Kiwi Saver, Mary Holm financial writer and columnist

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Mary’s Q&A column appears in the Business section of the Weekend Herald. Mary was a finalist for the "Best Columnist – General" award for this column in the 2014 Canon Media Awards.

NZ Herald 25 June 2016

Q&As: Don't count on house price rises - and it may be better to keep renting
- Couple need to make up their mind about buying vs renting
- KiwiSaver providers occasionally slip up on claiming tax credits

Question: I've just read your recent article about house prices.

How is it possible that the house prices in Auckland will go down? For example, if now I buy a house with a $700,000 mortgage and its cost is $1 million, within three years I can sell it for $1.5 million, repay the mortgage and earn $500,000!

If I rent a house, it will be a waste of money. It's like throwing money into the garbage. What do you think?

Answer: I think two things:

- Your thinking is dangerous.

- Not only is renting not a waste of money, but in the current market it may be smarter to continue to rent rather than buying.

First point first. As I said two weeks ago - with a graph to prove it in the paper version of the column - house prices have fallen several times in recent decades. And in quite a few other developed countries they have fallen a long way.

While people might say, "It's different this time" - because of immigration, low interest rates, regulations and so on - it's always different in every boom. And there's always also a psychological element, of people panicking and thinking they must buy now or miss out. That boosts demand and prices further.

Then we have the "greater fool theory". Some people realise Auckland house prices are "too high" but they buy anyway, figuring that there's always a bigger fool out there who will pay them even more when they sell.

Nobody can accurately measure how much of the Auckland price rise to attribute to economic issues and how much is psychological. But we can be sure the latter has some part to play.

And psychology also plays a part when prices start to fall. Again people panic, but this time that means selling at a low price to get rid of a property quickly before prices fall even further. Others see prices slipping and quickly follow suit. Things can get ugly pretty fast.

So ... please don't put your plan into action if you're counting on a big gain. Within three years you might find yourself selling the million-dollar house for less than the mortgage.

As for rent being a waste of money, you're buying accommodation. It's no more a waste than the money you spend on food, transport, clothes or - for that matter - interest on a mortgage.

Of course paying down the principal on a mortgage is different. That's like saving. But a big chunk of mortgage payments, especially in the early days of a long-term table mortgage (the most common type), is interest.

Many renters will find their rent is currently a lot less than mortgage payments on a similar property. If they save the difference in a fund to be used to buy a home later, and if house prices fall a bit - they don't need to plunge - they could end up better off than recent home buyers. For more on this read on.

Question: I am writing to you in the hope of some guidance.

My wife and I are at a crossroads I feel, and neither of us are particularly good with our finances as we tend to live week to week. We have three children currently, with a fourth on the way.

We have been pre-approved for our first home loan up to $850,000, which is great. However, our lives are in central Auckland due to our work and kids' schools. Our oldest is midway through year 8, and with heading to college next year (hopefully Grammar) the last thing we want is to move him to another zone.

We really are in a dilemma re whether to carry on renting or to buy in Auckland. We are really confused by the current situation and don't know whether it is still a good time to buy or if it's likely to crash and we are better to wait.

Some reports state house prices are still rising, and in six months we will be looking at a $1 million median price, and then others state it's all going to come crashing in around our heads.

Add to that there is serious rumour about the government looking at loan-to-income ratios of 4-5 times salaries, which would really bugger up our chances of a first home here, and we are really perplexed...to the point of sadness and disagreement re our options.

Help? Any advice greatly welcomed!

Answer: I don't like the sound of "sadness and disagreement". It's horrible the way financial issues can harm relationships. So let's see if we can find something you two can agree on.

Nobody can tell for certain whether you'll be better off buying now or waiting. As you say, even the experts are divided.

If you were pondering whether to enter the share market, I would say, "Don't try to time markets. Drip feed some money in now and some later." But unfortunately you can't do that with buying a home. While you'll be paying it off over a long period, the price is set on a single day.

In those circumstances, it's often best to just make a decision and get on with life.

My suggestion is to read the previous Q&A, and then take these steps:

- Find out roughly what the house you are currently living in would sell for. Perhaps ask neighbours, your landlord, or a local real estate agent, or look through ads.

- Use an online mortgage calculator to work out how much mortgage payments would be on that house if you bought it now. I would be surprised if it's not considerably more than the rent you pay.

- Imagine you own the house, and save the difference between the rent and mortgage payments. Set up automatic transfers into a savings account, and from there into term deposits.

- Treat that money as untouchable - remembering that it wouldn't be accessible if you really did own the house. It will be good practice!

- Commit to doing this, without second guessing yourselves, for say two or three years (unless prices plunge in the meantime, in which case you might want to buy quickly). Then review the situation.

You might find, at that point, that you'll wish you had bought now. But at least you'll have a considerably bigger deposit.

And you'll probably need that if loan-to-income ratios are introduced. But I don't think you should fear that. I can't imagine the ratios being so tough for first home buyers that it's impossible for you to get into the Auckland market.

On the plus side, a loan-to-income ratio would force you to pay more upfront. That means not quite such a big mortgage. Over the years, you'll be thankful for your lower payments.

How are we doing? Do the two of you like this plan? To me it feels somewhat less risky than buying now, at what might turn out to be near the market peak.

But if I haven't convinced you both, clamber up onto the diving board and plunge into the housing market pool. No more mucking around at poolside!

Whichever you do, I bet it won't end up mattering as much as you think. As one who has bought and sold more than a few homes over the years - and lost on some and gained on others - I have to say that it all comes out in the wash, or perhaps I should say the swimming pool.

Question: Reading last week's column about KiwiSaver providers applying for tax credits, I was with AXA and on two years they didn't apply for my tax credit. I only found the problem when checking IRD records. There are also payments I made that have never been credited to me that I am still chasing, years later.

AXA was sold to AMP in 2013. When I reached 65 in August 2014 I contributed a pro rata amount of $160 rather than $1042, as the government credit would not cover a full year. AXA did not apply for the tax credit and I am still trying to get it.

My plan is to take all money to another provider when it is finally sorted out.

Answer: It seems I had a bit too much faith in KiwiSaver providers when I said last week that every provider always applies for members' tax credits. Apparently there are sometimes slip-ups.

One provider told me he occasionally finds that people who transfer into his scheme haven't received all of their past tax credits. Luckily, providers can go can go back and claim missed tax credits from past years.
In your case, AMP's Therese Singleton acknowledges that there's been a problem with your 2015 tax credit.

As you say, in the year in which you reach NZ Super age your maximum credit is proportionate to how much of the July 1 to June 30 year you are under 65. (It's similar in the year a KiwiSaver member turns 18 and the tax credit starts.)

"In this particular instance," says Singleton, "a single payment of a partial member tax credit has been delayed, but we have been in touch with the member and we're putting it right as quickly as possible." She adds, "We'll continue to work with her to ensure that if there is any confusion it's cleared up."

Generally, she says, "We have a direct and automated process that takes place between AMP and IRD - this would be the case for most, if not all, providers."

It's up to a provider to give Inland Revenue the correct information, says an IRD spokesman.

"There are various criteria in addition to the minimum contributions requirements that a member must meet to be eligible for the member tax credit (MTC), and Inland Revenue is not always aware of all the circumstances relating to the member's account which might make them eligible, or not, for the credit.

"Factors which could influence whether a member qualifies for the MTC include:

- "Member may have been overseas for part or all of the year.

- "Member may have made direct contributions to their scheme provider (not all contributions need to be paid through Inland Revenue).

- "Member may have made a withdrawal of some or all of their balance during the year."

The last item refers to withdrawals for a first home, financial hardship or serious illness.

"For instance if a member contributed $1500 in a year, and $700 of that was required for their withdrawal amount, their MTC would be calculated on the remaining $800 of net contributions," says the spokesman. "The MTC could also be affected if the account was closed part-way through the year, as it would be calculated only on the portion of the year that contributions were being made."

The moral of the story: Everyone should keep track of their own tax credits through their regular statements from their provider. If you're in complicated circumstances, as listed above, ask your provider for guidance. If they don't make that easy, switch to another one.

PS Perhaps I owe an apology to the insurance salesman in last week's column. But I doubt it. There's no evidence that any provider systematically neglects to apply for tax credits.

* Mary Holm is a freelance journalist, member of the Financial Markets Authority board, seminar presenter and bestselling author on personal finance. Her website is www.maryholm.com. Her opinions are personal, and 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 mary@maryholm.com or Money Column, Business Herald, PO Box 32, Auckland. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.

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