Feeling the Mortgage Pinch: How The Kiwi Dream Can Become A Nightmare

Kiwi’s love home ownership. But in recent years, the number of us owning a home is declining, the hurdles to jump over for a mortgage seem to be higher, and the cost-to-income ratio is painfully increasing.

And now to add to that storm, we have wallet-annihilating interest rates and eye-watering inflation - it’s turning more grim than a Wellington southerly. Together, the sinister duo of Interest and their nefarious henchman, Inflation, are squeezing the New Zealander's dream tighter than a pair of budgie smugglers two sizes too small.

Hold onto your metaphorical hats and literal wallets; let’s dive into how we got here, and where we can go from here.

So, how did we get here?

In a turbulent economic landscape, New Zealand has seen a considerable change in its housing and finance sectors. Since September 2021, the Official Cash Rate (OCR) has risen seven times, translating to an overall increase of 5.25%—moving from 0.25% to a staggering 5.5%.

https://www.stats.govt.nz/news/annual-inflation-at-6-0-percent/

Adding to the complexities, inflation rates, which were a modest 1.4% in December 2020, soared to an alarming peak of 7.3% in June 2022.

https://www.rbnz.govt.nz/monetary-policy/monetary-policy-decisions

This economic upheaval coincides with a slew of legislative changes around property investment, casting a long shadow of uncertainty and speculation, particularly with an election looming next month. These factors have not only rocked the boat but have also created volatility for house prices.

And, where are we now?

For current homeowners with mortgages, these are challenging times indeed. Many New Zealanders are witnessing the end of their fixed-rate mortgages - locked in at lows around the 2% range - only to find that renewing them might mean facing rates higher than 7%.

Every time the interest rate ticks up, it's like a tiny gnome has snuck into your bank account and pinched a handful of dollars. Not enough to bankrupt you instantly, but just enough to make you squint at your bank statement like you're trying to decipher the lyrics to a death metal song. "What's that say? Suffer? Buffer? Oh, blimey, it says 'Overdraft.'"

And let's talk about inflation, which is making everything more expensive. When you couple skyrocketing mortgage rates with rising expenses for necessities like food, fuel, and general living costs, you have a perfect storm creating an unprecedented cost pinch. It's a slow, painful constriction, as if you're being hugged by an anaconda that's read too many self-help books on assertiveness.

Navigating these financial waters can make households tighten their belts a bit, leading to choices like trimming some important costs or even pondering a property sale to keep the ship sailing smoothly.

But, what can we do?

Given this harsh reality, homeowners need effective strategies to manage their finances. Here are some options to consider:

Mortgage Refinance Or Restructure

There are a few levers we can pull with mortgage structure such as negotiating on interest rate, splitting loans, reviewing options like revolving credit and analysing different loan lengths. This is where the expertise of a mortgage specialist is your best weapon. We have the inside scoop on which lenders are actively seeking new lending, which are offering competitive rates, and which are most supportive of specific requirements.

Debt Consolidation

If you have other high-interest debts, consolidating them into a mortgage refinance could ease monthly payments. High interest debt is a savings killer, prioritising these repayments over lower interest can be an effective strategy for some people. It’s also really important to know yourself here. At Lifetime we have money personality profiling to help design lending structures that suit your money habits – maybe, it’s time to cut up that credit card and stop using pay later methods. Either way. We can help you understand how your money behaviours are affecting your financial position and help tailor a plan to make the most of your money.

Budget Re-Evaluation

In an economic landscape where every penny is starting to feel like a rare treasure, revisiting and re-evaluating your budget has never been more crucial. Think of it as your own personal "spring cleaning," except instead of dust bunnies and old magazines, you're sweeping away unnecessary expenses and outdated financial commitments. This is your opportunity to be your own financial detective, investigating each line item to uncover clues on where you could be saving. From that gym membership you haven't used since New Year's resolutions fizzled out, to the numerous streaming services that collectively cost more than a night at the movies, each cutback is a small victory in reclaiming your financial freedom.

Relocation

Ok, we know this one is tough, and it’s a big conversation to have. But with the wildly ranging house prices around the country, a trip to the fresh air and green spaces of down south might just free up some much-needed cash flow. And hey, there are some beautiful homes in stunning places outside of the big-ticket cities!

Speak with a Financial Adviser

In the complex maze of personal finance, sometimes what you really need is a seasoned guide. Just as you wouldn't sail uncharted waters without a reliable map and compass, consulting with a financial adviser offers you the tools to navigate today's economically choppy seas. Their advice can make the difference between merely staying afloat and charting a course towards greater financial freedom.

As New Zealand grapples with rising interest rates and inflation, homeowners with mortgages are undoubtedly feeling the pinch. However, all is not lost. By employing effective financial management strategies and utilising sound specialist advice, one can weather this financial storm.

Click here to book an obligation-free chat with one of our financial advisers.

Article by Sarah Maclennan

Disclaimer: This article has been prepared for the purpose of providing general information, without taking into consideration any particular person's objectives, financial situation or needs. Any opinions contained in it are held by the author as at the report date and are subject to change without notice.