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Home Loan Repayments: Up, up, and away...

Watching inflation, mortgage rates and the OCR try to outpace each other in 2022 was a bit like watching a slow-motion train crash. Now we’re seeing the aftermath quite plainly in 2023; mortgagees who were previously in a very secure position are struggling to deal with massive jumps in home loan repayments. These are folks with dual incomes who, in normal circumstances, would have been well able to support their financial responsibilities. People who had already been stress-tested for higher rates than what they originally signed on for. One such couple in the news recently admitted they had been thinking about selling and going back to the rental market after facing a $1600 year-on-year jump. Their payments had gone from an initial $4000 per month in 2021, to $5142, to now $6710 should they sign the new fixed term. [i]

Of course, returning to the rental market can bring its own problems. According to TradeMe’s rental price index, rents here in the Bay went up 5.3% last year – not as high as Northland’s whopping 12%, but still more money from the kitty when other living costs remain at a premium too.[ii]

If you’re worried about what’s going to arrive in your next bill, here are some things to keep in mind.

Firstly, you need to make a plan around what you can control. You can’t control the median house price, rent price, or what the bank will offer for your next fixed mortgage rate. What you can control is your own actions and spending habits. It may take a bit of finangling, but now is the time to have a brutally honest look at what you’re spending and where you can trim it. Some places to start:

  1. Go through your phone and find all your subscriptions. There’s probably more than you think, and it won’t just streaming services. Premium subscriptions to newspapers, podcasts, and apps can add up to a lot when you see the full impact of them.

  2. Similarly, if you have any food or goods subscriptions... check if they’re actually saving money. Meal subscriptions can be a great low-waste addition to your household, but not if you’re still supplementing constantly with other dinners or takeaways. It’s not for everyone, so be honest about whether this suits your lifestyle or if you would be financially better with some careful supermarket budgeting.

  3. Check if you can get a better deal on power. Consumer NZ has the Powerswitch service which offers free, independent checks to find the cheapest electricity and gas plan for you – it’s certainly worth a try.

  4. If you have credit cards, check how much they’re actually costing you. Even if you don’t have significant debt on them, it’s worth making sure you’re using a low-fee, low-interest card to save some extra dollars.

  5. Delete your buy now, pay later apps. This will help you keep your financial habits clean without sliding into temptation (or worse, ending up with hefty fees from overdue payments).

  6. Shop around for a new phone plan. Brands like Skinny or Warehouse Mobile do very competitive SIM-only plans, compared to the traditional telco’s. Switching providers is usually fairly straightforward.

If you feel yourself sliding, reach out for help. If you know you won’t be making that mortgage payment, talk to your bank and see if there’s any leeway. Remember, banks need you to be able to pay back your loan in order for them to make money. It’s worth asking the question, “What can I do about this before it gets worse?” You can also reach out to free budgeting services like Moneytalks or Sorted, which can help you with a plan forward. If you’re not sure what your local free budgeting services are, get in touch with a Citizen’s Advice Bureau. They may not offer the services but they will know who in your community does.

This will pass. It’s been a slow few years for everyone, but the current situation is not forever. Like most things in life and investment, it’s often not an event itself that defines success – it’s how you move forward from it. We can’t predict life’s fluctuations but we can plan to accommodate them.

If your plan is more around future-proofing and growing wealth than handling debt, there’s options for that as well. The best place to start is by sitting down with a trusted financial adviser.

 

  • Nick Stewart (Ngāi TahuNgāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay-based CEFEX certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions. 

  • The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz

 


[i] https://www.nzherald.co.nz/nz/brings-tears-to-my-eyes-family-consider-selling-after-2500-monthly-interest-rate-rise/LGT6FRARRZAELKHDWVHJJYDIHE/

[ii] https://www.trademe.co.nz/c/property/news/trade-me-data-reveals-where-rents-increased-the-most-in-2022