Nick Stewart says you need to make sure before buying, or even if you already own your home, that you can afford to keep up with the ongoing costs in addition to servicing your mortgage. Photo / Warren Buckland
Nick Stewart says you need to make sure before buying, or even if you already own your home, that you can afford to keep up with the ongoing costs in addition to servicing your mortgage. Photo / Warren Buckland
OPINION
Holding property does not make you wealthy. In fact, it can cost you quite a bit.
Wealth, by true definition, isn’t about one’s worth but about enjoying a lifestyle of choice without worry.
Many people have underestimated the costs of holding a home or had it downplayed by otherswho dangle the prospect of “being on the property ladder” in front of them as if it were a guaranteed investment.
For many, the tried and tested mantra has been to buy the most expensive home they can afford or that the bank will allow them, and then rinse and repeat through “postcode jumping” to better suburbs as the years progress and their increased income allows.
It’s the dirty secret of our national property obsession – you may “own” an expensive house but you could well be cashflow-poor and ill-equipped to deal with sudden hikes in cost, such as insurance premiums.
Over the past 10 years, home insurance has increased by 97 per cent. Just home insurance, not contents – that’s gone up by 48 per cent over the same period.
Consumer NZ has found that 60 per cent of respondents were concerned about the cost of house insurance in 2024 and 8 per cent of them didn’t renew their premiums, continuing a trend from 2023.
Evidence of non-renewals will make councils concerned. Many of those affected by Cyclone Gabrielle who were uninsured are still in limbo 12 months on and have pushed hard for ratepayer support.
The outcome of elections does not affect the upward trend of stocks over time, writes Nick Stewart.
New Zealanders are battling with increases of up to 60 per cent as insurance underwriters become increasingly leery of climate-related risks. In some particularly quake and flood-prone regions (Wellington, Marlborough), you can’t get automatic cover online any more.
The costs of insuring coastal and alpine properties are likely to increase due to the harder insurance environment. The only solution for some is to lower the sum for which their house is insured and/or try to increase their excess.
But this means that, if their house is burned down or washed away tomorrow, they will not be insured for the full amount. And any insurance they receive will have a much larger chunk taken out to account for the higher excess.
It’s not as bad as having no insurance but it is still taking a big gamble that nothing bad will happen to your home until you can shore up your insurance again. The stress of that can weigh pretty heavily on your mind.
You need to make sure before buying, or even if you already own your home, that you can afford to keep up with the ongoing costs in addition to servicing your mortgage.
How do you work out how much to budget for home repairs, maintenance and the unforeseen? You can use the 1 per cent rule.
This is more a rule of thumb but it also makes sense as a rainy-day fund for your home. It’s the idea that you should be putting aside 1 per cent of your home’s value every year to cover out-of-pocket costs.
For the sake of easy numbers, if you owned a $2 million property, you would need to put aside $20,000 a year. This should be clear of savings and any mortgage repayments.
If 1 per cent makes for uncomfortable reading, spare a thought for boat owners, who have a 10 per cent rule.
For someone relying on superannuation, or someone who has overextended and bought a house beyond their means, putting aside a large chunk of change every year could be a struggle.
It sounds harsh but, if you can’t afford this, it might be time to downsize. Your home needs to shelter you for years to come. You can’t guarantee it will do that if you can’t afford repairs, essential maintenance and adequate insurance in case of emergency. Following the logic of the 1 per cent rule, a more modestly valued house in a less sought-after area will be easier to hold long-term.
Keeping up with these costs in your retirement means you will need to account for them when making your financial plan. Otherwise, you risk eating away at the money meant to sustain you for decades of retirement.
It’s hard to get that back if it’s running down quicker than you have accounted for.
There are a few things you can put in place to try and get ahead of this. First, keep up with your home insurance if you can. The hikes are astronomical in some cases but it’s better than losing everything but the shirt on your back if the worst happens.
Second, if you are struggling, you may need to sit yourself (and your partner) down for a very frank discussion about whether your property is serving you or acting as a drain on your future. Having a roof over our heads is essential, but it may make more sense to have a more humble roof long-term.
And last but not least: plan, plan, plan. Make sure while you are earning that you have a robust financial plan that takes into account your unique situation, timeframe and the lifestyle you are looking to maintain in retirement.
Having a chat with a trusted, local fiduciary for a second opinion on your financial plan can help ease your mind. After all, a burden shared is a burden halved – and talking to the experts is a great place to start.
Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a financial adviser and CEO at Stewart Group, a Hawke’s Bay-based CEFEX & BCorp-certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions. Article no. 350.
The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
