Couple's monthly repayment jumps by $1,500
A couple who purchased their Auckland home in 2021 are second-guessing their reasons for becoming homeowners after their mortgage repayments increased substantially.
The couple, who live in a rural town 25km from Auckland’s city centre have observed that houses in their area are selling below the capital value (CV), cementing their decision that selling now is likely to result in financial loss.
Speaking to NZ Adviser on the condition of anonymity, the homeowners explained that before their mortgage rollover date, their monthly mortgage payments were around $4,700. Their monthly repayments have since jumped by $1,500 and are now $6,200.
The mortgage, which totals around $1.1 million, had been split into three parts. Two portions totalling $900,000 rolled off a mid-2% fixed interest rate at the same time in November. With the assistance of mortgage adviser, the couple has refixed this borrowing at a rate of 7.09%.
“We find that it’s not really worth it to be homeowners … it’s just a struggle to keep up with the payments, especially with daycare costs etc.,” the homeowners said. “We don’t have a life outside of work and mortgage.”
The homeowners said that despite dual incomes, keeping up with the mortgage payments had left all of their accounts in overdraft. Childcare is another significant expense, rates and other expenses have increased, and the couple said that their bills were failing due to insufficient funds.
“When we bought the house, we thought, ‘even if it goes up to $5,500 per month it’s a bit tight but it’s manageable’,” the homeowners said. “Interest rates are well past what we were stress tested at … it’s just a little bit too much.”
Property value declines rule out a sale
The couple are second-time homeowners. Having purchased a smaller property in 2018, they sold and upgraded to their current home to accommodate their young family.
According to CoreLogic November figures, national property values have fallen 12.3% from the peak in March 2022, to September 2023.
Having met with a real estate agent, who provided a valuation on their home and observed activity within their area, the homeowners estimate that if they were to sell their home now, they would lose almost $100,000.
“It’s unlikely we’d get what we paid for the house anyway, and we’d still lose out on the real estate agent’s commission of around $40,000,” the homeowners said.
“There are around three to four houses on our street on the market at the moment and one of them has gone under CV, the other next door is going onto the market for the third time in January.”
Mortgage payment options assessed
The couple’s mortgage adviser contacted them a month prior to the fixed rate rollover date (October) to discuss their options and find the best rate.
The homeowners confirmed that they did not receive advice or assistance on how to manage higher mortgage repayments before this time.
Mortgage advisers have cited that amid higher interest rates, two of the options available to mortgage holders to help them through are to change repayments to interest-only on a temporary basis, or to extend the loan term back out.
Having experienced financial stress since their mortgage was refixed, the couple approached their bank directly in early December to discuss their options, including whether they could change their repayments to interest-only and were still waiting for a response.
“We spoke to a financial adviser a couple of months’ ago as well, but they said that we’d cut back on pretty much everything,” the homeowners said. “The biggest issue is the mortgage payments.”
Keeping the home and being able to manage the mortgage repayments would be the optimal outcome, the homeowners said.
“Ideally we’d love to stay [in the home] if we could but long-term, I don’t think that’s going to happen.
“In the short-term, we just want to be able to manage until house prices go up enough to sell.”
At that point, the homeowners said they would reassess their options, whether that would be to rent, or buy somewhere else.
In a follow-up to this story, NZ Adviser will ask a mortgage adviser to share observations and learnings about this situation, including any additional options available to these homeowners and others in a similar financial position.
How are you helping homebuyers adapt to higher repayments when their mortgages roll over? Share your thoughts in the comments section below.
