Interest rate rises to punish small number of mortgage holders

Yesterday, the Dominion Post published a very revealing article on the number of mortgages that New Zealanders hold, and the level of property ownership in NZ. There have been a number of myths reinforced in the public domain, the most dire is that one that NZ'ers continue to spend on mortgage money and that raising interest rates in the only way to rein in that spending.

But, if you read the article below, you will see that very few NZ'ers are affected by interest rates, because most either rent (not explicitly spelled out), own their homes outright, or have small mortgages. Only a small percentage of total mortgage holders owe more than half the values of their houses, and an even smaller percentage owe more than three quarters.

So, every time interest rates are raised to punish consumers who keep spending more and more money, it really only affects those that have only just bought their houses - typically young, first home buyers. And these are the people that will be bankrupted if interest rates continue to be raised by Mr Bollard.

Fixation with property not quite true

By MARY HOLM
New Zealanders are not as property mad – or as mortgage mad – as we've been led to believe, recent research shows.

Among the findings:

• We are no more heavily into property than people in many other countries.


• Almost half of home-owning households have no mortgage.


• The average mortgage is less than $80,000.


• Fewer than than 8 per cent of households own rental property.


• Fewer than 3 per cent of households own holiday homes.


• Despite some baches being worth millions, their median value is less than $170,000.

This does not mean that New Zealanders would not benefit from spreading their savings across other types of assets, such as shares, share funds and bonds. Many people are scarily undiversified, and would be hit hard if property values were to slump. The research does suggest, though, that interest rate rises are good news – not bad news – for the huge number of mortgage-free home owners who hold term deposits or bonds. That number is bigger if we add renters.

The research also suggests – dare I say it – that if the Government enforced laws more strictly, and taxed the gains of landlords who clearly bought properties with the purpose of making gains, the change might not anger all that many people. Non-landlords – the vast majority – might applaud such a change if they realised it could mean lower taxes elsewhere.

The research, by Treasury officials, found that our home ownership rates across age groups tended to be slightly lower than in Australia, Canada, Finland, Italy, Sweden and the United States. The exception was people 75 and older. In that age group, we have among the highest home ownership rates.

Turning to investment property – which includes rentals, holiday homes, timeshares and other non- residential property – our ownership rate is similar to Australia's, except that Australians under 25 are more likely to own investment property than Kiwis.

Americans, on the other hand, are much less likely – except in the 75-plus age group. Generally, Americans are more heavily into shares, bonds and other financial assets – giving them good diversification.

On mortgages, not many of us are heavy borrowers. Of those New Zealanders who do have loans, fewer than 21 per cent have a mortgage more than half the value of their property, and fewer than 6 per cent have a mortgage of more than three-quarters of the value.

Predictably, there is a strong tendency for younger people to have big mortgages. Only 8 per cent of property owners over 65 have a mortgage, and their loans average less than $30,000.

Rental property ownership is highest among those aged 45 to 64, but even then only about 12 per cent own rentals. Not many hold their rental properties on into retirement. Of 65-74-year-olds, only 5 per cent are landlords, and from 75 on, only 2 per cent are landlords.

"Apparently, investment in rental property is liquidated once the household head reaches 65," the report says.

Though in many ways it is good to learn that New Zealanders are not as obsessed with property as we are sometimes told, it is comforting to know that:

• Almost half of households in the bottom 20 per cent by income own their own homes – not hugely different from about two-thirds of those in the top 20 per cent by income.
  


• About three-quarters of households headed by someone over 65 own their homes. That rises to nearly 80 per cent when the household is headed by someone over 75.

# Mary Holm is a seminar presenter, author of Get Rich Slow and publisher of quarterly newsletter Holm Truths (see www.maryholm.com). Her advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following the advice.

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