Susan Edmunds, RNZ's money correspondent. Photo: RNZ
If you have questions you'd like answered, email susan.edmunds@rnz.co.nz
After reading your article about how to get a home loan, my partner and I wonder if considering our financial and social situations, we could apply for one and if yes, which bank and how much could we ask for. I am 61 years old (ouch!!!), full time employee, My partner is 45, unemployed but finishing a course to upskill. We have two children aged 12 and 14. We currently rent a house for $520 and have never missed a payment. We have combined net income if $77,000. Our KiwiSaver balance is currently $38,000 and have a saving account with $14,000 in it. We do not owe any money or have hire purchases.
You may run into questions about how long you are likely to be working and earning your current level of income.
Banks have a requirement not to lend to people who will struggle to afford the loan - so if it looks like your income might drop at some point in the near(ish) future, that might mean the bank is more reluctant to lend, or reduces how much it will lend to you, or limits the period it lets you take the loan out over.
Generally, when banks are assessing applications from people who might stop working with in the normal term of the mortgage, they want to know what their exit plan is. Would you have money from elsewhere to clear the loan at that point, would you downsize… that sort of thing. If you use your KiwiSaver as a deposit, that won't be there as an option to withdraw and pay down your loan.
If you plan to work until you are 70, that's another nine years of income. The bank might look at whether your partner will be working and earning enough at that point to sustain the mortgage on her own.
In your case, mortgage broker Glen McLeod told me that you might have a better chance once your partner is working but there are other questions to work through first, like whether you could get an accommodation allowance or support from Working for Families to boost your income, what area of the country you're looking at and your partner's employment prospects.
Banks have a requirement not to lend to people who will struggle to afford the loan, Susan Edmunds writes (file image). Photo: RNZ / Nate McKinnon
With regard to the money trail around a higher OCR. The Reserve Bank increases the wholesale cost of money to the retail banks who pass on the increase in costs to borrowers and pay more to depositors. A cynic might suggest that this is taking money from the poor (so that they have less to spend on consumables and so bring down inflation) to give to the rich, who seemingly incur no financial discomfort in the process of bringing down inflation.
Is that a fair assessment and if not …how are the wealthy helping to bring down inflation?
It's correct that when interest rates are high, people who borrow money have to pay more and people with money in the bank receive more. That's because the Reserve Bank is trying to reduce consumption and encourage saving, to slow the economy.
So people who are not in debt and have assets do tend to do better out of that part of the equation.
But people who have assets also see inflation reducing the value of those assets - NZ CTU economist Craig Renney points out that if you had debt, the inflation would reduce the value of that debt, which could be a benefit. They also face higher costs through inflation, as everyone else does.
People who have assets and own a business, or are invested in a business, can also be affected by the tighter monetary policy and resulting economic downturn.
Renney said, broadly, people with assets in the bank would be affected by higher inflation like everyone else was.
"The difference is that they may have more choices about how they are impacted. If you think about spending as coming in two flavours - discretionary and autonomous. Autonomous is that spending we have to do to exist - shelter, basic food, heat ... Discretionary is our disposable income after that. For lower income groups, higher inflation and interest rates reduce both the level of discretionary income, by increasing their autonomous expenditure, and the purchasing power of that remaining discretionary income. Higher income groups are affected the same way.
They may also make contributions to inflation reduction by moving more of their discretionary expenditure into savings. This generates them a future reward - interest - which isn't available to lower income groups because they don't have that surplus income to save."
