not now confident that other steps taken this year have cooled the Auckland housing market.

That may not be such good news for the new owners of million-dollar homes. They have been living hand-to-mouth, forgoing luxuries and extras, because their house was rising in value.

If the rate of increase is slower, as it seems to have been since October, nobody wants the market to fall.

It would take something more than a higher loan-to-value ratios required on Auckland investment houses, or the capital gains tax on sales within two years of purchase, to cause a collapse of confidence in present house values.

The new asset millionaires are probably safe to hold on to the house but it is less likely to appreciate at the rate they might have hoped.

They will rely on their incomes rising to give them a lifestyle to match. The average income in New Zealand may not be rising very much but individuals' circumstances improve.

Career promotions, new openings, additional work, can come along. Years pass, children get older and a couple realises they are not struggling as much as they were.

That's when they will look at the house and know for sure they were right to buy when they did. It's life.

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