About 9 years ago, I was going to buy a house.
I’d saved up a 10% deposit. The property market was booming. But I managed to find a a two-bedroom, 1940s house in a reasonably nice area that looked affordable. It was an ex-rental, tired, and a bit of a fixer-upper (none of which scared me). They had it on the market for $240,000. I offered $215,000, and was turned down. But I’d done my math and stuck to my offer. I wasn’t going to be scared into paying too much.
As it turned out, all of this was a good thing. When the global markets crashed later that year, the price of property all over New Zealand took a hit.
And I lost my job.
If I’d had a mortgage, we would have had to put the house up for mortgagee sale (probably unfinished) and lost a ton of money. As it was, I had to turn the house deposit I’d so carefully saved up into rent and food over the next year and a half. I became self-employed for a while. I lost a ton of money, just in staying alive. Getting my current job last year – that was the first time my salary came back to what it was nine years ago.
In the meantime, over that same 9 years, our food bill had nearly doubled. Our power bill has more than doubled. Our rent doubled too, but part of that was moving up here into “crazy-property-burg”. So I earn what I did a decade ago, but it goes about half as far. Rob’s income has remained fairly static over that whole time. He’s well under the national average income, but he works in retail. As a manager. When we moved, he fought to go back on a wage because that way he’d be kept to around 40 hours work per week. At his old job (on a salary), he took home the same amount but worked 59 hours per week. Every week.
But still, you know, the people at the top think that the people at the bottom don’t get ahead because we just don’t work bloody hard enough. I’m sure it a comforting thing to tell yourself as you step over all those dirty poor people on your way to your Mercedes. People can justify all kinds of injustices so long as they think they’re better than the people they’re screwing.
We are better off than many – probably better off than most of New Zealand. We’re pretty firmly middle-class. We have two incomes and no kids. We’re gradually, slowly, plodding our way out of debt. Up until today, our debts had been the kind of groundless, empty debts that poor people tend to rack up (credit cards, consolidation loans, personal finance). There are no assets to show for those debts, and it’s not like we were frittering the money away frivolously on parties or travel. In our 9 years together, Rob and I have gone for an overseas holiday exactly twice. We haven’t gone far. No, instead we got personal finance for the same reason that all poor people do: to fix (or replace) the car when it breaks down, to take the cats to the vet, to buy Christmas presents for each other. Up until I went through his accounts last year, Rob hadn’t realised that the terms of one of his personal finance loans had him paying a eye-watering total of 30.95% interest. By the time he’d paid back the loan, he would have paid back three times its original value! I got him away from that finance company and found him an option with a more reasonable 15.95% interest. It’s still penury, but overall it will save him $7000. There are way too many of these finance companies around here, preying on people’s desperation. They put one price on the front and then bury a bunch more interest in the dense fine print. And people don’t notice because the weekly payments seem manageable… they just last for 20 years, and you have nothing to show for it when you’re done other than a 20-year-old car.
It’s a wonder that they don’t teach financial literacy in High School. Learn about compounding interest. It will save your life one day.
It’s for all of these reasons that I’ve chosen to push us into more debt – but hopefully better debt. It’s the same reason that most people used to buy property. To secure their future. To hold on for the long term and hopefully gain in the game. When we moved up to (near) Auckland, and I realised what we’d be paying in rent every week, it just made sense to buy a place to live. We pay $380 per week in rent (soon to go up to $390), which is about what we’d be paying on a mortgage of $340,000. The trick is finding a place near Auckland that costs anything close to $400,000. This is the home of the Million Dollar Hovel, after all. It’s all about location. (It’s funny, but a generation ago Grey Lynn was pretty working class.)
I’ve contributed nothing to our deposit this time around. After losing my job in 2008, I never managed to save again. There just wasn’t enough money coming in. Instead, my parents have given us half of the deposit from their pension funds. And Rob cashed in his Kiwisaver pension (a system initiated by that damn socialist, Jim Anderton, to try and help poor New Zealanders from dying in the gutter when we’re too old to work). We have bought a property in the only way that poor people can ever buy property: by leaning on the kindness and compassion of other people.
Today, 9 years later, we paid $215,000 for a property.
Of that, we have mortgaged 80%. This time it’s not a house – we wouldn’t be able to pick up that same house for anything under $450,000 now – it’s a bare piece of land about an hour’s drive from Auckland city. It will cost us around another $215,000 to put a house on that land. So our 80% mortgage will end up accounting for around $344,000 of a $430,000 property. What we end up with should hopefully be worth more than $430,000, but only if the market stays solid. In the end it shouldn’t make too much difference – I’m optimistic that we’re in the game for the long term.
You never know what the future will hold though.