Garry Singh has done the numbers and at today’s interest rates if he bought a $700,000 home with a 20% deposit, he would end up paying over $700,000 in interest over a 30-year mortgage.
“It means I’m paying double the amount I’m actually buying the house for,” he said.
His repayments would sit at over $3000 a month, which he said would leave his family largely unable to save for holidays or emergencies, and in a “hole” they couldn’t get out of.
These are the numbers that have led the qualified mechanical engineer to stop looking for a home in New Zealand, and they are based on a comparably cheap home, with the average house price sitting at $989,790, according to QV.
Before the first Covid lockdown, Singh was going to open homes, talking to mortgage brokers, and ready to buy.
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Now Singh and his wife, who are expecting their first child in December, are looking at Australia, specifically Perth, where he says wages are higher and house prices lower.
“I’m pretty sure I’m not able to save a single penny after the mortgage, I’m going to be stuck for 30 years, I can’t go on holidays, I can’t go anywhere,” he said.
“I’m expecting my first child – I don’t want to be in a situation where I need money and I don’t have anything left in my savings.”
Singh is one of many feeling the impact of interest rate rises.
Mortgage Lab chief executive Rupert Gough says the interest rates banks stress test home loan applicants at has cut out about 30% to 40% buyers who could have bought at lower rates out of the market.
“That’s not to say they can’t buy, but they can buy less, and that’s not an acceptable amount to them,” Gough said.
“If you could afford a million-dollar house last year, you can afford an $800,000 house this year.”
Gough said people were more concerned about rising interest rates than falling house prices, or the prospect their home could be worth less than they paid for it.
Five years ago borrowers would have been overjoyed to secure today’s interest rates, but buyers were comparing current rates with Covid-era record low interest rates, he said
As a result, they were shying away from borrowing, and the high repayments of mortgages today.
“It has to become the new norm, not the new high. That would cause people to become comfortable with that interest rate again.”
Gough said mortgage repayments might mean borrowers had less ability to save, but they would be paying off an asset rather than spending money on rent.
Valocity head of valuation James Wilson confirmed the number of buyers had taken a dive as interest rates rose.
The data company’s recent State of the Nation Report showed a sustained fall in the number of first home buyers, movers and investors taking out mortgages.
The number of mortgage registrations for first home buyers had fallen from 10,400 in the fourth quarter of last year to 4800 during the third quarter of this year, although Wilson said the most recent figure did not include the last three weeks of the quarter.
Registrations from investors had almost halved, falling from 6000 to 3100 over the same period, and the number of owner occupiers taking out mortgages had fallen from 9800 to 4400.
“Interest rates have had a significant impact on both buyer and mortgage market activities,” Wilson said.
“They create a ‘wait and see’ atmosphere where many would-be buyers take a sideline approach.”
Wilson said it would be interesting to see what impact any spring volume surge might have on sale volumes.
Agents and banks have said the likely glut of properties coming onto the market would outweigh any benefit from the usual spring up-tick, and prices would probably continue to decline.
Wilson said some buyers were genuinely concerned about the size of the debt that may be taken on when buying a home.
“However, many buyers are able to overcome this by adopting a ‘utility’ mindset, ie I am buying a home to live in and house myself and my family.
“Leveraging debt to access such an investment can produce significant investment benefits over a 10-year holding period.”
Wilson said existing homeowners might also have to carefully consider if they could afford to move up the ladder in the current market.
“For many homeowners, their properties may have grown significantly in value, however, so have other properties around them, if their income hasn’t risen at the same levels, they probably couldn’t afford to ‘upgrade’ their property.”
Singh, who is 30 years old, arrived from India about a decade ago to study a post-graduate degree, and said he fell in love with the country and the people.
“I started my first job here, I studied here, there are so many memories I made here, so many friends I have to leave.”
Singh said he and his wife were planning to move in a couple of years, and while it would be painful, he had to think about his family’s future.
“I want my kids to grow up in the same house, where they can create memories and I can create memories.”