The Money Diaries – The Real Cost Of The Cost Of Living Crisis: ‘To Pay The Mortgage, We May Need To Rent Out Our House’

Welcome to our Cost Of Living series. We’ll be looking at topics such as the psychological toll of it all, and why people are more likely to talk about pretty much anything (including their sex lives) rather than their finances. If there’s something you’d like us to cover, or if you’d be keen to be interviewed, please email us at [email protected]! This week we’re looking at how hard it is to pay a mortgage – even for people whose jobs pay well.

Is anyone not struggling with the cost of living right now? Sure, inflation is finally tracking downwards overall, but many of us are already spending a huge chunk of our income paying rent, or paying off a mortgage plus the rates and insurance. We also need to pay for groceries, utility bills like electricity and internet, and less-frequent bills like the doctor or the mechanic. And many of us have little left over.

The number of financial hardship accounts has been rising since November 2022 and is up 22% year-on-year to April 2024.

Seven in ten New Zealanders worry about money daily, weekly, or monthly, according to the Financial Services Council’s Financial Resilience Index tracker, released on 1 May. What thoughts are keeping some of us awake at night and distracting us during the day?

When we asked the Capsule community on Instagram about how you were being affected by the cost-of-living crisis, the answers showed just what an impact this is having. Numerous women spoke of deciding to only have one child, and several people were preparing for redundancy. The most common answer? The reality that for many families with a strong household income, they were living pay check to pay check. These are the big questions, hitting us where it hurts.

There’s also the question of what is a necessity and what is a luxury: dental treatment? Fruit? New underwear because the old ones have no remaining elastic? Another question might be ‘how are we meant to save for anything, let alone make Kiwisaver contributions for retirement?’. Or simply ‘can I afford to buy any groceries before payday’?.

This isn’t just speculation. The cost of living for the average New Zealand household increased 6.2% in the 12 months to the March 2024 quarter, according to figures released by Statistics New Zealand on April 29.

What was the largest contributor to this increase? Interest payments, which rose a whopping 28.2%. “For many households, interest payments have made a significant contribution to [increased] living costs,” says Statistics NZ’s consumer prices manager James Mitchell. You could call that quite the understatement.

New Zealanders have long had a love affair (or, for some, a love-hate relationship) with real estate. Most of us prefer to be home-owners, not renters. Many home-owners owe a lotof money to the bank, while ‘first-homers’ are getting big mortgages. Showing signs of growth, the amount of money loaned by banks for mortgages is 6% higher in the first quarter of this year than it was in the first quarter of last year, according to a report released by credit bureau Centrix on May 1.

The report also shows that, as of March, there were 12,900 accounts [cases] of financial hardship – an increase of 400 in a month. (It’s complicated, but this is largely when people who can’t meet their repayments apply to their credit providers for financial-hardship applications, who report this to credit-reporting agencies.)

The number of financial hardship accounts has been rising since November 2022 and is up 22% year-on-year to April 2024. Nearly half (44%) of hardships relate to mortgage-payment difficulties, with the highest rate for people aged between 35 and 39 years old (we may follow up that nugget later).

So, 22,100 mortgage-holders are behind on their payments, a number which is up 13% year-on-year. For context, only 1.48% of residential mortgages are in arrears – but way more than 1.48% of homeowners are feeling the pinch. Meanwhile, one in three Kiwi households rent, and rental prices are the highest in decades, having risen 4.2% in the last year.

Centrix managing director Keith McLaughlin says “for households and businesses alike feeling the financial squeeze, it’s important to seek professional financial advice to better understand how best to navigate the coming months”. But what if you can’t afford professional advice? Also our financial stressors might mean we need psychological advice, but who has the money for that?

What Happens When Your House Is In Negative Equity?

This week, we talk to two public servants who are considering renting out their house – or shifting their family overseas, as the cost of living crisis continues to take a huge toll on their lives. You might think that two public servants would easily earn enough to finance their family. But things aren’t that simple.

Brianne* and her husband Noah*, who have three children, face a financial quandary. The home they bought at the start of 2021, just before house prices peaked in Wellington, cost them $1.25 million. It’s the first home they’ve bought.

They paid a 10% deposit (which included cashing in Brianne’s Kiwisaver money), meaning they would need to service a 90% bank mortgage. With 27 years to run, the mortgage will be paid off the year they turn 73.

Also, since house prices have dropped, they’ve had to come to terms with the term ‘negative equity’: when the value of a property falls below the outstanding balance on the mortgage owed on the property.

Brianne pores over an Excel spreadsheet of her very-detailed family budget. “Interest rates are way higher now. Our mortgage payment each week, plus our rates, and our home-and-contents insurance, was $1175 a week in 2021, and now it’s $1865 a week – that’s a 59% increase in three years.”

Mortgage payments make up $1658 of that $1865 weekly sum. And of that $1658 weekly mortgage payment, the couple pays a whopping $1393 of interest, and just $265 toward reducing the principal (the $1 million-plus dollars they owe the bank). That means 80% of their weekly payment goes to interest and, yep, that’s frustrating.

Brianne has other numbers at hand. “Rates have risen 21% between 2022 and 2024, and home-and-contents insurance has risen 66%, from $3029 in 2022 to $5030 in 2024.”

So, now, nearly half (46%) of their after-tax income is gobbled up by their mortgage payment, rates, and home-and-contents insurance. That’s more than double the average housing expenditure (22%) of households in OECD and EU countries.

Childcare for the couple’s toddler costs $328 a week. They pay for groceries of around $250 a week, and major bills (electricity/heating at $70 per week in summer and $115 per week in winter, phone bills of $35 per month, and internet of $73 per month). They have no savings, and eat out maybe twice a year. Buying a coffee is a luxury. When unexpected bills for car repairs or the like come in, Brianne pays them by credit card, and puts money aside each payday to cover things before any interest is incurred.

They’ve had to go without things. Brianne lost a tooth when a crown fell out. Thankfully it’s not a very visible tooth; you can only just see it when she smiles. She hasn’t bought new clothes in two years. They can no longer afford to pay for after-school care at the local primary school, so the two older kids take the bus home. On two weekdays, one of the adults will be working from home, and on three weekdays the eldest child is in charge. From this week, the kids will have to pay to catch the bus – and road-user charges now apply for the family’s carefully-paid-off plug-in hybrid.

So their actual ‘disposable income’ after all that? The day before payday, they usually have about $60 left in their account.

When A Combined Income of $300k Isn’t Enough To Stay Afloat

“Here’s what might shock people,” Brianne says. “We earn over $300,000 before tax between us.” They pay $100,000 in income tax. “Some people might think we’re rich. But we’re not. We keep close tabs on our budget. I’m really watchful and careful.”

Brianne is an efficient, practical person who gets on with things and finds a way. She and her husband boost each other’s spirits, and focus on the positive. They discuss but don’t dwell on finances.

They earn too much to be eligible for Working for Families or any government support. “And I don’t want any,” Brianne says. “We earn enough to look after ourselves, and I know it’s way harder for so many others. Imagine us trying to live on a teacher’s wage. I talk to the kids about that.”

Brianne and Noah are determined not to fall behind on their mortgage payments, especially because they owe more money on the house than the house is worth. But they’re considering renting out their house to move to a cheaper rental themselves. That consideration is partly because, from April, landlords became again able to deduct mortgage interest against income to reduce tax bills. “We’re going to get financial advice on our options,” Brianne says.

That’s if Brianne and her family stay in Aotearoa. They dealt with a two-year pay freeze for public servants, but with the new government slashing jobs at government departments, there’s a good chance that Brianne or Noah will lose their job. They’re seriously considering leaving New Zealand if that happens.

Brianne doesn’t feel angry at all about their financial situation, but sometimes wishes that things were different. “I’d love things to get a bit easier in time. We both work really hard in our jobs. I don’t want to sound entitled but I sometimes think, ‘shouldn’t my money go further?’. But I’d rather juggle things like this than have friends and colleagues losing their jobs.”

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