Why exactly should interest rates have to go up?
I just do not get this. There was a piece on the news last night about the large and rapid increase in the cost of living over the past year. This means inflation goes up (which just tracks how much prices have risen). Which means that interest rates should go up. Because that will apparently curb our spending and bring the rate of inflation down.
Except that the costs that are going up are food, power and petrol, as well as the luxuries. (A flat white will often now cost $4.50 whereas you used to be able to get one for $3.50 or even $3 even a year ago.)
Petrol went up by 20 per cent, food by 7 per cent and electricity by 7.8 per cent as the consumer price index rose 5.3 per cent in the year to June 30, the biggest rise since 1990.
The figure includes last year’s rise in GST but, even without it, inflation would still have been 3.3 per cent, above the Reserve Bank’s 1 per cent to 3 per cent target.
Now economists believe there is a 70 per cent chance of a rise in mortgage rates before December to try to curb inflation.
So why would you increase interest rates, putting up the cost of the mortgage, in order to give people even less money to put petrol in the car to get to work and earn the money they need to pay for the mortgage?
Why would you give them less money to put food on the table?
Why would you give them less money to heat their homes?
Because news reports are also saying that money is not being spent in retail stores. In fact an article in the Dom Post this morning actually bemoans that even the Kirkaldie and Staines winter sale is a bit of a damp squib – as opposed to the usual “queuing round the block” grand event.
And of course all of this goes hand in hand with little or no pay rises for the majority of people.
I can only hope that someone at the Reserve Bank of NZ can tell the somewhat obvious difference between inflation caused by people racking up credit to buy stuff they don’t need, and inflation caused by the basics rocketing up in price. It seems a bit obvious to me, but then I am not an economist.
WheresMyTaxes – humour
Ok, so also reading some of the comments are just as fascinating and funny at that.
Inspired by wheresmytaxes
Can I have my 62c back please?
Filed under: Economics, General Budgeting, Hubby's Views, Immigration Advisers, Life in New Zealand, Retirement, Pensions and Kiwisaver
I was browsing through some news articles on Kiwiblog and came across this one about Govt income & expense. Which is talking about the Where’s My Tax? website, using figures from this weeks budget.
Which is quite a fascinating resource..
Top right of the page you can switch between income (taxes) and expense (public spending) .
One of the wow! factors for me was the single biggest Govt expenditure:
NZ Super (Pension). At $2173 per person per year.
Second place goes to Treasury debt servicing, at $829 pppy Our collective revolving credit facility costs us all $829 a year. hmm, that seems like an awful lot of money doesn’t it?
Primary education comes in third at $620 pppy, that’ll be all those ‘voluntary’ contributions.
With Secondary & Tertiary education each getting $455 pppy, more ‘voluntary’ contributions then! 
DPB, at $430 pppy, comes a long way behind as the second biggest MSD expense, after NZ Super.
One of the buried slithers (actually the second smallest) on the income page is Dept of Labour, showing this income;
Yes. The effective income from immigration ‘advisers’ is 22c per year. The effective income from giving someone Residency, ten times that.
But wait, lets look at the expenses shall we?
So this is just a list of the bottom half of DoL expenses. 62c a year to run the IAA.
I don’t think these numbers are any different from what has been previously posted. Presented in a fascinating way though.
Would you apply for a mortgage for someone else…
Filed under: Banks, Economics, General Budgeting, Interest Rates, Credit Cards & Mortgages in NZ, Property & General Investing
and then complain when you realise that you were scammed and the mortgage broker lied to you when they told you it was to help a British couple out whose money was locked up in the UK???
Much as I would like to help people make the move to New Zealand – the answer for me is
NO WAY IN HELL!
Because call me nuts – but isn’t it fraud to apply for a mortgage or loan under you own name, when you know its actually for someone else, especially when you are doing so on the promise of being paid money by these people when the loan draws down, and then a monthly fee from them?
This is what has happened to a couple on the Kapiti Coast. They got scammed by Kerry Brundle, a mortgage broker. And they have finally woken up and gone to the police – along with many other victims who for some utterly inexplicable reason took out loans to give this woman money. The mortgage payments were supposed to be met by Brundle, or some other fictitious character and then the people scammed were also supposed to receive a payment when the loan was drawn down, and then ongoing payments each month. To say “Thank you”.
Mark Mason can testify to how persuasive Ms Buddle could be. He took out a $42,000 mortgage on his house in Paraparaumu in 2008 so he could lend her money to renovate her home. He has since had to sell his house to avoid a mortgagee sale.
“She said it would be good for both of us. I trusted her, she was a friend. I thought this has got to be easy – get $1000 upfront then $100 a month – for signing a piece of paper.”
Were they all barking nuts???
Why oh why oh why would you mortgage your house, risk yours and your families financial future to give money to someone else? Charity is one thing – stupidity is quite another. If you have the money and want to help people – that’s great: laudable and entirely your choice. But when you are prepared to sign loan documents under your own name knowing full well that you are lying about the loan being for you in exchange for money, I’m afraid any sympathy I have goes out the window. To me – this is what greed is – you do something which highly unethical, because someone is going to pay you money to do it.
That doesn’t diminish how much of a snake Kerry Brundle is – living like a millionaire on the money she scammed out of people. There are an awful lot of people out there pretending they have a lot of money when they don’t, so she will not be the last person to get caught for trying to live off other people’s money I’m sure.
Why do people do this?
We were prepared to take a certain amount of risk when taking out mortgages to buy our investment properties. But always – we ran the numbers, listened to advice, and remembered that if we screwed up or things got difficult – we were risking not just our home and future – but that of my Parents and brother as well. I sure as hell would never risk that to borrow money for someone else! If I give money – for any reason – it is money I can afford to give – and I give it because I want to – not because someone will pay me to do so.
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Why do so many Kiwis leave for Australia?
Filed under: Cost of living, Economics, Getting to New Zealand, Life in New Zealand
The herald ran a piece asking kiwis for thier thoughts on whether they are considering moving to Australia. I thought it was interesting because for a lot of immigrants there’s a bit of a toss up between going to Aus or NZ – things like this give a different perspective on the whole issue. A frequent complaint about us immigrants from Kiwis is that we only come here so that we can get residence for 2 years and then go to Aus. Of course it ignores the fact that people also get residence in Asutralia as a way of getting into NZ because it’s easer for people to get jobs in Australia.
It also completley ignores the fact that the vast majority of people so sick of New Zealand that they move to Australia – are KIWIS.
Not Immigrants.
Here’s a selection of some of the more colourful comments (inclusion in no way should be taken as a sign that I agree with these comments)- but I really recommend working through them all.
“NZ – where we are forced to pay global prices for our products – but cannot earn global incomes. As a social experiment, NZ is a failure, if not a disaster.
New Zealand employers need to realise that they are in a global contest for talent. To attract and retain the best workers they need to benchmark pay and conditions with the rest of the world, especially Australia.
Of course, we may never be able to match what is offered overseas but more of our companies must strive to become globally competitive to “raise the bar” on our wages and salaries. New Zealanders are some of the most mobile people in the world and have proven they have no qualms about leaving New Zealand for greater opportunities
I am going to Australia because of the complete lack of job security and career options in New Zealand. Five years out of ten NZ has a recession and there is no sign that change is on the horizon.
Number one is because of the money but a close second is all the PC rubbish that goes on in this country. A particular annoyance is the prefrential treatment of Maori and the amount of tax dollars spend on Treaty settlements that would be better used elsewhere.
Our polititions have been way too sucessful in making their policy buying billionaire mates very rich. Unfortunately they forgot to leave some leftovers for the local peasants.
Yes me and my family are moving in october, we have A young family with two kids under the age of three and the only way we can give them the best in life with more opportunities is if we move over.
I have to say I love new zealand but with our pay rates staying the same and only climbing A little each year but the price of everything going up including mortgages, rates, rent and normal cost of living were only going around in A little rat race and only have the option to move.
We live in australia (qld), but cant wait to return to nz, the weather is awful, too humid and hot, in the winter its always very windy so we dont even get to use our boat, the fishing is crap also.
The aussies dont look after their elderly and nz’ers get no help unless you become a citizen (not even nz flood victims), we wish we had never wasted so much money and come over.Its not all its cracked up to be, cost of living very much the same as nz, fuel rising, food prices high, nz is still the best place to be.
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You don’t save when you have debts to pay.
Filed under: Avalon's Money Thread, Economics, General Budgeting, Interest Rates, Credit Cards & Mortgages in NZ, Property & General Investing, Retirement, Pensions and Kiwisaver
It is a fundemental rule of personal finance and budgeting:
Do not save while you have debt to pay off.
So why is it that the supposedly “clever” people in the savings working group want to force people to save because we have too high a level of debt? It makes no sense, in fact its the most stupid and finacially dangerous idea you could come up with. The scary thing is – they have to know this – they really can’t be that thick – so why are they suggesting it?
First of all- why is it a bad idea?
Well, its all to do with interest rates. You get less interest for saving than you pay for borrowing. For example, ASB pay you 3.65% for any savings you have, and charge you a minimum of 6.25% for any borrowings you have. (Up to 19.25% if you have credit card debt with them). So WHY would you put any money in the savings account when it can work at least twice as hard for you paying off the debt?
And because you pay tax on any of the interest that you earn – you are even worse off. The simple fact, to earn enough interest to make it worth “saving” (or “investing” ) instead of paying off debt you need to be able to earn that 6.25% AFTER THE INCOME TAX HAS BEEN PAID. That means you need to earn about 8% interest in savings or investments.
Anyone know where you can get that?
(Actually – First Direct in the UK are currently offering 8% on thier regular savings account – but that aint gonna help most Kiwis, or expats unless you already have an account with them).
So – Forced Kiwisaver then?
Yep – thats the bee-all and end-all of everything. Open a Kiwisaver account and the economy will fix itself. You won’t be able to eat – but hey – who cares about that? We will stop using debt to buy things we can’t afford, and no one will have any money to plow into investment properties because it will all be in the stockmarket. NZ Business needs the investment – and as too many of us are not doing as we are told – we need to be forced to behave.
A classic quote in a second article today shows the attitude of these people really eloquently I think:
“KiwiSaver has considerable potential to further help people select appropriate investment assets,” the working group report said. “At the moment this potential is not being fully realised.”
Ie – “stop thinking you know better than us – we tell you Kiwisaver is the best investment – and if you won’t believe us – we will force you to. You are too stupid to select your own shares and we really are terribly hacked off that you want to buy property – because none of us get a cut of that!”
Of course, buying shares, unless you buy in an Initial Public Offering never actually puts money into a business – it just values the business. Which means that on paper the business is worth more and can borrow more. Um – isn’t that bad and greedy when Property Investors do it? It will of course put money into the pocket of the person you bought the shares from. Much like buying a property off someone who bought it as an investment puts money into the greedy gits pocket!
The first rule of smart finances:
Pay off your debt first.
It’s the best form of “saving” there is, purely because of the cost of borrowing and the effect of compound interest. If you want to try and beat the interest rate you are paying on debts, then you tend to have to save the money in risky investments, or property (and that as we all know is BAD!) And even then – it isn’t easy – and is dependent on a lot of outside forces. Investments can and do lose money – because money always goes in cycles. Theres are booms and busts – in a boom your investment goes up, in a bust it goes down.
But one easy way to get the best return on money is paying down debt. It’s risk free, makes the absolute most of every pound or dollar, and also reduces your personal risk. Can you get a better investment for your money than that?
Does this include mortgages?
Yes and no. In general when people talk about “debt” they mean non-mortgage debt. But clearly when you end up in the middle of a financial crisis like we are right now, mortgage debt is also a huge issue for people, so I personally think you can’t forget about it that easily. And when the boffins in these working grups are whining about our debt levels – they are also talking about mortgage debt. Most of our mortgages are business related, so they are tax deductable – effectively this brings the interest rate down by about 1/3. (which would be exactly the same if we have taken out the loan to buy shares with by the way). But it should never be forgotten that they are still debts, and they cost a lot of money to service. It is in the end money we owe. To be honest – if we didnt have the investment properties then financially we would be laughing all the way to the bank because our spending is way lower than earnings right now. All our spare money is going into paying down debt and keeping our properties.
If we are forced to pay Kiwisaver contributions as well – how the bloody hell am I supposed to pay the mortgages and reduce debt levels???
I may be good with money – but I am not that good!
I will be writing another blog about this, and what the Savings Working Group actually said in full, because from the skim read I have had – there are some really good ideas in there. Just some truly barmy ones as well, and an arrogant insistance that I MUST have a Kiwisaver account.
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Are house prices in New Zealand really too high?
Filed under: Cost of living, Economics, General Budgeting, Interest Rates, Credit Cards & Mortgages in NZ
Or are people just wanting a Rolls Royce on a Mini Cooper budget?
Auckland first-home buyers Chelsea and David Yandell ended up paying more for their Onehunga place than they initially expected when they started out as house-hunters.
Now, they have a three-decade mortgage. “We realised that paying $350,000 in Auckland, you’d get something that was pretty crappy,” recalls Chelsea of the buying experience. So they changed their expectations and borrowed more.
“The house we bought has been finished to a high standard. It’s perfect. When we were looking, we realised we’d have to spend more. We had a look around for a few months and we had our hearts set on a couple of houses. But the places we were looking at would not have gone up in value. It wasn’t what we wanted.
“House prices are definitely too high and wages are too low for first-home buyers. We’ll be 55 by the time we pay off the 30-year mortgage. But we didn’t want to keep renting. That’s dead money. … We are now more careful with our money and set goals. If we pay a certain amount off the mortgage, we can get new blinds. We’re with KiwiSaver so we know in retirement, we will have something more than the house.”
Sorry – but there is absolutley sod all in this article that suggests that house prices are too high. Now they may in fact be too high – but not because you want a house that’s finished to a high standard. That’s just you wanting a better house than you can afford. What annoys me about this is the amount of times we get blamed for this because we are property investors, and thus automatically we are greedy. But surely the greed is in wanting something you cannot afford?
It is not the fault of high prices that these people have a 30 year mortgage – it’s that the houses they were prepared to buy could only be theirs if they took on more debt than they could manage in less than that time. That is entirely down to them, and thus their own fault.
My first house cost £84,000. I imagine that these two would have turned thier noses up at it instantly. It was old (1700′s – and 1960′s) tiny (two beds) a crappy kitchen, a coal fired stove as the only heating and it didnt work properly, and had the most disgusting wall coverings you have seen in your life, and carpets that wouldn’t have looked out of place in a crap pub. And an avocado bathroom suite! Almost all our furniture was handed down to us from other family.
But it was a great home – and when we got it done up it was a lot better than when we started. It was ours, and we could afford the mortgage on it. Im sure we could have borrowed more and got a “nicer” house – and then bleated about how much that perfect house was and how awful it was that we had to pay so much for it. And when I was going through a divorce, I could still afford the mortgage on it becuase I had not been greedy and bought a house that we could not afford becuase I wanted something “perfect” for my first home at the age of 25!
Doing that means that at the age of 35(ish) when we came to NZ we COULD afford the nice house in the country, with stunning views and a swimming pool. I would love to have had this at their age – I just wasn’t that daft – and I sure as hell didnt expect house prices to stay low just so I wouldnt have to bother climbing the property ladder.
I also always wonder what these people will do when they come to sell? Because at the end of the day, house prices are actually determined by two things: what the buyer will pay, and what the seller will accept. Human nature dictates that we complain that prices are too high when we are trying to buy – but refuse to accept “insulting” offers when we sell. We become the problem we just complained about.
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How discounting works?
From my new favorite Webcomic Abstruse Goose (with thanks to Peter B).
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Can the Exchange rate actually get any worse?
Filed under: Economics, General Budgeting, Getting to New Zealand
Having lunch with mum the other day, she told me that she had been checking the exchange rate, looking to bring a bit more money over, and seen that it have actually gone below $2 to the £!
She was right. On the third of January this year, the interbank rate was a sickening $1.986 for every £1.
I actually had a look back to see when it last went that low, but unfortunately first I came across what it was like before it went into freefall.
In fact I had to go back to the earliest date allowed on the charts at HifX, and even going back as far as 1998, the rate for people moving money this was has never been so bad.
On the plus side (I guess) this is an absolutely great time for anyone with $NZ sitting around with nothing to do. You can convert it to £ or $US and wait for the cycle to come round again. Now there are people who claim that this might not happen – that actually $2:£1 might be the new “normal”, but always before these things have worked as a cycle. Oddly you get the same argument with house prices – we shouldn’t this time be expecting house prices to rise again, and we should all get used to lower house values. I’ve noticed these are generally the same people who poured scorned on others who were claiming that there wouldn’t be a downturn in the housing market – that this time would be different.
The thing is human behavior is what causes these cycles – and at some point house prices, interest rates and the exchange rate will start improving. The real problem is that there is no way to tell when that will happen.
Unfortunately this just means that right now it is going to be very hard for most people to emigrate if they are relying on fund from their home countries. I thought we were hard done by when we moved and were getting a paltry $2.50! You notice when it was nearly $4 to the £? Thats when there was a huge spike in immigration to New Zealand – whereas at the moment, immigration is pretty low.
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Would you check a bill to save $5? $500 or $37,000
This past week I have been pouring over receipts and bills for which our apartment body corporate are being charged. These are back-payments relating to the past 3 years – where the developer has been paying for upkeep on the property, when really the body corporate (that is – a collection of the owners) should have been paying them.
Except maybe they shouldn’t have been.
Which is where my “I have no life and get a sick kick out of playing with spreadsheets and scrutinising receipts” skills come in.
Every single one of the receipts was uploaded on to a website for us to look at. So we did, and then rolled on the floor laughing at some of them. Some of them were for other buildings owned by the developer, or his other businesses. Quite a few in fact.
One was even for light bulbs (nearly $6,000 worth of the things) for the new IBM office in Petone.
Talk about adding insult to injury – we have to be prepared to take IBM to court, and now we are being asked to pay for their damn light bulbs!!!
I don’t fippin’ well think so.
The upshot of me being picky, and a pain in the arse, is that this portion of the “special levy” we were being asked to stump up for went down by about $37,000.
I’m still not happy with some of the expenses being claimed, and we have voted for someone independent to check them out (with the best will in the world I am not qualified to go further with it than I already have). The saving to us personally is still a few hundred dollars – not to be sneezed at – an independent check could save us even more. And although it was a bit awkward and time consuming – I don’t think it hurts for people to be made aware that I will indeed check and make sure that what I’m being asked to pay for is legitimate and fair.
In the past 2 months we have actually claimed back about $60 in fees that we have been overcharged by various companies. That might not sound like a lot – but right now every little helps.
You may not save $37,000 every week by spotting mistakes in bills – but you won’t save anything if you never check.
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