The six-month mortgage holiday scheme announced by Finance Minister Grant Robertson will bring relief to Kiwis facing financial uncertainty due to the economic fallout from the coronavirus.
OneRoof asked mortgage expert John Bolton, of Squirrel Mortgages, and Lesley Harris, of the First Home Buyers Club, how Kiwis can use current mortgage conditions and the proposed mortgage holiday to their advantage.
Both advised Kiwis to take a closer look at their financial situation and come up with a plan that would allow them to act if their bank decides they are eligible.
“You can work out your strategies, as this week and next will be chaotic. Banks will be inundated with requests and queries,” says Bolton.
Start your property search
Bolton emphasises the fact that interest will still accrue on the mortgage during the holiday, and will still need to be paid off.
“The huge positive is that you can still live in your house without making payments. If you’ve lost your job or had to drop to a four-day week or take leave without pay, this option is available.”
Credit ratings won't be damaged either.
“We’ve been asking the agencies. They’re all talking about it [and] the right outcome will occur. This hardship isn’t anyone’s fault, it’s impacting everyone.”
Bolton says that those who are in a position to do so should use the hiatus to clear as much personal debt - credit cards, car payments – as they can.
“This is a really good opportunity to improve your financial health. Mortgage debt is the cheapest money, so clear other forms of debt that are more expensive, now.”
KiwiSaver holiday
While Bolton says maintaining a KiwiSaver account is important, times like this may mean taking a 12-month suspension. If you have been a member for 12 months or more, you don't need to provide a reason but can take a savings suspension of between three and 12 months (go here to find out more).
“Again, it’s a great way of freeing up cash flow. There’s no point saving when you are going to need the money to survive,” he says.
Bolton admits that using the mortgage holiday to pay down a student debt is a “weird” tip but it can work for some. Twelve percent of your gross income can be deducted for student loan repayment, but, he points out, that’s coming out of net salary. So if the balance is not too big, Bolton says you’re better off freeing up cash flow used to pay that loan off and adding it to the mortgage.
If you are in a position to borrow more, he says, use the same debt consolidation for other consumer loans, adding on to the cheapest money - your mortgage. “Focus on getting rid of debt,” he says.
First home buyers are lucky
Lesley Harris, of First Home Buyers Club, says that people with plans to enter the housing market will have real opportunities when the lockdown is over.
“There are unknowns, but there will be a softening period and there won’t be a lot to buy. That could mean some people need to sell property and there may be some bargains about, unfortunate though that is,” Harris says.
“There won’t be as many auctions, so [homes for sale] will probably be by price by negotiation, so that gives buyers more certainty that prices won’t run away on them. There won’t be floods at open homes – if we even do open homes – so there is a silver lining if they’ve weathered the big storm.”
Have a Level 4 savings plan
Harris says the climate for savings could not be better for those with income still coming in, but nowhere to spend it.
“Add up all the costs of going to work – transport, parking, running a car, lunches, dry cleaning, the office snack machine, all of them, and put that towards savings or paying off debt.”
Sad as it is for entertainment and travel businesses closing, Kiwis are now forced to be more careful with their money, Harris points out. So add up what would been have spent on overseas trips, dinners, movies, drinks (“and yes, those much mocked smashed avo on toasts”) and put that into debt repayment or savings, too.
“You [should] bolster your deposit. Lack of debt makes you a better customer, and that means you get better deals at the bank and more options.”
She reckons people will be going back to basics on grocery shopping – making cheap meals because they have the time – and those new habits can also help savings.
