Soaring house values fuel a borrowing binge

By ANNE GIBSON

The first step was falling in love, then came the houses. Next, they got a dog.

"Now all we need to do is borrow two cute kids from the neighbours," jokes Auckland police officer Wendy Spiller, 38, as she gets her photograph taken this week.

She and partner, fellow police officer Gavin (also known as Harry) Henderson, 29, are enjoying posing before their freshly painted cottage in Ellerslie.

Lavender blooms in the front garden and a picket fence completes the domestic bliss on the sunny winter morning.

The Ellerslie renter is one of three properties the Auckland couple own. They have borrowed $580,000 from WestpacTrust to finance the Ellerslie cottage, buy a house in Mt Wellington and another in Glendowie.

They own about $800,000 worth of property and have at least $220,000 equity in the three houses.

Rent on two of them covers mortgage repayments and they have a $10,000 cash buffer for emergencies.

With joint bank accounts, a steady income, a four-year relationship, and a desire to get ahead, they took the next step and bought a Bull Mastiff/Weimaraner cross "just as a trial to see if it survives", they joke.

"People might freak at the size of our mortgages, but we have two of the places rented out and they are paying for themselves," Spiller says.

She admits they are up to their eyeballs in debt, but is not worried because the three properties are rising in value by at least 8 per cent a year, which is outstripping current interest rates of around 7 per cent.

They are typical of many Aucklanders, keen to load up with debt on residential property and to commit to the saving discipline that goes with paying off a large mortgage to acquire wealth.

Bridgit Vivian of WestpacTrust in Wellington says the typical Auckland mortgage is between $250,000 and $350,000.

But Auckland's housing spiral is putting households under stress.

Auckland City Mission's Diane Robertson said an increasing number of mortgage-stressed families are asking for food parcels.

"They'll keep paying the mortgage, but cut back on food or power.

"People try their hardest to maintain their mortgage because they don't want to lose the equity they have in their house.

"Only 3 per cent of the people we see own a home. The rest rent."

AMP Banking's Vanessa Winning estimates average mortgages in Auckland are $220,000, against $195,000 in Wellington and $130,000 in Christchurch.

Based on those figures, Aucklanders are paying around $15,400 interest a year, , Wellingtonians $13,650 and Cantabrians $9100, making their outgoings 40 per cent less that Aucklanders, on average.

Mortgages were generally lower 10 years ago. WestpacTrust's David Tyrer says mortgages have gone up in line with property values, so a 10 per cent rise in house prices annually will almost inevitably result in a 10 per cent rise in mortgage debt.

AMP will loan up to 95 per cent of a property's value. A few years ago the maximum amount loaned was 80 per cent.

AMP's lending criteria requires that households have between $1200 and $1500 left over at the end of every month to pay bills.

Quotable Value said last week that Auckland house prices would rise 10 to 15 per cent this year because of low interest rates, more people and a shortage of good homes.

The Real Estate Institute this week issued figures showing the number of Auckland house sales were rocketing ahead, up 43 per cent during the past year.

Median prices on the North Shore and in the city are up 10 per cent. The average Auckland house now costs $259,000, compared with $205,000 in Wellington, $141,000 in Christchurch and $106,000 in Dunedin.

The Reserve Bank maintained the official cash rate last week, resulting in banks reducing interest rates, further fuelling the boom.

Aucklanders seem so confident about the financial stability of housing that they are loading up with debt.

WestpacTrust's household survey released this week showed national household debt levels had increased from 83 per cent in 1996 to 112 per cent this year.

As a nation we spend more than we earn, and that is particularly so in Auckland.

The result is that real estate spirals to new highs, along with our debt.

Residential mortgage borrowings have increased in the past 16 years from $10 billion to $68 billion.

Add that to the $3 billion we owe on our credit cards and we have become a nation of borrowers, much to the disgust of Canterbury University economic historian Dr Neville Bennett.

The debt burden is stressing us out, making us nervous about our ability to meet huge repayments, putting pressure on young families and ruining our economy, he says.

"We spend 110 per cent of our income and much of that on mortgages. We put 80 per cent of our savings into housing, compared with only 70 per cent in the 1980s."

He estimates New Zealanders have the highest debt/income ratio in the world, making us a "nation of idiots" and paupers in the debt of banks.

The best savers are the Japanese, who spend only 70 per cent of their income and save the rest, he says.

He is horrified at the size of Aucklanders' mortgages and says the overseas-owned banks are profiting at our expense.

The debt burden weakens our economy, resulting in a low exchange rate and an impoverished nation, he says.

Former Reserve Bank governor Dr Don Brash preached a similar sermon and squeezed inflation down to take the heat out of the economy, but could not dampen our enthusiasm for borrowing to buy houses.

Psychologist Sara Chatwin sees people at MindWorks Psychological Services in Auckland who are mentally and physically stressed by high mortgages.

She says this is leading to couples fighting, suffering health problems and even breaking up.

Another psychologist, Glen Stenhouse, also sees stressed couples and families suffering from both parents having to work long hours to meet the cost of living in Auckland.

"It creates immense pressure, leading to intense conflict between people.

"Nobody wins. They can't meet their responsibilities as parents because there isn't enough time," she says

Banks are keen to lend on residential property because they secure the loan against the asset.

Their advertising campaigns are aimed at getting more home mortgages, not at businesses which create wealth.

They are also trying to sell us more debt, inventing new types of revolving credit products that are designed to encourage us to borrow to buy boats, fridges, carpet and cars.

WestpacTrust's March quarterly review of the economy noted the importance of houses as a form of investment.

"Over 60 per cent of New Zealand's household assets are houses and are generally perceived as a safe investment, combining a form of savings, providing a service (accommodation) and removing an expense (rent)," it said.

But it also warned that the spiral might not continue.

"The popular myth that house prices will always rise leads many people to make a house their major and often only financial investment."

The review picked house prices to rise in the next 12 months, but said people should know prices were cyclical.

Still, there are plenty who are happy to keep spending their money, and the banks', on housing.

"The market has been so good for us," Spiller says.

"I don't feel we're over-capitalised. We're capitalising on the rising market and hoping it will continue to rise."

Spiller and Henderson emphasise the excellent service by their accommodating banker, Jacinta Salt at WestpacTrust's Albany business centre.

"Don't forget to give her a plug," says happily indebted three-house owner Spiller, clicking the gate shut.

Tales from the mortgage front

"We've just borrowed $350,000 and it's just so enormous that I can't even begin to think about it, so it doesn't worry me. The house is all renovated, so we don't have to spend any more, but our wedding is coming up so we'll have to pay for that. I don't know where we'll get the money."

- office workers, engaged, her 28, him 39, Sandringham

* * *

"We've got two houses and a mortgage over $500,000 but that's by accident. We tried to sell our first house. We'd already bought the new place by then. The bank convinced us to keep the houses and to pay off the mortgage with rent. We're confident."

- executives, late 40s, Rodney District

* * *

"We've been kicked out of our flat and will have to pay about $400 a week rent to get anything decent. I might have to buy, but I'm terrified of getting a mortgage ... but I can't move in with my boyfriend."

- health professional, 32, Ponsonby

* * *

"There's two 'm' words I always tried to avoid - marriage and mortgage. Now I've got both, the first baby has just arrived, we have a $120,000 mortgage. We need a bigger house."

- technician, 38, Kingsland

* * *

"I hate debt. It scares me. So we put half our incomes into repaying the mortgage which was $100,000 in 2000. It will be paid off on December 7. But it's nearly killed us and some days I wondered if we had enough food."

- writer, 43, married, two children, North Shore City

* * *

"I don't have a mortgage, I own the house and I'm an investor, but have you seen the sharemarket lately? I'm taking a bath!"

- unmarried man, 40s, Wellington