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PKF Poutsma Lemon Limited
PKF Poutsma Lemon Ltd, Keri Keri, New Zealand
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The Hidden Danger in Debts

For months now the media have been carrying stories about house price increases in Auckland and elsewhere in NZ. The Government is suggesting there is no crisis, simply a supply side problem - remedied by the Council releasing more land.

There are other reports of money-laundering and prices being the fault of excess immigration, but enquiries reveal that there is one important ingredient missing – ordinary everyday Kiwis who are treating their houses as an ATM machine. 

  • Auckland has 33,000 empty homes. London, with 6 x the population, has 22,000.
  • Total public sector debt exceeds $113.5 billion. It was $8 billion in 2008.
  • Total NZ debt is just under half a trillion dollars and private debt is equal to 162% of household income.
  • Housing now accounts for 23.4% of total NZ debt.

Looking at the 'ATM' angle, mortgage refinancing is very much alive and well and a major contributor. Historically, we have been able to increase our mortgage – subject to any externally imposed restrictions; affordability, interest rates, loan to equity rations, etc. Typically, we do this to get through some personal catastrophe, family illness, temporary unemployment, divorce, death or similar. 

Move forward to 2016 and it now appears there are as many refinancing as there are new mortgages and the expenditure is also used to cover holidays, boat/car purchase, home improvements and more. 

Income may have increased marginally but mortgage repayments will have reduced to reflect lower interest rates.

It works like this:

  • The volume of house moves is not significantly up BUT the volume of mortgage re-financing is – by a large margin.
  • Mortgage brokers are able to offer more competitive rates that allow a person with say a $400k mortgage to move to another bank, pay the same fortnightly payment or thereabouts, but have a larger mortgage – say $440k. 
  • Research is saying that the 'feel-good factor' of rapidly rising house prices has encouraged equity extraction in addition to speculative investment. (Why wouldn't you take $440k out of your house if it is going up in value by $100k per annum? Especially if there is apparently no cost?).

The outcome is that Auckland is now full of homeowners who watch the value of their property go up and are 'eating' part of it to supplement modest income increases from employment.

Affordability in Auckland has become a real problem and if there is a sudden interest rate increase then we could be plunging into another 2008 Global Financial Crisis.

What seems ridiculous is that there are now two crises; those who are locked out of the property market through affordability problems (particularly first time buyers) and existing owners who are on a spending spree.

How it will end and how well it will end is anyone's guess.  

Originally sourced from the NZ Business article written by Ashley Balls. 

PKF Poutsma Lemon Limited (Kerikeri Office)

Alison Lemon

Chartered Accountant


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