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Nomad
19-01-2010, 06:35 PM
These days are a lot different to the past. How are they now?

I was told that in the property boom days (2000), that they tend to loan you more than you may finance. In the past they may only take 50% of your income for assessment, they assume 50% are for your own spending .....

Do banks loan to you on the basis that you will eventually own the house and you have the means to achieve that or are they open to speculative? Meaning, if you are able to pay the interest but not able to eventually own the house, they may still loan to you, because at the end of the day they get money from charging you interest and they can always sell the house, deduct whatever fees assoc with that and also taking into consideration that property prices may appreciate over time.


Many thanks. :D


Mods - wrong forum. Please kindly shift as required. Cheers.

Battleneter2
19-01-2010, 07:42 PM
At the end of a vanilla 25 year mortgage after making the minimum payments, you have paid off the principle as well as a crap load of interest. So yes if you don't pull out early you end up owning the house to answer your question, you cant JUST pay interest.

In fact nowadays it is recorded the average person pays off there mortgage quicker, cant remember the stat but its like average 18 years or something. I believe this is largely because houses in NZ basically doubled in price between 2000 and 2005 ish, and it became very obvious interest was a killer far more than in the past.

There are two main winners with these high property prices banks (obviously) and property investors with more than one house (not there family home).

The average family with one family home are actually better off with pre-2000 type prices and there house being half the value. It would mean there next house is also half the cost and entry into property is far cheaper with the banks making less on interest. The average person seems to gets excited when there house value goes up but it just means there NEXT house has gone up to relative, the international banks just sit back and rape us on interest off huge mortgages. This is a little simplistic explanation, but its basically why the government hates these property booms.

Terry Porritt
19-01-2010, 08:35 PM
At the end of the day, house prices are governed by demand, which in turn has been fuelled by population growth, which in turn has been fuelled by massive immigration, getting on for 1 million more people since we came (:)) around 33 years ago.
It was just the same in the UK, massive immigration over the last 60 years.

House we bought new in 1970 for 6000, we sold for 16000 in 1977. Last year, same house on market (admittedly with extensions and a lot of extras added) 475,000. These are GB pounds not dollars.....:rolleyes:

robbyp
19-01-2010, 09:54 PM
At the end of the day, house prices are governed by demand, which in turn has been fuelled by population growth, which in turn has been fuelled by massive immigration, getting on for 1 million more people since we came (:)) around 33 years ago.
It was just the same in the UK, massive immigration over the last 60 years.

House we bought new in 1970 for 6000, we sold for 16000 in 1977. Last year, same house on market (admittedly with extensions and a lot of extras added) 475,000. These are GB pounds not dollars.....:rolleyes:

Also it is fueled by the massive tax breaks property gets, such as tax free capital gains. Also with property investors, the ability to write of loss against your personal income. If a property land tax is introduced, which sounds likely (eg 0.5% of the land value) , and they remove tax benefits, then housing prices would fall.

Nomad
19-01-2010, 11:51 PM
Do banks loan to you even if the person cannot pay the interest and the principle off?

I would think some people may take property as investment, even if I cannot pay it all off, if I can satisfy the bank and feed them interest money, cos later on I can sell it, get more money if it appreciates then rent to live and use the money also for retirement ...... Ie., you cannot die with your house.

Anyone know how banks calculate you as a customer? Ie., how much of your income do they take into consideration and the deposit that you have?

Nomad
19-01-2010, 11:54 PM
Also it is fueled by the massive tax breaks property gets, such as tax free capital gains. Also with property investors, the ability to write of loss against your personal income. If a property land tax is introduced, which sounds likely (eg 0.5% of the land value) , and they remove tax benefits, then housing prices would fall.

My old man has this thing with property, he is old style, so he cares about status etc etc...

I say to him, a child put money into a bank and he/she is taxed. If one purchase any investment 10k or 500k it is taxed.

For those who have more than 1 property, they can access LAQC or if they hold a house for 5+ yrs I think, there is no capital gain tax. Should they sell and get big money, they keep it all.

kenj
20-01-2010, 05:50 AM
My old man has this thing with property, he is old style, so he cares about status etc etc...


It is called "pride"... an attitude that is sadly disappearing these days.

Ken :2cents:

Terry Porritt
20-01-2010, 06:44 AM
Do banks loan to you even if the person cannot pay the interest and the principle off?

.................................................. .....

They certainly did.....the so-called sub-prime mortgage market.............major cause of the crash....

How The Markets Really Work (http://www.youtube.com/watch?v=SwRFoxgEcHc)

Within a few years they will be back in their bad old ways again..anything to make money off the backs of the populace.

pctek
20-01-2010, 06:59 AM
Do banks loan to you on the basis that you will eventually own the house and you have the means to achieve that or are they open to speculative?
.

Banks loan to you on your ability to pay them back. With interest and principal.
They don't care whether you end up owning it or not.

If your circumstances change and you can no longer pay them, they'll sell it for as much as they can get, and if that's less than you owe then you still have to pay them the difference.

If that means taking it to Baycorp, they will.

utopian201
20-01-2010, 08:59 AM
At the end of a vanilla 25 year mortgage after making the minimum payments, you have paid off the principle as well as a crap load of interest. So yes if you don't pull out early you end up owning the house to answer your question, you cant JUST pay interest.
...


It is possible to have interest only mortgages.



...
I would think some people may take property as investment, even if I cannot pay it all off, if I can satisfy the bank and feed them interest money, cos later on I can sell it, get more money if it appreciates then rent to live and use the money also for retirement ...... Ie., you cannot die with your house.

Anyone know how banks calculate you as a customer? Ie., how much of your income do they take into consideration and the deposit that you have?

I don't know if banks will lend to you on what you are proposing. What will you do if the house you bought falls in value? When that happens, your loan will be worth more than the house. When that happens, banks get jittery and call in a large chunk to get you back into positive territory. If you can't manage that, they will force a sale and you owe the difference between the loan value and the sale price.

If you have a larger deposit, it will reduce your interest costs obviously. They look at your income, take a bit off that to use as living expenses etc. From that value, they use as what you can pay per month/week/etc and from that, work out what they can lend you. Its probably best you just go see the bank to see what they can do for you.

Nomad
20-01-2010, 10:50 AM
Yep, they would take a decent amount of deposit.

I am fortunate still living at home, I think that is the only way I can get a better start with the mortgage - to save for the deposit.

I did some maths a while back, that is if I were renting, and paying other costs, it may take a couple a good 5yrs to get a decent deposit and then sign up for a 30yr mortgage. Maybe 25yr if you be frugal. Given you are not wasting rent away and that you have an asset it works despite paying interest. Interest could be 2x the cost of the house. So you end up paying 3x in total. Not adj for inflation.

My old man says poor souls like me can eat cabbage and potatoes and ride bicycles for the rest of our lives while he capitlise his rental income and his appreciated asset and run his knife through his steak and eat crayfish :annoyed:

utopian201
20-01-2010, 11:59 AM
You can also rent out the rooms of any house you buy for additional income. What you can do is split the mortgage into fixed (eg 25 year interest only) and a revolving credit and have your pay go directly into the revolving credit. This means your income is saving you interest from day one. Do some detailed scenarios in excel, you'd be surprised at what is possible :)

Gobe1
20-01-2010, 12:11 PM
You old man is switched on, but i would be pissed off if my old man was doing that and taking the piss and never taught me to handle money or how to invest.
You should start watching what he his doing

pctek
20-01-2010, 12:42 PM
I did some maths a while back, that is if I were renting, and paying other costs, it may take a couple a good 5yrs to get a decent deposit and then sign up for a 30yr mortgage.
My old man says poor souls like me can eat cabbage and potatoes and ride bicycles for the rest of our lives while he capitlise his rental income and his appreciated asset and run his knife through his steak and eat crayfish :annoyed:
Naturally he is joking. The thing with a mortgage is you borrow a fixed amount. After 10 years or so that amount seems pitiful in comparison to current house prices and your wages.
Which is how people pay it off quicker than the original term.
Then you get to eat crayfish too.

If you're into that sort of thing, personally I can't stand the stuff.

Gobe1
20-01-2010, 01:10 PM
Yes that is true also, i remember the first house i brought 15 years ago was $110k, was **** loads of money then, now a house is like $400k and i think WTF, but in 15 years i will look back and laugh
Well i hope so anyway...

robbyp
20-01-2010, 02:19 PM
Yes that is true also, i remember the first house i brought 15 years ago was $110k, was **** loads of money then, now a house is like $400k and i think WTF, but in 15 years i will look back and laugh
Well i hope so anyway...

Thats where the gambling is, if you bet on house prices always gaining, and that those gains will be uniform over time. Infact prior to thee late 90's house prices prises had been mediocre. It is largely due to the labour introduction of the 39% tax rate that caused house prices to jump in the 2000,s, as high income earners put their money into properties to then claim the loss, which they could then reduce their tax liabilities.
If you buy a house, you are buying it to live in, therefore when you sell, you will usually be buying another in that same market, so really the gain in it's market worth doesn't really matter. As NZ house prices are so out of whack, compared to our income, which makes NZ houses some of the most unaffordable in NZ, and this will correct itself eventually.

One thing is fairly certain and that is that property laws are going to change, which will affect house prices. There is likely to be a 0.5% pa land tax introduced, and possibily a CGT on investment property. Also investors may not be able to claim losses and depreciation againest their pesonal income. Also they are looking at reducing personal tax rates, which may mean that that the benefits of property investment may disappear.

Nomad
20-01-2010, 02:45 PM
One thing is fairly certain and that is that property laws are going to change, which will affect house prices. There is likely to be a 0.5% pa land tax introduced, and possibily a CGT on investment property. Also investors may not be able to claim losses and depreciation againest their pesonal income. Also they are looking at reducing personal tax rates, which may mean that that the benefits of property investment may disappear.

I support some of that even if I am saving for my house deposit.

I think CGT exempted from the home you live in but not in your investment home. Althou how does determine if it's their work home batch, ie., they may live in the rural but have a small batch in the city or it might their own holiday home :confused: :thumbs:

Battleneter2
20-01-2010, 03:00 PM
Yea will be a small handful of people that legitimately live in two houses, I guess if neither are rented out they could be exempt from CGT.

Keep in mind many that have investment property do so under LAQC. To claim tax back the location of the investment property is given along with a crap load of other stuff.

Nomad
20-01-2010, 03:04 PM
Yeah but some gain capital from house price rises, that's a fair chunk as well. Some also rent places without legitimate contracts, ie., its doesn't involve Housing NZ. Under the table thing.

I must say that if it wasn't renting, you have more freedom, you can drill some holes and not be told off or change that oven or hot water heater or install a heat pump and not deal with unhelpful landlords.

Sweep
20-01-2010, 03:33 PM
Probably it would be best if you consulted a mortgage broker.

Nomad
20-01-2010, 04:31 PM
Not got the deposit yet. I rather pick up a good book than involve another salesman :p

Sweep
20-01-2010, 04:45 PM
Not got the deposit yet. I rather pick up a good book than involve another salesman :p

Over to you but the advice I got was free and up to date.

decibel
20-01-2010, 05:52 PM
Over to you but the advice I got was free and up to date.

Free ?? He almost certainly got paid by the bank he recommended, so how do you know he recommended the best deal for you or the best deal for him??

Sweep
20-01-2010, 06:01 PM
Free ?? He almost certainly got paid by the bank he recommended, so how do you know he recommended the best deal for you or the best deal for him??

Well she recommended I go see my bank and did not ask who I was banking with so I don't think she got paid.

robbyp
20-01-2010, 08:58 PM
Yea will be a small handful of people that legitimately live in two houses, I guess if neither are rented out they could be exempt from CGT.



There are a lot, some people live in the city in the week, and live in the country on their lifestyle blocks in the weekend.

martynz
20-01-2010, 09:43 PM
Its amazing how many people boast how much their house is worth and equate that with personal wealth i.e. having the same amount of money in the bank. They compare how much the house cost them with its current value but don't seem to factor in the interest they have paid or expenditure on maintenance, improvements, insurance etc. Then they sell the house and have to spend the money on a new place to live. Great if you move from Auckland to Bluff, not so good the other way round.

In response to earlier queries about interest only mortgages, there used to be a system in the UK where you borrowed money based on an endowment (insurance) policy. You only paid interest on the mortgage and monthly premiums on the endowment. In theory the value of the endowment increased over time (with annual bonuses) and you repaid the borrowed money when the endowment matured. If you were lucky the matured value was enough to repay the borrowing.
I don't know if these survived the recent financial crash.

Martynz

Nomad
21-01-2010, 07:33 AM
Keep in mind many that have investment property do so under LAQC. To claim tax back the location of the investment property is given along with a crap load of other stuff.

Some may claim back so much and pay no tax to their day job, with a LAQC arrangement. As a result no income they may get govt subsidy and welfare support too ...... :illogical

How about doing a LAQC get all the rebates, rent it out and then turn it back to a non LAQC and they live in themselves :lol:

On that note buy a 2nd car like a ute, a trailer and a towbar and file it back to the investment property as a business cost :eek:

While children get taxed in the bank, beneficiaries get taxed or those who are saving for a house deposit and pay tax.

pctek
21-01-2010, 07:44 AM
Thats where the gambling is, if you bet on house prices always gaining,

Depends who you look at it.
If you are a property speculator well perhpas not.

But that's not what I am talking about. I am talking about buying a house and living in it forever.
The odd bit of maintenance and redecoration, not ripping it apart and rebuilding it.

Nor selling and buying another bigger better one all the time either.

Like my friends Grandma that bought one in Takapuna a very very long time ago. She still had it when she died, it was more or less the same too apart from like I said, maintenance and decorating.
The family got a small fortune for it.

Battleneter2
21-01-2010, 08:00 AM
Some may claim back so much and pay no tax to their day job, with a LAQC arrangement. As a result no income they may get govt subsidy and welfare support too ...... :illogical

How about doing a LAQC get all the rebates, rent it out and then turn it back to a non LAQC and they live in themselves :lol:

On that note buy a 2nd car like a ute, a trailer and a towbar and file it back to the investment property as a business cost :eek:

While children get taxed in the bank, beneficiaries get taxed or those who are saving for a house deposit and pay tax.

Yea we just sold our investment property LAQC as we couldn't be bothered with tenants. If you leave your "one" house to go renting and turn it into a LAQC its a false economy you are not really making money, well if you are its not worth the hassle.

Your right though on a 2nd property with LAQC you can gear it to not pay much personnel tax. Just load up the mortgage on the investment property so the business is making a clear loss (claim it back from personnel income tax).

Some people are not cut out to be landlords, if you are honest and trusting, and willing to cut people some slack because they are having a hard time on the condition they will pay you when they SWEAR they will, don't go into the business lol. If your cold and have the guts to ignore the tenancy laws which is HEAVILY stacked in the tenants favor, then maybe you will do ok in investment property.

Nomad
21-01-2010, 08:28 AM
Hey is CGT payable on LAQC?

I know if it a normal 2nd house, no LAQC for 10yrs or more, no CGT.

How does that change for a LAQC scenario? Since it is a business thing, CGT would be in it right .....

PS. After seeing the news re: changes in tax and property as a proposal I kinda agree in principle thou that LAQC is up to abuse. A child with pocket money in bank pay tax or a beneficiary but not a LAQC - some can avoid all tax, some can get minimise them hey does that mean I can get working for family and accom supplement now? Landlordsworking so cannot get the main dole thou .....

When one convert to non LAQC are the benefits need to be return to the authorities? Seems unfair, you get the LAQC perks then now change your mind, you going to live in instead and keep the change.

Nomad
21-01-2010, 10:00 AM
Depends who you look at it.
If you are a property speculator well perhpas not.

But that's not what I am talking about. I am talking about buying a house and living in it forever.
The odd bit of maintenance and redecoration, not ripping it apart and rebuilding it.

Nor selling and buying another bigger better one all the time either.

Like my friends Grandma that bought one in Takapuna a very very long time ago. She still had it when she died, it was more or less the same too apart from like I said, maintenance and decorating.
The family got a small fortune for it.

Yup folks paid 20k or 30k 20yrs ago and sold it and did more damage to it, sold for 150k (10yrs ago). Nothing was added at all, maybe new carpets done DIY unprofessionally, bathroom wall fell apart, added a weatherboard and repainted unprofessionally, some taps done unprofessionally, the same curtains from day 1.

They had long hours working in the past, 7 days, only day off was Christmas kinda thing. Sometimes they worked over Christmas and NYR.

The buyer sold it for 300k I think after some work. A builder got hold of that and sold it for 550k I think with sig work done. Add a triangle roof and a extra floor.

It used to be a single floor 2 bedroom, flat roof cottage thing with a separate double garage door (no internal access). But we added a extra room without a proper roof, ie., a rock over some metal sheets, without council consent so had to waive rights to the buyer for a drop in price. Carpet was DIY and done unprofessionally :D It was like a bedroom which had a outside window looking into a new self built dining room, but the window was still there (you could open and close it) :p