Debt for first-time buyers

[MotherBear]

First-home buyers pack on the debt
By MATTHEW TORBIT - The Dominion Post | Saturday, 7 April 2007

Greater numbers of first-time homebuyers are struggling to make ends meet as they take on mortgages that stretch their incomes to the limit.

Family welfare and financial support groups say first-home buyers are loading themselves up with debt and are needing outside help to pay bills.

Studies indicate home affordability has sharply deteriorated since 2003, with 75 per cent of the average income now needed to finance the cost of the national average home.

In 2003, the average cost to finance a home was 43.5 per cent of the average Kiwi's take-home pay.

Citizens Advice Bureau social policy manager Louise May said utility bills and food budgets would be the first to feel the pinch when loan repayments became too much. There had been a surge in those seeking help to pay bills in recent years, but she was unable say how much was related to mortgage debt.

Banking ombudsman Liz Brown said banks had a legal obligation to lend responsibly, and most home-loan-related complaints her office received were from people who had been refused loans.

More here .

[selchie]

Reading between the lines, it looks like people are not borrowing wisely, and are perhaps trying to buy more house than they really can afford. This has been a problem in California, especially when people see home prices rise rapidly. They think they can buy a house today, and watch its value soar even more by tomorrow. Unfortunately for them, prices & sales soon level off or dip, and they can neither afford nor sell their house.

There are also a lot of financing schemes which the novice really should be wary of getting into. Recently, I've read about "interest only" loans (in Calif.), where you pay only the interest, and the principal is due in one lump sum after a few years. Lots of people are getting caught when they try to refinance or sell, but the value of their house has decreased to where they can't pay off the loan. A straightforward fixed mortgage is the most reliable and understandable, IMHO.

I advise folks to buy a house to be a home first and investment second. In the long run, you're likely to gain, but making rapid profits is iffy.

[MotherBear]

Tipping point for debt
5:00AM Sunday April 22, 2007
By Stephen Cook

For Murray and Ola Waititi, these were supposed to be the carefree years.

Twenty years of gainful employment behind them, a house in the suburbs, two kids and a solid marriage - the ingredients you'd expect for a financially healthy lifestyle.

Instead the Waititis are up to their eyeballs in debt - with mortgage repayments, credit card debt and childcare costs accounting for much of the $200,000 they earn each year.

Theirs is a common scenario. Despite a buoyant economy, solid employment and income growth, as well as relatively low interest rates, New Zealanders have amassed a mountain of debt over the past 20 years.

And the share of average disposable income needed to service that ballooning debt has climbed steeply from 5 to 6 per cent though the 1990s to 13 per cent now.

Figures provided to the Herald on Sunday by financial planners Spicers show that since 1990 the average debt level of your typical New Zealand household has risen from $18,800 to $99,000 - a figure set to exceed $100,000 in the March quarter, for the first time. Factor in that nearly 50 per cent of families are mortgage-free and the amount owed by your average indebted household is probably double that figure.

From here .

[KiwiHopeful]

It's funny how the banks always play Captain Renault in these situations: after making it so easy for people to get into debt that people have actually gotten into debt, they are always "shocked, shocked" as they are handed their winnings.

(Of course, I like Captain Renault much more than I like the average bank CEO!)

As I've said elsewhere, it'll be interesting to see how all of this plays out, both in NZ and in the US.