The family has cancelled almost all subscriptions, stopped their KiwiSaver contributions, and might even sell their car
A Kiwi family could see their home loan interest rate increase from 3.5% to nearly 7% at the end of February – that’s roughly $450 in additional repayments per week.
To keep up with the rising, and almost unaffordable, mortgage repayments, Rory O’Sullivan said the family has cancelled almost every subscription and membership – and might even sell the family car next.
And it’s not just the O’Sullivans who are facing large increases to their repayments, with about half of home loan debt set to re-fix in the next year and with Westpac forecasting an $800-a-fornight mortgage rise for recent home buyers in Auckland, Stuff reported.
“We have been scrambling through our budget on Sorted.co.nz and spreadsheets to see what we can do,” O’Sullivan said. “It’s an incredible increase in our outgoings just to keep a roof over our head. It took us six months to find a house we absolutely love, and we absolutely do not want to leave.”
To continue to pay for their dream home, O’Sullivan and his wife Harriet cancelled their gym memberships last year, quit their subscriptions to Apple TV, Spotify, Xbox, and Audible, and stopped making contributions to their KiwiSavers.
The couple have even started making their own washing powder.
“It’s not ideal, you don’t want to pause your KiwiSaver in the short term, but to get over this blip, then that’s something we have to do at the moment,” O’Sullivan said.
The couple have also opted for cheaper insurance and service providers, and moved their two children, aged two and four, to a new, cheaper childcare, which O’Sullivan said, was “heartbreaking, frankly.”
To keep up with repayments, the family is also sticking to a strict budget, and has allotted $300 a week for food.
“There are plenty of treats in there that won’t be in the shopping cart anymore,” O’Sullivan said. “Since we bought the house we have paid down some equity in the two years, but that doesn’t really count for anything when interest rates go up.”
The O’Sullivans are planning to re-fix early in fear that the Reserve Bank would push rates higher in February.
The family paid a little over $1.13 million at an auction to purchase their home in the North Shore suburb of Birkdale in January 2021, before prices peaked. To buy that home – the family’s first in New Zealand, the couple had to sell their home in the UK, but still required a $920,000 mortgage.
The two also have debt on two credit cards, one of which they have been able to refix at a lower rate.
O’Sullivan said the rock-bottom interest rates introduced during COVID-19 had lulled into a false sense of security.
The family car, a modern Haval H9, had also already been valued to possibly sell it.
Despite the couple’s determination not to go onto interest only, they had reached out to a second-tier lender in case they cannot keep up with repayments.
“The idea of not paying principal, you just end up paying more interest over time,” O’Sullivan said.
He said the second-tier lender had proposed to combine debts into a single account and was willing to hold the family on interest-only, but the interest rate would climb to just over 8%.
Kelvin Davidson, CoreLogic chief property economist, said Reserve Bank data showed 49% of mortgage debt would have to be refixed in the year to the end of November, and a further 10% are on floating rates.
“We don’t know for sure what the rate rise will be, as we don’t know when those fixed loans were originally taken out. It could have been 12 months ago, or two years ago, or five years ago,” Davidson said. “Most would probably have been within the past year, but we can’t say for sure.”
Davidson said it would be fairly typical for a borrower repricing during 2023 to see their rates increase 2% to 3%, Stuff reported.
“By way of example, if somebody took out a one-year fix in early 2022 (about 3.5%) and repriced in the next few months onto 6.5%, the mortgage payment per fortnight per $100,000 of debt on a 30-year term, would go from about $207 to $292,” he said. “So, if they had, say, a $500,000 loan, annual payments would rise from around $26,900 to $37,900.”
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