first home buyer advice

[JBmurc]

As the mortgage is paid down the borrowing power of the mortgage can be used to buy shares as well

Exactly what I have done .. the way I see it is my share trading company invests the bank's funds at a cost of the going rate as I have good equity I'm currently looking to refix the 250k @ 3.85% 2yr fixed ... I'm confident I can do better than 3.85% pa

Also looking to receive a 4.5k cash bonus for a shift to another bank .. but must stay with that bank for 3yrs have received over $10k in cash over the years

[sanctus671]

Thanks for the replies everyone! Very helpful and reassuring to read these.

For interest rates, my concern is if something like 08/09 happens again where they shoot up to 10+% for several years. Given that we are in one of the longest bull markets in history with interest rates current at an all time low, it seems like the risk for that is reasonably high over the next 5 years. It means a weekly repayment of $454 would be closer to $1000 which would be pretty hard to manage. That's why my thought on fixing the rate for as long as possible would reduce that risk if something were to happen in the next 5 years. I'm obviously all for a lower interest rate, but would like to hear your thoughts on the risk behind it if there is any.

Also, how were you able to get the cash bonus'? is the 10k from switching to different banks?

[iceman]

As the other posters have said on here sanctus671, go for it. But I would not be considering locking in 5 years fixed right now, at least not all of it. The World is heavily burdened with debt and there is no way in my view that there will be any major increases in interest rates anytime soon, possibly not in my lifetime (mid fifties). It would kill the heavily indebted World economy. There are currently about USD 11 TRILLION of cash invested in negative interest bearing accounts around the World, which gives a good indication of where lots of very wealthy people think interest rates are heading in the near future.

[kiora]

I 2nd what Iceman says about fixing.Ever since GFC I only fixed 25 % of the mortgage once and that was for 6 months only when inflation looked like picking up around 3-4 years ago.
My view is fixing is putting yourself more at risk than not fixing

[iceman]

I 2nd what Iceman says about fixing.Ever since GFC I only fixed 25 % of the mortgage once and that was for 6 months only when inflation looked like picking up around 3-4 years ago.
My view is fixing is putting yourself more at risk than not fixing

Or fix 1 year at a time as those rates are constantly significantly lower than floating

[kiora]

Believe this or not
https://www.interest.co.nz/business/...risis-lowering
Check out Fig 10 for forecast.Ouch for savers.

[macduffy]

Believe this or not
https://www.interest.co.nz/business/...risis-lowering
Check out Fig 10 for forecast.Ouch for savers.

Some of these economists seem determined to drive us into negative rates territory.

[SBQ]

Your advice is factually wrong. There are plenty of people here using Margin Loans supplied by a bank and doing very well ~ current rates around 6%. If you are returning 12%+ per year (fairly easy) then every year is a win.

Right, you must one of the few that can consistently achieve 12% pa every year on average for the like 10 or 20 years. How many Kiwi Saver funds are achieving this return (after admin / mgt fees) ? Your 9 - 15% range of return is EXTREMELY optimistic.

Go build a spreadsheet and put the returns in. Heck you can even make an easy 10% CAGR with infrastructure funds ETF or managed funds with zero effort or risk. 10% CAGR means your money doubles every 7 years. The model you build will answer your questions and prove that property is not the best investment. I have built this spreadsheet and the numbers don’t lie.

Have you considered taxation? Correct me if i'm wrong, frequent trades in a portfolio are taxed at resident income rates. A person that buys the house can get away with any capital gains tax when it comes near to retirement time. You can disagree. I've spoken to many qualified financial advisers and they tell me owning real estate is hard to beat when you factor taxation in portfolios from gains from frequent trading.

[Bjauck]

Hey everyone,

I am looking for some advice from people on here who have much more experience and knowledge than me with the NZ housing market. Here's the situation:

I currently have basically all my money in the NZX. I'm fairly happy with how things are and rate of return (~10% average per year through divvies and cap gains). However I am considering purchasing a house to leverage my money, diversify, and reduce housing costs (over the long term). From what I can see, the monthly repayments would be similar to the rent I pay every week. The numbers:
For $400,000 3 bedroom house with $80K deposit (20%):
5-year fixed rate mortgage @ 4.39%: $369/week
Rates: ~$25/week
Insurance: ~30/week
Maintenance: ~$30/week
Total: $454/week

Seems like a no-brainer given the cost is similar to renting, but I'd also be building equity at the same time. Could also rent out the other 2 rooms to offset the mortgage. It seems a bit too easy, so I feel like I must be missing something. I can't trust what mortgage brokers say as they are obviously biased. I'd love to hear some thoughts on the above and if I am over simplifying or missing something altogether.

The trouble with buying a house is that you cannot spread the risk unlike with shares where you can a portfolio of different shares.

There have been years of increasing prices due to falling interest rates so how many years of falling interest rate fuelled price rises can be left? The CGT resolution may mean that NZ investors still keep on putting their money into residential property rather than equities and business but we may already be near the top of the cycle anyway. Also given NZ's already hollowed out share market and expensive land will there be any more drift of capital from business and share equity to real estate?

NZ may be very susceptible to a severe correction as we have used the drop in interest rates to load up to the max on debt to out-bid others to leverage ourselves into residential land.

However The lack of action over a CGT I think will mean that NZ residential property will continue to be the tax-preferred de-facto superannuation scheme for those who are rich enough to afford deposits and can afford investment in land.

[SBQ]

The trouble with buying a house is that you cannot spread the risk unlike with shares where you can a portfolio of different shares.

There have been years of increasing prices due to falling interest rates so how many years of falling interest rate fuelled price rises can be left? The CGT resolution may mean that NZ investors still keep on putting their money into residential property rather than equities and business but we may already be near the top of the cycle anyway. Also given NZ's already hollowed out share market and expensive land will there be any more drift of capital from business and share equity to real estate?

NZ may be very susceptible to a severe correction as we have used the drop in interest rates to load up to the max on debt to out-bid others to leverage ourselves into residential land.

However The lack of action over a CGT I think will mean that NZ residential property will continue to be the tax-preferred de-facto superannuation scheme for those who are rich enough to afford deposits and can afford investment in land.

You mean lowering risks in a portfolio through 'diversification' of shares ; the concept that the more different companies you own in a market index, then the more likely the risk and returns will perform like the index. Fortunately this is not even remotely comparable to owning real estate for the simple reason that they're entirely different asset classes. Their risk models aren't even remotely close as we've seen in the 2008/2009 GFC. During the peak of the GFC crisis, NZ real estate still carried on through with marginal drops in housing prices. You can thank the monetary controls that the reserve banks have.

See the thing is when central bank interest rates change, they have the most impact on mortgages and real estate but less impact on those in the equity markets. This model of monetary control has been with us for several decades and despite all the skeptics ie 'low interest rates causing record high mortgage debts', i'm afraid this is nothing new or any concern. The metrics have not changed since the 80s, 90s, or 2000+ with all those stock market crisis. Meaning the rules have not changed. For each decade there will be those that say the houses are overpriced and people are in record levels of debt. Our elders keep reminding us how bad things got with sky 20% interest rates in the late 70s. But the metrics have not changed, and the same houses still kept going up.

The problem with shares is one has to routinely keep it updated. If you bought a basket of NZX shares in the 1980s or just pick most of the shares in the NZX50 index, then wait for a very long time doing nothing, what would be left in the portfolio after 50 years time? You would find the many of them delisted or gone dead / non-performing. Compare this to a house in a good neighbourhood?

NZ perhaps has had it's once and only chance of bringing in CGT ; I don't think for quite some time the NZ will make another attempt. The reason why? Because all our politicians like real estate so much that they themselves own a lot of real estate. The banks like it too. By the way, the ban on foreign residents buying NZ houses won't affect the big person. It only cuts out the small guy that tries to buy 1 or 2 houses in Auckland. The banks will always open accounts to the privileged elite (in all different ways either incorporating a NZ trust or setting up a company; to even a small oversight in paperwork by the bank).

If you ask me what NZ can do to broaden it's investors away from NZ real estate? Well since CGT is a no go. I would say remove the restrictions of choice of investments abroad by abolishing the FIF / FDR rules. Canada tried this in the 80s and 90s where no more than 1/3rd of the portfolio was allowed to be of foreign content. All investors did was just kept their $ in real estate. When the doors went open, more and more investors found better returns abroad like in the US etc. (while taxing those gains the same way they do with domestic gains ; not this taxing of paper gains under FIF we see in NZ).