The Star: November 26, 2020

Latest Canterbury news at starnews.co.nz
Thursday November 26 2020 The Star
NEWS 17
Retirees carry home loan debt
• By Tamsyn Parker
KIWIS ARE getting their first
mortgage later in life and a
growing number are carrying
that debt into their retirement
years.
The average age at which Kiwis
take on their first home loan has
risen from just over 31-years-old
to 36 since 2012, research by
credit agency Centrix shows.
Nearly one in five over-65s still
has a mortgage – an age where
many are contemplating winding
up their working lives.
Mark Rowley, Centrix chief
operating officer, said in the
past 10 years the median house
price in New Zealand had nearly
doubled, rising from $350,000 to
$685,000.
“This has resulted in people
needing to save larger deposits
and entering the housing market
later in life. This, combined with
larger mortgages, means these
loans are going to take longer to
pay off.”
Its data shows 135,000 of
the 791,000 New Zealanders
aged over 65 have a residential
mortgage and the number has
increased by 16 per cent in the
past three years.
“It’s likely this trend will
continue into the future as house
prices continue to rise,” Rowley
said.
About 12 per cent of all
residential mortgages belong to
people aged 65 and above and
the average size of the debt is
$155,555.
“Unsurprisingly most superannuitants
with a mortgage are in
Auckland [29 per cent], where
the median house price just hit
$1 million. Auckland is followed
by Canterbury [13 per cent], Wellington
[10 per cent], Waikato [9
per cent] and the Bay of Plenty [7
per cent].”
“By contrast Southland, Gisborne
and the West Coast are the
regions with the lowest number
of over-65s with a mortgage.”
Rowley said it was surprising
that so many over-65s still had a
mortgage and he said there could
be a number of reasons for it.
For some, the mortgage could
be sitting there but not drawn
down as a convenience measure
in case there needed to be future
borrowing.
“But we are also thinking that
there are a number where the
bank of mum and dad come in.”
He said parents could be using
the equity in their home to lend
a deposit to their children to enable
them to buy a house.
But John Bolton, managing
director of Squirrel Mortgages,
said most of those funding children
into a property were in
their mid 50s, not 60s.
“I’m doing one of those at the
moment, she is 67, but normally
if they are funding kids they
would be a bit younger than
that.”
Bolton said he did a lot of parental
guarantees for loans where
the parents were around the age
of 55 and the children were in
their early 30s.
“Banks don’t like older parents
guaranteeing their kids or borrowing
for their kids.”
Bolton said he was seeing
increasing levels of debt with
the over-65s and a lot was being
driven by lifestyle choices.
“We are dealing with one at
the moment where they have a
reasonable level of equity but
they want to build a new lifestyle
property. They will end up with a
mortgage in their early 60s. They
will be continuing to service that
until they are
in their 70s.”
He said
partly it
was because
people were
working into
older age to
70 or 75, at
least on a
part-time basis.
“So they can
afford to carry
Tom
Hartmann
some level of debt at that age.”
Bolton said the rising cost of
property was more of a driver
and the banks had also softened
up a bit when it came to lending
to older borrowers.
“They don’t expect you to fully
repay your loan in your working
life these days which is useful as
long as you have an exit strategy.”
He said that meant he was
having more conversations with
TREND: The
age of first
home buyers
is increasing,
with the average
being 36-yearsold
compared
to just over 31
in 2012.
people about what the next step
in their plan was.
“What are you going to be doing
after this? If it is a transition
house and you are planning to
downgrade in 10 years we can
generally work that into the
story.
“Some of them are having to
take more debt on simply because
of the cost of housing.”
He said in other cases paying
a mortgage was cheaper than
renting.
Bolton said the amount older
people were borrowing was usually
around $100,000 to $200,000
– far lower than what first-home
buyers had to borrow.
Retirees who had a mortgage
on a property were likely to get
some assistance from the Government
whereas those who were
renting with a larger amount of
savings in the bank would not.
“The system is incentivised
around home ownership.”
Commission for Financial
Capability personal finance
editor, Tom Hartmann, said
it was seeing nearly a quarter
of people going into their
retirement years renting or
paying a mortgage.
And that was similar to the
percentage of people working
past 65.
“It does make sense. New
Zealand Super was never made
to cover rent or the cost of a
mortgage, so people in that
situation it is quite obvious what
they are doing. They are working
to service a mortgage [or rent].”
But Hartmann said its research
showed the highest levels of
well-being in retirement were for
those who retired mortgage-free.
“Anything we can do to make
that happen for people is worth
doing because it directly impacts
retirees’ well-being.”
Hartmann said the low-interest-rate
environment was a good
time for people to be paying off
their mortgage debt faster.
He said every dollar paid off
in addition to the minimum
required by the bank shortened
the term of the mortgage.
“If you have that opportunity
you can carve out a good chunk
of the mortgage more quickly
than in the past when, even if
you were throwing everything
at it, so much would go to interest.”
Hartmann said people could
use the mortgage planning tool
on the sorted website to work out
how much they would need to
pay off to get mortgage-free by
retirement or seek help from a
mortgage adviser to get on track
to retire mortgage-free.
Those approaching retirement
who still had a sizeable mortgage
often planned to down-size or
move out of the city to a cheaper
area.
But Hartmann said that did
not always pan out because at
a certain age people wanted to
be closer to services which were
usually in the cities.
He said the key was to plan as
early as possible.
“If you are taking on a latein-life
mortgage what is the exit
plan? How long are you keeping
it, what is next after that?”
– NZ Herald
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