Mortgage-free properties in decline as new investor numbers surge in last five years

Mortgage-free properties in decline as new investor numbers surge in last five years

09 Nov 2016

New figures show increasing numbers of Kiwis are breaking with tradition and delaying paying down their mortgage in favour of buying more property.


myvalocity’s research shows the number of mortgage-free properties nationwide has dropped from 39% to 35% in the last decade. All regions have seen a decline apart from the Far North, Coromandel, and Kawerau - which have remained relatively stable.


myvalocity CEO Carmen Vicelich says on its own, the trend doesn’t make much sense given the current market conditions and the growing ageing population in New Zealand, who traditionally pay off their mortgage and downsize before retirement. However, combining it with the number of new investors that have recently entered the market provides insight to an interesting new trend.


myvalocity released figures that show at least 10,000 new investors have entered the market in the last five years. This group of first-time investors have collectively bought more than 26,000 residential properties between them since 2011, with an even spread of new investors located across the country.


New investors are classified as those owning more than two properties.


myvalocity data shows the number of new investors buying in Auckland and/or other regions has increased although new investors buying solely in the regions has declined slightly.


Mrs. Vicelich says while the recent LVR restrictions by the Reserve Bank have slowed the number of active investors in the market, low interest rates and Kiwis’ love of property is changing the dynamics of the market.


“By default, many of the baby boomer generation have owned their own property for a long time. They have the tenure and have also made good capital gains to be in a position to discharge their mortgage before retirement as previous generations have done.


But what we are seeing is a new global trend emerging where people are choosing to stay in the market longer. Rather than discharge their mortgage, they’re taking advantage of the low interest rates to leverage their increased equity and buy more property,” she says.


According to recent statistics, New Zealand households increased their mortgage debt by a net $19 billion or 9.2 percent in the year ended August 2016 - the fastest annual growth for more than eight years.


Squirrel Mortgages CEO John Bolton concurs that the days of paying off mortgages before retirement are waning.


"People are definitely taking longer to pay off their mortgage. Retirees are really the only ones who are truly debt-free and even then, people are working later to achieve that given house prices are relatively high compared to incomes.


We are also finding that younger people cashing out of Auckland and moving to the regions haven't had much of an impact on the overall mortgage debt ratio either as those moving typically still don't have enough equity to buy freehold elsewhere. They certainly get more bang-for-their-buck and a higher quality of life, but we have not seen a dramatic reduction in people's borrowings."


Mr. Bolton says he expects the current trend to continue in the future.


“The most common way people pay off their mortgage is downsizing – which is typically when retiring or the kids have left home. People are working longer and tend to upgrade when they downsize so they simply aren’t getting debt-free.”


Mr. Bolton says the ‘baby boomer’ generation has changed the property landscape by adopting it as their main investment for retirement.


“Many of the ‘baby boomer’ generation have invested wisely in property in the last 15 years as their equity and disposable income has increased. While that has meant many of them are working longer and still hold mortgages, in the long term they will be able to sell down some of their properties so their remaining investments generate positive cash-flow income for retirement.”

作者 Maria Veitch

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