Mary Holm: Coming back home to a capital gain

OPINION:

Q: My daughter and her partner are coming back to New Zealand to live, in Timaru actually, which I am super excited about. All going well, it will be later next year.

My daughter mentioned today that she wondered about selling her house (in Auckland, currently rented) now to take advantage of an unreal market. My gut feeling was that given predictions of rising mortgage rates, it would be worth considering.

Yes, she does have a mortgage. It’s a little, two-bedroom bungalow on the Ellerslie Panmure Highway, currently rented at $560 a week. And the current estimation is close to $1 million. Unreal. She paid $420,000, seven years ago.

Do you have any thoughts or suggestions?

A: I can well believe that’s wonderful news for you, especially given the current state of the world.

The question behind your question is: What is going to happen to house prices? And my answer is: I don’t know. It seems unlikely they will continue to grow at the pace of thepast few years. But there’s a big difference between slowing growth and falling. Which will it be? And when? And where?

In these situations, it’s wise to work through all the scenarios.

I assume the young couple will want to buy a house in Timaru after they return. If that’s the case, the best move might be to sell in Auckland and use the money to buy in Timaru now. Then they’re in the market there, no matter what happens to house prices in the meantime.

The drawback is that it won’t be simple to sell and buy when they’re overseas – although perhaps you can be Ginny-on-the-spot for them.

If that seems too hard, there are two options:

• Keep the Auckland house, and sell it on their return, to buy in Timaru. If prices rise in the meantime in both places, it won’t really matter. Ditto if prices fall in both places.

If Auckland prices rise and Timaru’s fall – or don’t rise as much – it will be great. The bad outcome will be if Auckland falls and Timaru rises. But the young ones are still going to find the proceeds from their Auckland sale will go a long way in the southern city.

• Sell in Auckland now and invest the money in, say, bank term deposits in the meantime. That willbe the best strategy if prices fall in both cities. But if they keep rising, it will clearly be a bad move.

What if Auckland rises and Timaru falls? They’ll wish they had held onto the Auckland house, but will cope. What if Auckland falls and Timaru rises? They’ll be glad they got out of the Auckland market, but their money won’t go as far in Timaru.

Head spinning? Mine is. Overall, my first choice would be “moving” to Timaru now, followed by keeping the Auckland house until they return.

There is, though, one other complicating factor, which applies if your daughter is currently deducting her mortgage interest.

Because of recent changes, if she buys in Timaru and rents out that property until she returns to New Zealand, she won’t be able to deduct mortgage interest. On the other hand, if she keeps the Auckland house until she returns, she will still be able to deduct 75per cent of her interest from this October until March 2023. After that, the percentage declines step by step, but you expect her to be back by then.

Fortunately she won’t be caught in the bright line rules, which apply to properties bought after October 2015. Her seven-year ownership puts her in the clear. Phew.

Keeping up KiwiSaver

Q: I am currently six months through my 12-month maternity leave, so the government-paid parental leave has finished and I’m receiving the Best Start payment of $60 a week for the remainder of the year.

I was wondering what the best approach is for my KiwiSaver. Should I be putting a portion of this Best Start payment towards KiwiSaver, to get the government contribution?

Managing my finances is not my strong suit, so any help would be appreciated.

A: The fact that you’re thinking about this suggests you’re better with money than many people. Good on you.

The best practice for people aged 18 to 64 who aren’t employed is to contribute at least $1042 – $20 a week – each KiwiSaver year, which runs from July 1 to the following June 30. That will get you the maximum government contribution of $521.

However, it sounds as if you might go back to work in six months, in which case it’s likely you will contribute at least $1042 via employee contributions before next June 30 anyway. If that’s the case, there’s no special reason to put the Best Start money into KiwiSaver. But still, it’s great to be building up your savings, so if you can spare the money, go for it.

Bank says no

Q: I have had my mortgage split into three approximately equal tranches of fixed rates of different duration for around 10 years now. This approach has included the use of seven-year fixed rates and, as you can imagine, these have not been favourable rates for that length of term as things turned out. No regrets.

I have appreciated the certainty of knowing what I have to pay each month, and that any changes in total repayments are staggered, rather than dramatic, when rates change between refixes. My grumble, however, is that now rates seem to be heading the other way, my bank (BNZ) has withdrawn its seven-year fixes.

So now that I have a chance to hedge (hopefully favourably this time) with a seven-year refix, the instrument I want to use has been removed. BNZ tells me there was no demand (which I’m sure was the case whilst rates were low and falling), as the reason for the withdrawal of that duration fix.

However, I can’t help wondering if that’s just “convenient” for them as they seek ways to protect margin making opportunities into the future (given the likely increased demand for long fixes now rates are rising). Can you investigate and hopefully encourage them to bring the seven-year fixed rate back?

Perhaps more readers desiring the same could add weight to the request – or maybe I’m a lone voice on this issue? Thanks.

A: BNZ removed its seven-year rate in April “as part of our ongoing work to simplify our product range,” says a spokesperson.

“It was introduced in 2005, and as interest rates have fallen the product has become less popular, with more customers opting for shorter terms. There had been no new customers on the seven-year rate since 2018.”

He adds that he can’t comment on margins. “However, we would point out that when it was discontinued the rate was 5.20per cent a yearcompared to the one-year rate of 2.29per cent a yearat the time.”

I like your strategy – of splitting up your mortgage so some is longer term. As you say, you won’t be hit all at once if rates rise. Nor will you benefit as fast, of course, if rates fall.

But smoothing out your path is in general a good idea.

It does depend on the rates on each term, though. The difference between 5.2 and 2.29per cent is huge – suggesting the bank thinks future rates will be higher. That difference was probably less when you got your last seven-year loan.

Even so, 5.2per cent might end up looking good several years from now. Who knows?

I’m afraid I don’t like your chances of BNZ reinstating the seven-year loans. The spokesperson said the bank has no plans to re-introduce that term at the moment.

Maybe you’ll have to go elsewhere for a longer term. A good mortgage adviser should be able to help you.

Splitting the mortgage

Q: My wife and I have been fans of fixed mortgage rates across the life of our mortgage, but we also have a pretty poor record when it comes to this process; ie, every time we have fixed a rate they have continued to fall.

However, with commentary of late being around rates rising, we decided to split our mortgage as follows: one third fixed for a year at 2.29per cent; one third for three years at 2.69per cent; one third for five years at 3.14per cent. We hope to have our mortgage cleared in around seven years’ time. Currently our payments across those three terms are also evenly split, but lately we have been wondering if that’s the best approach. Do you think we should be paying a greater percentage of our total payments towards any one of those fixed terms?

A: I would stick with paying them off evenly. In the next year or two you will probably wish you had paid more off one of the loans – depending on what happens to rates in the meantime. But nobody knows now which loan that will be.

Splitting up your mortgage reduces regret. Looking back, you will always wish you had borrowed more either short-term or long-term. But you will also be glad you got it right with some of your money.

Nothing doing

Q: I made some investments in the 1960s in NZ Steel, and I have the original share certificates. I am having trouble cashing them in to obtain my money. I have written to NZ Steel asking if they have my shares noted in their records and they do not. What can I do now?

A: I hope your share certificates are those fancy ones that make interesting pictures. Because that’s the only thing they are good for.

Yourshares are worthless, says Oliver Mander, chief executiveof theShareholders’ Association.

“The government’s 89per cent stake in NZ Steel was purchased by Equiticorp in November 1987, with minority shareholders paid out soon afterwards,” says Mander.

“NZ Steel shareholders had a choice of accepting 44 cents in cash for each share held, or one Equiticorp share for every eight NZ Steel shares. A compulsory acquisition was completed by March 20th 1988.” It seems you would have ended up with Equiticorp shares. And the following year, that company collapsed. NZ Steel is now fully owned by Australian company BHP, says Mander.

After last week’s Q&A about long-lost term deposits, this makes two stories in a row in which hopeful readers have ended up with nothing. Maybe we can do better with the next Q&A.

Dad's secret

Q: I read the “bank quest” question – about the term deposits – in last week’s column with interest (please excuse the pun), and was reminded of my mother’s situation.

My father died unexpectedly in 1988 and my mother expertly managed herself into an excellent financial position over the following years. However, my father travelled widely and she strongly suspected that he had an overseas bank account which he used to manage his travels. But she was never able to find any records in his personal files. Is there any way that such a mysterious account could be discovered?

PS. I love your article and have read it for years. It is always well considered, balanced and engaging. Don’t see this as an attempt to get you to answer my question, because I understand you will get way more than is possible to respond to.

A: I don’t know how you would uncover such an account, but perhaps readers have suggestions. There must be some people who, for instance, have found money their partners had squirrelled away overseas after a marriage break-up.

By the way, it’s great to hear about your mum doing so well with the money. In too many stories it’s the opposite.

Also – I would normally delete your postscript. But I just wanted to say that I don’t favour people who make kind comments. Still it’s nice to get them, so thanks everyone.

Also – I like your pun.

– Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. Her opinions do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to [email protected] Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.

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