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Statistics from 2013 show a declining home ownership rate across all age groups, but why not so much in the age group aged over 60? Why is renting for longer the better way to manage financial risks?

 

 

Statistics 2013

Are You Scared to Rent your Home in Future?

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The passion for making experiences accessible and helping others comes from extensive travelling and the principles of life—how to avoid pitfalls when investing or forming relationships.

 

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Are you desperate to leave the rental market?

 

Accidentally or because of the election, the media are pushing the market sentiment for Kiwis who desperately try to get onto the property ladder, pointing to soaring house prices and increasing mortgage costs. These issues are not new and won’t go away as long as the shortage of housing supply is underpinning the escalation in house prices. First-home buyers fear to miss out take unreasonable financial risks.

 

Financial risks

 

Most common financial risk for headless buyers is borrowing too much with low deposits. Signing up to 30-year mortgage is a lifetime sentence of debts. The more people borrow, the higher are the financial risks and costs. When choosing instead of a 25-year mortgage the lower repayment rates for a 30-year mortgage that would in this example below increase the interest payments by 109,860 Dollars:

 

House price 500,000

Home loan 400,000 on 7%

 

 

 

 

 

 

 

 

 

 

As you can see when comparing the interest payments to be paid to the bank, for keeping the home loan only 5 years longer that would result in total 109,860 Dollars more interests.

 

In other words, if you are willing to pay that sort of money to the bank as interests, why not renting and saving for a higher deposit for the next 5 years and reduce the financial risks?

 

 

Unpredictability of life and financial risks

 

There are things in life we can’t plan for and happen with little or no control of. That is why it makes sense to be focused on things of greater personal importance like education, relationships, goals and dreams. And that is changing over time from generation to generation.

 

In these days it takes for young people much longer to finish one’s degree, enter a career and settle with a stable partnership, kids etc as their parents did. In this technology driven world who knows what happens over the next 5-10 years?

 

Not only young people are struggling financially when paying off debts like the student-loans or hire-purchase,  also settled couples and families are having financial issues after marriage splits, financing a business or retirees, when using a reverse mortgage to access the equity in their homes.

 

If your feelings are pushed by emotions think twice and look for ways to secure your own personal financial well-being. If a bank approves a loan based on your income (serviceability),  surely you could stick to your own 5-year saving plan and reduce your financial risks. How to compare your saving plan with a mortgage and homeowner’s expenses, read here more and use a mortgage calculator (e.g. Westpac.co.nz) to calculate your total costs.

 

 

The increase in renters

 

When discussing market rents I had a look at NZ’s statistics from 2013. As you can see below, interestingly the decline in home ownership occurred across all age groups but after the age of sixty not so much. That confirms that retiring on a mortgage-free home has people’s preference but renting for longer is increasingly a valid option. That is corresponding to international trends as illustrated here.

Klauster Properties Ltd - Renter’s Blog

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Rent or Own - Decision at some stage in life?

 

New rental homes come with a twist

 

You can see new housing and new developments on crowded sections as sub-division and on unit titles (town-houses and multi-flat housing). On long-term that might become a problem for expanding families and renters who want to have more space.

 

Escaping high density housing and finding quality rental housing the current housing market has few options;

 

· Compete at top rents for fewer new rentals on free-hold section

· Choose one of the older stand-alone rental homes, or

· Be prepared to build/buy when the time is right for you

 

 

 

Take Away

If you love the benefits of renting, but behave like a home owner by saving for the future, you will have at some stage the freedom to give your life the direction you have dreamt of. 

 

Taking a lease-option to enforce saving towards a home or have a saving plan (cash to invest) are  two different roads to succeed. Whatever works for you is right, just execute your plan. Good luck.

 

 

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Repayment 

Loan annually

Monthly Repayments

(loan calculator)

Total

Payment to the bank

Interests

only

25-year mortgage

16,000

2,827

848,100

448,100

30-year mortgage

13,334

2,661

957,960

557,960