The number of homeowners who have cleared their mortgage has dropped in the last five years, new research from OneRoof shows.
Despite a prolonged period of low interest rates, just one third of properties in New Zealand are owned mortgage-free, raising concerns about the levels of debt Kiwis will still carry heading into retirement.
In research published in today's Property Report, OneRoof and its data insights partner Valocity found that nationwide the number of homes without a mortgage has slipped from 36 percent in 2014 to 33 percent now.
Forty-one of the 67 New Zealand territorial authorities examined saw drops in the number of mortgage-free homes in the last five years. And only two regions – Coromandel and Wairoa – had more than 50 percent of homes without a mortgage.
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The regions to suffer the steepest declines in mortgage-free homes were:
- Selwyn, down 16 percentage points, from 43 percent to 27 percent;
- Queenstown, down 8 percentage points, from 48 percent to 40 percent; and
- Tauranga, down 8 percentage points, from 40 percent to 32 percent.
However, there were 12 regions where the percentage of mortgage-free homes was 30 percent or less. Hamilton, Waikato, Selwyn and Wellington had the lowest percentage of mortgage-free homes, at 27 percent. Auckland's share of mortgage-free homes dropped from 33 percent in 2014 to 30 percent now.
OneRoof editor Owen Vaughan said: "In places like Auckland, Hamilton, Upper and Lower Hutt and Porirua, two thirds or more of homes still have mortgages on them, due to both higher median property values and higher proportions of both first home and investors who are heavily mortgaged.
"That suggests there is potential for high mortgage stress, and that the New Zealand dream of retiring with your house mortgage free - like that of buying your first home in your 20s - is fading fast."
James Wilson, director of valuation innovation at Valocity, says the figures suggest that many people are opting to use the increase in their equity to either purchase additional property or other goods.
“Increasingly, Kiwis see the growing equity in their homes as something that can be used to buy new cars or boats, update kitchens or bathrooms or to consolidate other debt,” he says.
“Given the significant capital gains over the last five years and the historically low interest rate, that’s not entirely unexpected. However, this may result in borrowers carrying a mortgage for a lot longer, even in some cases having to delay retirement in order to service the loan.”
Vaughan added: “How likely homeowners are to be mortgage-free, not surprisingly, varies by where you live. The top region is Coromandel, where 54 percent of properties are mortgage free.
“That’s explained by a high percentage of retirees who would have bought when prices were low. It’s also a holiday region, so many second home owners from Auckland and Hamilton would not hold mortgages.”
A handful of locations were nearly as well sorted: Wairoa (51 percent), Kaikoura (50 percent); Far North (47 percent), Mackenzie and Ruapehu (46 percent), Kaipara and Buller (45 percent). Vaughan said: “These are smaller markets with low median values - some below $200,000 - many with older populations who would have had time to pay off the mortgage.”
Today, only 70 percent of people over 65 own their house freehold: that’s down from 80 percent a decade ago. And of the next generation (people 50 - 64 years old) less than two in five (38 percent) of them have kicked the mortgage. The chance of a rosy retirement with no debt and a nest egg is evaporating.
“This has been trending down for the past 20 years,” says Commission for Financial Capability (CFFC, formerly known as the Retirement Commission) managing editor Tom Hartmann.
“People buy houses later, and keep paying the mortgage to just before retirement, or they take out longer mortgages. We do not know if the current 55-64 year olds, once they reach 65 years, will be in a situation as good as the current 65 year olds.”
John Bolton, head of mortgage broker Squirrel, doesn’t think Kiwis drawing on the equity in their homes is a bad thing.
“It’s not due to desperation - the family home has become a bit of an ATM in your late 50s or early 60s,” he says. “They’re working past 65, but often not in the big crazy job, choosing more around a lifestyle, what’s important to them. Where they’ve got equity, they’re not slavishly getting the debt down by retirement, they’re not going to retire at 65 anyway.”
Instead, Bolton sees people holding off the selling and downsizing to release equity part of the life plan as waiting until their 70s, even 80, if their health is good.
“The big thing is to have a plan,” he says. “It may not necessarily be to become debt-free, but to downsize to release that equity that’s built up over 20 years of extreme value growth.”
