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Fifty year mortgages

Written By: - Date published: 9:22 am, November 9th, 2014 - 79 comments
Categories: business, capitalism, housing - Tags: , ,

I once read a SF short story where the protagonist was wrestling with a moral dilemma. There was some expensive new toy he wanted, but he was already mortgaged for the rest of his live, and he had mortgaged his son’s life earnings too. The only way to get his toy was to mortgage any potential grandchildren for life. Which, after quelling some vestigial twitching of conscience, he duly did. Interesting story, I thought at the time, and wondered if such things would ever happen for real.

Fast forward a few decades and we seem to be well on the way. On Stuff this morning:

Interest-only mortgage ‘irresponsible’

Westpac’s new 30-year, interest-only mortgage has been decried as irresponsible and likely to fuel property investor speculation. Details of the new loan product were discreetly fed to mortgage broker channels in recent weeks. The offering is a major shake-up to the market, with the term three to six times as long as the maximum allowed by rival banks.

Once the term is up, borrowers can either repay the loan in full or switch to a standard mortgage, implying a total length of 50 years. “You can get 50-year mortgages in America which mean you pretty much have a mortgage for life, which is not responsible at all,” said Rule.

With property prices as insane as they are, I predict that this form of mortgage will grow increasingly popular in NZ. Mortgaged for life. And of course, it’s worse than that, because as usual the game is rigged:

Westpac’s chief product officer Shane Howell said owner-occupiers were eligible, but not the target market. “It’s really specifically geared towards investors . . . to give them the best opportunity to take advantage of the tax benefits,” he said.

Property investors typically use interest-only loans to maximise cashflow, as interest is fully tax-deductible while principal repayments are not.

Australian regulators are keeping a wary eye on interest-only loans, which are fuelling a property investment boom and have triggered cautions from ratings agencies. However, the Reserve Bank of New Zealand has only just started collecting information from the industry, which it will begin publishing next year.

So here we have a product designed for investors, taking advantage of a tax dodge, which will further fuel a property boom, and the only way for ordinary buyers to compete is to mortgage themselves for life. What a world.

79 comments on “Fifty year mortgages ”

  1. Ad 1

    Hope you caught Minister English on National Radio this morning on why the big state house sell off is happening.

    • hoom 1.1

      I took the rare step of switching the radio off because I couldn’t stand to hear his absolute bullshit any longer or my head would have exploded.

      Seriously, does he really believe anyone is actually buying his line?

      • felix 1.1.1

        English knows that everyone sees through the bullshit.

        But he also knows that part of the population are aware it’s all bullshit and are delighted, and that the rest have no-one to speak for them.

  2. Kiwiri - Raided of the Last Shark 2

    Literally, from the Anglo Norman, a death pledge.
    Till death is one (and one’s children and descendants) in debt.

  3. dv 3

    What struck me was that Westpac had loaned 1 Billion in the last 6 mths.
    Where did that come from?

    And that is another 60m taken out of the economy for the interest payments.

    AND national debt is now
    NZ$ 94,360,060,149

    Interest is 4.5 billion

  4. Paul 4

    Debt = slavery.
    Our masters want us to be subservient.

  5. Tracey 5

    fodder for developers who by design of this government have no personal liability for the quality of their projects, unlike builders and designers. the latter being dictated to by, the developer.

    • Draco T Bastard 5.1

      The builders are being dictated to by the developers as well. The developers do not like having to pay the full costs.

      • Tracey 5.1.1

        by later i meant builders and designers. sorry for lack of clarity

        • dave 5.1.1.1

          the workers and small buisness take the risk for devlopers . main contractor uses credit lines of the workers its a rotten system all the risk little reward hartners, mainzeal nz contruction industry is rotten to the core

    • Rosie 5.2

      I live on a development, in my first home. Whilst not normally one for being a defender of developers (many of whom have justly earned their rep as fly by nighters and money grabbers) I’d have to say that there is a good relationship between the developer, architects and builders and associated trades, in this particular case.

      It is a weird environment, feeling like instant suburbia in a barren tree less landscape. Like that show that used to be on “This is not my life”. The trade off for a lack of character and community was getting a house that is mega insulated, well built and double glazed – our power bills are the same all year round.

      Helped that no one wanted to buy the house from the former owners as there is ONLY one bathroom in a 3 bedroom home and a single garage – I know darls, it’s completely unacceptable when you can’t fit your ginormous SUV in the garage. We got it for approximately $30K under the expected price.

      But yeah, I think the developers are laughing all the way to bank, (they’ve opened up new land ahead of schedule at a time when a lot of folks are struggling) – they’ve just been a little more clever about the way they go about their business.

      • Tracey 5.2.1

        have their been any big problems yet, that is the test of the developer…

        • Rosie 5.2.1.1

          Not any biggies as yet Tracey. They were around in the leaky homes era at a time they were building a lot of homes with monolithic cladding and didn’t have any problems. They gained a good reputation in that time.

          I haven’t seen any problems with non compliance with the council either, and I do have my stickey beak in that area.

          My greatest concern is loss of habitat for birds such as the Spur Winged Plover and Paradise ducks. While the land is poor and rocky (it’s their own family farm land they’ve turned to development) there are those bird populations that live here and seem to be declining. You’d need a proper study done to gauge it accurately though.

          It’s the neighbouring developers who have been a problem. They illegally aerially sprayed gorse which went well out out the buffer zone and sprayed our residential area, as well as waterways that contained native fish. A bunch of us took evidence to the regional council and they did give them a slap on the wrist with a wet bus ticket. They also build ugly big boxes on tiny sections, but theres nothing that can done about that.

          • b waghorn 5.2.1.1.1

            So your urban sprall is OK but the neighbours is bad?

            • Rosie 5.2.1.1.1.1

              It’s not urban sprall _ I wouldn’t live in a shit environment like that. How can you judge anyway? You don’t even know where it is, you’re just making assumptions.

  6. Daveinireland 6

    People are both living and working longer, isn’t it logical that the mortgage industry reflects this?

    • BassGuy 6.1

      Many of us are going to be working longer simply because we can’t afford to retire.

      It’s very difficult to save for your retirement when your gross earnings are significantly less than the net dole.

    • b waghorn 6.2

      @ irland I have children and I would like to think there will be more to there lives than working there arse s for 30-50 years just so bank share holders can increase there profits ffs WAKE UP

      • Daveinireland 6.2.1

        Then tell them not to get a 50 year mortgage. They are not compulsory.

        • b waghorn 6.2.1.1

          Gee your a genius . Right all you people out there don’t get a 50 year mortgage good problem solved , hmmm what next

          • Tracey 6.2.1.1.1

            poor people! earn more money! next problem?

            • b waghorn 6.2.1.1.1.1

              Hay you put that smoke out . (this is easy)

            • Daveinireland 6.2.1.1.1.2

              ‘poor people! earn more money! next problem?”

              Mostly, people who are poor are not exactly in control of the situation. Choosing a 50 year mortgage is something you have complete control over. You have been able to get a 30 year mortgage for a long time, why the shock at a 50 year term?

              • ghostwhowalksnz

                There is a hell of lot of former high flyers in their middle 30s who have hit the wall by the time they are middle 40s.
                Ask Deborah Hill Cone ?

              • Colonial Rawshark

                The shock is you advocating for 50 years worth of debt slavery and guaranteed income for the banksters and life insurance companies who profit from people dying. Also your ignorance in terms of ‘using loansharks is not compulsory’ but without understanding how financial institutions take advantage of those in poor financial positions.

                But for someone like you, that probably falls into the ‘who gives a shit’ category.

                • Daveinireland

                  “The shock is you advocating for 50 years worth of debt slavery”

                  Jesus wept. I’m not advocating anything. I simply do not see how the difference between a 30y and 50y mortgage is much to get exited about.

                  “and guaranteed income for the banksters and life insurance companies who profit from people dying. Also your ignorance in terms of ‘using loansharks is not compulsory’ but without understanding how financial institutions take advantage of those in poor financial positions.”

                  So it’s the financial industry as a whole you have an issue with?

              • greywarshark

                DaveinI
                I wonder what line of business you and your family are in?

                • Colonial Rawshark

                  Profiting off misery.

                • Daveinireland

                  “DaveinI
                  I wonder what line of business you and your family are in?”

                  I’m a construction manager for industrial plants.

                  • greywarshark

                    @ Dave in Ireland
                    You may be one of an insulated-from-the-real-world types. Is this you? Always with a faraway look in your eyes as you remember all the things you have to do for your work which is ongoing and busy into the near future. You have a good life style and work hard and possibly play hard. And you adopt a pattern of thinking that disses others who aren’t managing to get on. Some want to reveal the real problems facing us all and the horrid reality, which is an inconvenient and unpleasant habit.

                    Yours is not a way of life that you will be able to maintain. What people are talking about are the parts of the iceberg that we know are there but that people like you prefer to ignore. If all you care about is yourself and your nearest connections plus a few others here and there then you are too self-centred to understand the world and what we as a people are doing to it and to each other.

                    Do you know the difference between cyclical and structural? Cyclical describes the tendency for statistics of business etc to go up and down in a circular way perhaps responding to seasons, but structural is when change is fixed and continuing. That is what we are thinking of, which makes ‘smart’, short and sweet advice or putdowns completely irrelevant. It’s a waste of your precious time coming here with dopey comments.

                    • Daveinireland

                      Errr, what does all that have to do with 50 years mortgages?

                    • greywarshark

                      dave in Ireland
                      Your view on anything is conditioned by what you are. That’s why you can’t understand the disadvantage to people of 50 year mortgages and the implications such as taking larger sums from people over their lifetime, paying off interest. It’s a waste of time discussing this with someone who will remain wilfully ignorant of the concerns and reasons for them.

                    • Daveinireland

                      Really? I can’t understand the disadvantages of a 50 year mortgage? Your average 8 year can see the disadvantage. That doesn’t mean there isn’t potentially a place for them. The reality is very few, if any people would hold a 50 year mortgage to term. It’s an alternative to the low start mortgages that have been around for years, and also a better option than interest only.

                      If you really want to change the mortgage market to cut the amount of interest paid to banks you should ban table mortgages in total and make everyone take out a reducing mortgage.

              • Tracey

                a thirty year interest only mortgage, really? i tried recently to get a two year interest free and was declined.

        • Tracey 6.2.1.2

          do you know the details of brokers commission for this new product?

  7. b waghorn 7

    “Its really geared towards investors” it strikes me as west pac are lining up to become giant landlords with a lot of freelance brokers hoping on a capital gains payday after 30 years.

    • dv 7.1

      ‘capital gains payday after 30 years.’

      And then they create more money and ‘loan’ that out for another 30 yrs.

      • Draco T Bastard 7.1.1

        +111

      • Colonial Rawshark 7.1.2

        People who think that the current global asset price bubble is going to last another 3 years, let alone 30, are in a dream world. Our global civilisation peaked years ago and the downhill slide is steepening. Those in the global top 0.1% ruling elite will be amongst the last to notice it as they are the most insulated from its negative effects, but it’s well underway. Many in the top 10% (i.e. the western middle class and working class) are already well aware of it.

        • Jones 7.1.2.1

          The numbers are all there… it depends now on how good the propaganda is. They can spin this out as long as the people remain wilfully oblivious to it. Could be next year… could another 5 years… even if they are aware of it, I imagine many have too much of themselves invested in a way of life to be able to proactively make any change.

        • Draco T Bastard 7.1.2.2

          Why do you think the 1% have had governments selling off state assets? When the global economy collapses the rich want to be able to control people and preventing them from accessing the necessary resources to maintain life is a means of control.

        • Tracey 7.1.2.3

          bailing out banks and financial institutions masked the problem. most of the bailed out banks are back in profit. fanny mae are back with a new version of the sub prime mortgage, this time using motor cars.

          the bailout meant no consequences, so no learning.

  8. RedLogix 8

    Been away for a really nice weekend. Long overdue.

    Just got back. Read this. Utterly disgusted.

    Any term over 20 years for a table mortgage is usury. Should be flat-out illegal.

    • Colonial Rawshark 8.1

      Yep. Anything much over a 15 year term and the interest servicing costs become exponentially burdensome.

      • RedLogix 8.1.1

        You’re dead right – 13-15 years is the optimum term. Most people need to spend some quality time with a good mortgage calculator trying out the effect of various terms and rates.

        I’m quite serious about the 20 year term limit. It would have the very salubrious effect of also effectively putting an upper limit on the rates the banks could charge.

    • Draco T Bastard 8.2

      I’m thinking mortgages should have two limits set on them:

      1. Must not be more than 15 years and
      2. Must not take up more than 30% of household income over the term

  9. Jones 9

    Right on cue… just in time for the great state housing asset sale. Westpac’s getting ready for its slice… watch the other banks follow.

    • Colonial Rawshark 9.1

      Things can always be taken away from corporations which exceed their social operating licence. Hence why they are desperate for us to sign the TPPA.

      • Jones 9.1.1

        It’s going get rapidly less subtle in the months ahead… there’s a smash and grab going on. The TPPA is an insurance policy and the commons will be underwriting it.

  10. Ovid 10

    Are our memories of 2007-08 really that sketchy? Remember when Key wanted us to become another Ireland? He may just get his wish

  11. Richard29 11

    This is totally not targetted at buyers, its for investors. The fully geared interest only loan on a large property allows annual losses that write off any income tax paid. Over time the real value of the loan relative to the property value declines through capital gain which is all tax free when realised.
    There is nothing new to see here, this has been a middle class hobby for years. Bad press for Westpac though, the other banks make a pretence of not funding the property bubble with interest only loans by setting arbitrary 5 year limits, but they are happy to roll the terms over for another 5 years as many times as you like…

    • RedLogixFormes 11.1

      Your right – it’s not targeted at owners – but the effect on the market is just the same. The bank does not care whether its a tenant or an owner paying the mortgage – it’s just a way for them to pump more money into the market thereby inflating their profits.

      Governments are not allowed to do anything about it.

      • Draco T Bastard 11.1.1

        +1

        The governments of the world have been doing what they’re told by the rich about money creation and banking for the last two centuries or so. It’s time that government stopped doing that and started doing what’s needed – creating all money and spending it into the economy in such a way so as to support high living standards for all. We cannot leave it to the rich any more as what they do destroys the economy and our society with it.

  12. Most commenters seem to have missed the point. Only existing property owners are eligible for this type of mortgage – it’s not offered as debt slavery for people too poor to buy a house in NZ’s insane property market, it’s yet another scheme for property investors to dodge taxes.

    The tax system offering opportunities like this is the main reason NZers are such enthusiastic property investors. If you already own a house, the bank will cheerfully offer you a no-deposit loan for a new house. Tenants pay the morgage, insurance, rates and maintenance, so you pay only the fees involved in buying the place. If you can arrange things so you don’t pay tax on your investment, all the better – the capital gain you get at the end of it isn’t taxed either. Westpac is apparently keen to assist with arranging things so you don’t pay tax on your investment, but you can hardly blame them for that – blame the people who decide the tax system.

    • John Shears 12.1

      The fact that there is a tax incentive on a 2nd house but none on the family dwelling is the unfair advantage that allows those that choose for what ever reason the chance to start a property portfolio.

      The family home should also be allowed to claim tax rebates on interest and maintenance or nobody should be able to.

      We no longer are involved in real estate as we now live in a retirement village and have therefore released a housing unit onto the market. We were able to do that because our first house was bought with a no interest 5 year loan and a bank overdraft , banks didn’t do mortgages in those days.the late 1950’s.

      At the end of the 5 years we shifted to Auckland from Wellington having upgraded the first house which was cheap and run down and were able to buy a refurbished State House in Mt Eden amongst privately built ones.

      We never had any tax gains from the costs of our various houses or the costs of the materials we used to upgrade them but without the equity that we had in our last house we would not have been able to choose to move into our current apartment.

    • RedLogixFormes 12.2

      it’s not offered as debt slavery for people too poor to buy a house in NZ’s insane property market

      As I pointed out above though – the effect on the market is to ensure that instead of being debt slaves directly to the bank, they will remain rent slaves indirectly via their landlord.

      Another way of looking at this – go work out the total interest paid under this scheme. That’s all cash out from ordinary people into the pockets of the bank shareholders.

      • Psycho Milt 12.2.1

        Meh – it’d be a pretty odd bank that wasn’t out to make a profit. The question is why successive governments provide an environment for this to flourish in. The answer being that, for the most part they’re property investors themselves, and so are a lot of their voters. If paying interest-only for 30 years for an investment property represented the serious waste of the purchaser’s money that it would for a house you were planning to live in, no-one would be queuing up to throw their tenants’ money at Westpac’s shareholders – why it doesn’t represent a serious waste of the purchaser’s money is a matter for the government, not the banks.

        • RedLogixFormes 12.2.1.1

          Meh – it’d be a pretty odd bank that wasn’t out to make a profit.

          Profit sure – but exploiting monopoly position in market to become by far the most lucrative businesses in town may well be a different thing.

          I just did a quick and dirty calc – assuming a real interest rate of 4% the total interest payments for one of these loan would be in the order of 500% of the principle.

          In what world is that not a ‘serious waste of money’?

          • Psycho Milt 12.2.1.1.1

            In objective terms, it’s a horrendous waste of money. But what counts is whether it’s a waste of the purchaser’s money, because the purchaser chooses the mortgage. And it isn’t a waste of the purchaser’s money – in a world in which interest payments are tax-deductible and principal payments aren’t, some investment purchasers are going to say “Fuck it, I’ll just pay the interest then.” Altering that world is a job for the government, not the banks.

            • RedLogixFormes 12.2.1.1.1.1

              Well yes we agree at that point but;

              Altering that world is a job for the government, not the banks.

              What government could? The banks have decisively demonstrated they are bigger than governments. Sure the central banks tinker around with things on the margins a bit – but not in my lifetime have I seen anything seriously change.

              Note how very anxious the establishment gets about the possibility of wage inflation and how effectively they act against it – but apart from some token bleating nothing ever gets done against asset price inflation.

    • Draco T Bastard 12.3

      Didn’t miss the point at all – it’s about helping the rich to avoid paying taxes.

  13. vto 13

    Good way for the banking sector to grab another slice of the economy…

    and for what?

    they don’t produce anything.

  14. dave 14

    there grabbing all the assets they can before the crash while they still can all that printed money has to find a home and we workers are not invited to the party.

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