If you're leaving Auckland, what's the risk that you won't be able to buy back in? Photo / Getty Images
COMMENT:
Q: We have a house in Auckland worth $1.1 million and one on the Coromandel worth $600,000. We have about $300,000 in KiwiSaver and investments.
I am 61 and my wife is 66 and retired. We have decided to leave Auckland and live in our Coromandel property, where I will work from home part-time.
We want to sell the Auckland property and invest the proceeds to provide for our retirement. We like Auckland and would visit it often, but believe staying in a hotel or Airbnb is much more economical than owning a property in Auckland.
Our big concern, though, is that we may in a few years decide to return to Auckland and find the property market has moved on and we cannot afford to buy there again.
We thought about buying an Auckland rental property with part of the proceeds of the sale of our home, so as to keep a foot in the Auckland property market. We are, however, not keen to be landlords, with all the hassle that entails.
What do you suggest? Should we put the money into a property fund instead?
A: Nobody can accurately predict house prices, any more than share prices. Still, something I read the other day convinced me that it's really unlikely Auckland house prices will rise fast in the near future.
It was an article on Bloomberg.com, written in July, that said, "Canada and New Zealand are the most vulnerable economies to a correction in house prices, with Australia and the UK also drawing concern, according to new research from Bloomberg Economics."
The researcher looked at 22 countries that are most at risk of a housing bubble. He considered four measurements, as follows:
• The ratio of house prices to rent. New Zealand was highest.
• The ratio of house prices to household income. New Zealand was highest.
• Housing prices adjusted for inflation. New Zealand was fourth equal.
• Amount of debt held by households, compared to total economic output. New Zealand was eighth.
I know, I know, the experts have been saying that New Zealand is different from Australia, so we won't see the same house price falls as the Aussies have seen (although their market seems to be turning back up).
And immigration and building costs and regulation and all sorts of other factors have led some to say prices won't fall far here.
But it just doesn't work for house prices to keep growing much faster than incomes and rent. If people can't afford houses, they don't buy. And if renting is much cheaper, they're less inclined to buy even if they can afford to.
With fewer buyers, in the end either house prices have to remain flat for ages while incomes and rent catch up, or house prices fall.
I don't know which will happen, or when. Maybe there'll be further rises in Auckland first, despite the recent slowdown. But I don't think you should worry too much about huge rises making it impossible to get back into the Auckland market over the next few years.
If worse comes to worst, you could buy a smaller place, further away from the CBD. But I can't see you having to do that.
If you were happy to be landlords, your idea of buying a rental would be a good way to reduce the risk. But you're not keen. And it's harder to have rental property distant from your home, when you're not on the spot to fix problems. Who wants midnight phone calls from troubled faraway tenants? You can hire a property manager, but that eats into your return.
What about a property fund? I don't know of any that invest in homes. Most are in commercial property, which is a fairly different market — and one that has its ups and downs.
I think you'd be better off with widely diversified investments in lots of different industries. You might want to seek advice from one of the fee-charging financial advisers listed on my website at maryholm.com/advisers/. There's some info there that should help you choose a good adviser.
Q: You will be pleased to know that I took my 96-year-old father to the family bach to meet my brother on Father's Day and for his birthday a few years ago. He very much concurs that it is nicer for someone to spend time with you than to give an expensive present.
He still saves $20 every pay and has saved since his time as an apprentice every payday, although then it was never very much pay.
A: Some people say it doesn't make sense to keep saving after you've retired. You "should" be spending more than your income at that stage, if you have savings.
But the savings habit is sometimes deeply ingrained. If your father likes to keep saving, and he's not depriving himself, why shouldn't he? He's to be admired!
Yours is the only response I've received to my suggestion that families celebrate Father's Day without big spending. But hopefully others took up the idea.
Q: I felt the response about the 88-year-old who was supposedly careless with money matters was a bit one-sided. Is the correspondent really worried about her grandfather or the fact that he might be SKIing (Spending the Kids' Inheritance)?
I am retired and lucky in some ways that I have no close relatives to leave my money to, just distant ones in other countries.
The bank did ask me once, not long ago, what my financial aim was, and I said that it was "to try to make sure the last cheque I write on my deathbed bounces". I can hear the squeals of anguish from people worried about the poor person who received that cheque, but that isn't the point.
If this guy has a mortgage, it is reasonable to assume that he also has property that will more than cover the debts mentioned. I note that what he spends his money on isn't mentioned, but why should he not spend his money the way he wants to make himself happy? He earned it and saved it.
He might not be the best financial manager, but that probably puts him in the majority.
Okay, I realise that he may be wasting money in ways that most would see as silly, because he really does have an issue with dementia. However, maybe he is just an 88-year-old who has the odd senior moment or lapse of memory and doesn't want to justify himself to his granddaughter.
A: I couldn't agree more that a person of any age in good mental health has the right to spend her or his money the way she or he wants to — just as the 96-year-old in the Q&A above has the right to save.
But this man's grandson — not granddaughter, by the way — says his grandfather is running up debt with huge interest rates. And the young man is worried about debt collectors taking away precious items. It sounds to me that his granddad needs help.
Q: I've just read your latest article. It's been many years since I was in the advice game, but my bet is a close family member is being enriched by the grandfather's indebtedness. That's usually the case, I've found.
A: An interesting observation. And to continue our theme, if the grandfather is of sound mind, he's also entitled to lend his money as he pleases.
But if he's being exploited by a relative, that's not okay for either him or the rest of the family.
Q: I was heartened to read last week about someone paying attention to their grandfather's ability to manage finances. I hear of rest home residents who need support in many ways but are missing somebody outside that they rely on.
My mother is in her mid-90s, does not use internet banking, writes cheques and waits for statements in the post. As soon as we crossed the "let's talk about money" hurdle, there was relief on both sides! She understands why I have just started exercising the EPA (enduring power of attorney) she gave me 28 years ago.
Thinking back to the grandfather, another approach is to ask "what is your backup?" Backup if you're not well enough to visit the bank, if the internet is down, if a payment didn't go through, if the direct credit needs changing, if Work and Income asks for an accurate update, etc.
I think the phrase "Now We're talking" is an excellent banner. A single elderly person will likely benefit greatly by dealing with fear of embarrassment and sharing with another sensible person.
A: Your conversation with your mother is a great example for Sorted's Money Week theme, "Now We're Talking".
As the letters above suggest, bad stuff can happen to old people and their money. But as you point out, good stuff can happen too.
I hope your letter will inspire others to open the money conversation with their elderly relatives.
Q: On the question of why a bank would give a mortgage to an 88-year-old, I proffer the following.
The bank's security is not the borrower. The bank's security is the property. What percentage of borrowers who take out 30-year mortgages live in the house for 30 years?
Probably less than 10 per cent.
People move on average every five to 10 years. And when they move, whether they go out in a removal truck or a hearse, the property is sold and the bank gets its money back.
That is what will happen to this borrower. He may die today (and any borrower can die today, whether they are 28 or 88) or he may live to 95, in which case the bank will get its money back no differently than had the mortgage been with a 28-year-old. Then again, the borrower may live beyond 100 — who knows?
The real problem with lending today is an outdated mindset that people over 50 are not a good risk. Yet many over-50s have good incomes, good health and no intention of retiring.
Importantly, added wisdom that comes with age means older borrowers are more risk-averse, and better at handling money and choosing good property investments. Who is the bank, or anyone, for that matter, to say avoid lending to over-50s?
I think a bank is better off lending to "seniors" for property purchases than lending to millennials for cars, holidays and property purchases.
Not only is it safer lending but it is assisting "seniors" to extend their productive investing years, thus avoiding their dependence on welfare in their twilight years.
A: The only worry about lending to a retired person is that they would in most cases have to make mortgage repayments.
And particularly if the mortgage is on the person's own home — as opposed to a rental property — they may not have enough income to make those payments.
An alternative is to postpone the repayments until the house is sold, as happens with reverse mortgages. The worry with this is that the debt grows at a compounding rate.
For example, the loan amount might double in less than 10 years, triple in less than 15 years, and be five times as big in 20 years or so. True, the value of the house will in most cases also rise over the years. But it's something to be aware of.
- Mary Holm 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.
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