Filed under: Interest Rates, Credit Cards & Mortgages in NZ, Jobs & Work, Property & General Investing
We are now three years into the Global Financial Crisis – with whole countries on the brink of bankruptcy, and huge Bail out Packages being organised to protect them and allow then to keep on spending. Not so for the likes of you and me – we don’t get Bail-Outs. And rocking up in front of the bank rioting about it will just get us thrown in jail.
New Zealand still seems to be pretty much protected from the worst of the crisis. I’m not even sure if we are in a Technical Recession “Growth of -0.1% is a recession, growth of 0.1% isn’t.).
But – with our without that, individual people in New Zealand ARE affected. People have lost thier jobs, though unemployment is still relatively low here compared to historic figures, and no where near the dizzying 11% predicted by some think tank idiots. Many people have lost properties as they overreached in the property boom and had nowhere to go when the music stopped.
Complaints to the Banking Ombudsman about Mortgagee Sales (where the owner stops paying the mortgage and the bank takes over the property and sells it to recover some of the money they have lost) are at an all time high. Mainly because the banks go for quick sales rather than getting the highest price – which often leaves the owner still owing money to the bank, even though they no longer own the property. The bank can also charge any fees and costs on top.
Recent cases include a couple whose retirement plans were devastated by the mortgagee sale of their home and three investment apartments.
The four properties had been valued at $2.1 million but fetched $1.5 million. The couple were then sued for another $350,000 – and then pursued for the bank’s $40,000 legal fees.
HIGH PRICE TO PAY AS DREAM MOVE TO NZ TURNS TO NIGHTMARE
In John Lamb’s mind, there is no doubt he could have saved his retirement. He says the three houses he and wife Leslie lost in a mortgagee sale could have fetched a better price and saved their family home from the same fate.
“There’s one selling in the street for $425,000 and they sold mine for $300,000.”
The High Court at Auckland disagreed. Justice Edwin Wylie said he had “sympathy” for the Lambs but they had no defence to the $346,000 they owed Westpac.
The debt was still remaining after the mortgagee sale. The Lambs weren’t arguing it. Instead, they said they shouldn’t have to pay because Westpac didn’t get the best price for their properties.
If they had, they argued, there would be nothing left owing.
“I’m in the middle of a jungle. They’re coming after me,” says Mr Lamb, who expects to be made insolvent. “The man in the street is gasping for air.”
The sales came almost two years after Mr Lamb lost his job. “How would I pay my mortgage if I didn’t have a job?”
The property portfolio went for 73 per cent of valuation. The Lamb family home was sold for $600,000 against a valuation of $780,000.
Mr Lamb, originally from South Africa, says the experience has soured the family’s decision to move to New Zealand. His adult children have left to work in the Middle East. He would like to leave – but won’t be allowed to travel as a bankrupt. “It makes me totally sick about your country.”
The judgment records the Lambs’ accusation that Westpac sold the properties too cheaply. They told the court it was not marketed properly and was dealt with by specialist mortgagee sales agents who had about 40 other properties to sell.
“What salesman can handle selling that many houses?” Mr Lamb asks.
But it also shows the bank repeatedly tried to work with the couple to sell the properties before taking over the process. It advertised them for 11 weeks before they were sold at auction.
A Westpac spokesman said going to a mortgagee sale was the last resort. He said the bank tried to work with the customer to find ways to avoid the sale and urged those facing difficulties to let their lender know.
“In all mortgagee sales, the bank makes every effort to obtain the best possible price.”
So, a couple of points here to think about:
LVR (Loan to Value).
With over $2m in property, its advised that LVR is no more than 70%. The more property you own, the lower the LVR should be. Now that’s hard when property Values drop. Our LVR went from 70% to 80% because the values of our properties dropped. We are working to pay off mortgages to bring it back down to 70%.
“How would I pay my mortgage if I didn’t have a job?”
Property is NOT a risk free investment. Sure it has major advantages over shares (whose values can and have in some cases go to zero where at least a property is worth something). But you also have big debts with property, and the value of the property can end up being less than the debt on it. You should always have income protection insurance that will pay you a salary if you lose your job. You should not expect the banks to sit back and not get their mortgage payments.
This is not New Zealand’s Fault.
This bit made me really mad to be honest. Yes there’s a lot of things I don’t like about life here – getting ripped off by the banks is one of them. But it isn’t NZ’s fault that we chose to invest in property just before a global financial crisis hit the world. We made that choice and we took that risk. For Hubby and I it has not exactly been a bed of roses for the past few years – without our investment properties – right now we would be living the high life to be honest. But is the fact that getting through this is tough really the fault of the country we moved to? It would probably have been an awful lot worse had we stayed in the UK.
Dis the bank really not get the Best Price?
The “value of the property” is often a topic for heated debate. Just because you have a piece of paper that says your house is wroth $780k – does not mean that is the price you can expect to get for it. Did the Lambs try selling their properties when Mr Lamb lost his job? And if they did why didn’t it sell? Most properties I have seen for sale over the past few years are up for sale at prices that were fine 3 years ago. They are not fine now.
A property “selling” in the street for $425 k is not a property SOLD for that. And a forced sale will always drop the value of a place.
Banks don’t always chase the extra money.
We know of people whose banks took this action 3 years ago, leaving a shortfall. The banks have never gone after that shortfall. Thats not to say they won’t – but clearly not everyone is expected to play by the same rules.
There’s an article in today’s Herald from a Christchurch man whose goods are stuck on the Rena.
Mr Rhodes may also be left short on his insurance. His first thought was, “The ship won’t sink”, but he insured his contents in case anything was broken.
“We were pretty sure $25,000 would cover it, but now we’ve been going through everything … that insurance is not going to cover it all.
We actually created a spreadsheet of absolutely everything we were shipping. We were as picky about it as we were about budgeting – so everything was listed – and we gave everything a value. So by the time we organised the insurance – we knew exactly what we owned (which was a shocking amount of “stuff”) and how much it would cost to replace.
We worked out we needed cover for £44,000 worth of stuff. Scarily – about a 25% of that was for our books – and that was priced for replacements at UK Prices – which is considerably cheaper than NZ prices.
Yes it costs – but put that into context – $25,000 of cover even at todays exchange rate would only cover the replacement of our books (about £12,500). We are all notoriously bad for under valuing our goods.
So I really recommend – painful and immensely boring though it is – actually sitting down and cataloguing everything before you ship. There’s also another upside to this – anything you pack before the shippers get in (possibly like us you have your house “staged” for selling so a load of stuff is boxed up in advance) – you can actually number the boxes and add the box number to the spreadsheet. Makes finding the lemon juicer a helluva lot easier to find at the other end.
Filed under: Cost of living, General Budgeting, Only in New Zealand
I was updating the accounts today, and realised that I hadn’t put in the new amount for Hubby’s Life Insurance premiums. It goes up every year, and there’s also an Inflation Adjustment option as well. AXA New Zealand send through the new premium notice, which is fine as long as the premium refers to just one single policy. In this case though, the monthly premium (not a snip at $224.88 by the way) covers Life Insurance, Disablement Cover, Trauma cover and Income protection.
Now all those things are listed separately in our accounts, so I need to know the breakdown – how much of that rather large premium is for each part of the policy. This is especially important as income protection premiums can sometimes be tax deductible.
Unfortunately, AXA New Zealand don’t tell us the breakdown on the notice, so I had to phone their helpline.
The first issue was that they don’t have me listed on their system as a “Policy Owner” so they can’t talk me. (Actually the first first issue was the worlds worst hold music, but that’s by the by). We got that sorted on account of the Inflation Adjustment notice clearly shows me as a policy owner (Duh! There no point in Hubby owning a life insurance policy on himself – he’s not exactly going to be in a position to make a claim!)
So that being dealt with, we get to the actual reason I called – could I please have a break down of the new premium?
That has to go to admin, not the helpdesk, as they only have the information that I have – ie: $224.88 for the whole lot. They would have to raise it with admin and get me a new quote.
The lady was clearly a bit embarrassed at having to tell me this, and offered to speak to admin and see if they could do it for me there and then. They refused (still not impressed with Admin depts in general – for crying out loud how difficult would it be???) So now an official request for a new quote had been put in, and they have to go the trouble of sending me a written quote because they cant be arsed to keep proper records.
I tell ya – trying to get insurance in this country just beggars belief at how expensive, and damn difficult it is. No wonder most people don’t seem to bother taking it out. Its like trying to scrub your own brain with a nail brush!
Filed under: Banks, Cost of living, General Budgeting, Property & General Investing
I’m having a slightly irritating day to be honest. I’m off to Sydney – which is going to stretch my budget to within an inch of it’s poor life, and I’m trying to change the buildings insurance on my rentals. Currently its done via ASB, but I have been looking to take the business from them on account of their refusal to give me any discounts on my bank fees or interest rates.
So I got a quote from a broker – it doesn’t save me a huge amount – only about $50 a year for 2 properties – but it has the advantage of not being via the bank. I reviewed the policy documents, filled out the paperwork, and just needed to confirm the amount of the premiums in order to fill in the Credit Card Payment option with details.
At which point, I am advised that there is a 2% extra charge to pay my Credit Card!
So I double check – no where, but no where does it mention this. Not a scooby.
And even if it did – why the hell do I have to pay someone else’s bank fees?
I pay my own. It is beyond outrageous to expect me to pay someone else’s as well.
When I think about this – it is in much the same vein as the whole MAF Fees scam that some shipping companies try and pull. Where immigrants get charged spurious “extras” which are basically business costs for the NZ subcontractors. I wonder why they don’t go the whole hog and charge us extra for the staff loo roll.
Anyway – they have decided that I don’t have to pay it – but to be honest I’m considering not going ahead anyway. It’s the principle of the thing.
But always remember – in almost ALL cases – these “charges” can be argued against. At the very least – if anyone tries it one without telling you up front – at the start of the transaction (not whacked on at the end hoping you won’t notice) you have every right to refuse to pay it. There’s about $3500 worth of insurance premiums involved here – possibly lost because of a desire to wring another 2% out of me.
From the amazing Very De-motivational website.
see more Very Demotivational
Filed under: Avalon's Money Thread, Cost of living, General Budgeting, Retirement, Pensions and Kiwisaver
We are still on the hunt for decent life insurance, given that we had to pull the cover from ING, and would like to pull the cover from ASB as well.
If you are moving here from the UK – whatever else you do – make sure you have Life Insurance and Critical Illness Insurance in place before you leave and make sure you will be covered once you emigrate.
Because I can almost guarantee you will die of a heart attack one you see what you are expected to pay for it here. Its outrageous – a bloody rip off.
I explain this in more detail in the book, but basically – in the UK the premiums are set according to your age when you take it out.
Here they just go up and up and up. And up some more. And then just when you really need it – from about age 65 onwards – you would need to be a multimillionaire to afford the premiums.
We are currently looking for about 1.4m in cover. Now I know that sounds like a lot of money – and possible you might thing it’s a bit arrogant to think that Hubby would be worth this much (I am worth considerably less which is a bit depressing). But this is because we have rental properties, with mortgages on, and they need to be paid off if Hubby croaks).
If we get stepped premiums – which go up every year – then we pay about $1500 a year for the premiums ($125 a month). If you get level premiums (which stay level till age 65 and then “wallop” you with a hike you just would not believe) then we have to pay over $6000 a year ($500 a month). The stepped premium hits a truly bewildering $44,000 a year by the time you get to age 64.($3600 a month).
Compare this to my UK life insurance (which includes Critical Illness cover) costs £10 a month, and will do until the day I die. Even if I’m 127 years old.
We worked out that till age 65 – the difference in payments in level and stepped over that time makes nearly $60,000 more to get stepped premiums.
However our Insurance Broker sat me down and told me I should revisit my views on this – and look at the cost NOW. With our budget being squeezed to within an inch of its life because IBM is too tight to give even cost-of-living pay rises (but can pay $80,000,000 for a new data centre) we simply cannot afford $500 a month on premiums.
So the plan now is to take stepped premiums, and as we pay down mortgages – reduce the cover and thus try and offset the rise in premiums each year. Still – it annoys me that Kiwis so easily get ripped off.
Filed under: General Budgeting, Retirement, Pensions and Kiwisaver
It’s all going to hell. Times are tough. You may have to take a forced day off to prevent redundancies.
Ok, what should you do with your money? Where do you put it? How do you save money when you cant even afford your bills now?
Well, one of the books I read when I was starting out on my moneysaving and investing path, was The Richest Man In Babylon. This book tells a series of tales about a slave in ancient Babylon, who became very wealthy. Each tale relates to a different law of money. The really cool thing is that if you basically handle your money according to these rules – you will be OK.
Now this may be a tough time to change the way you handle your money – but I’m gonna be honest with you – there is never a “good” time to accept that you have been doing things wrong. When we did it – we fought for about two months while we tried to justify to each other why it wasn’t our fault that we were in debt and drowning.
So here are the 7 rules from the Richest Man In Babylon. I suggest reading the book – it’s a classic.
7 Cures for a Lean Purse
FIRST CURE: Start thy purse to fattening
Save 10% of your income
SECOND CURE: Control thy expenditures.
Spend less than you earn. Budget and track your money.
THIRD CURE: Make thy gold multiply.
Invest: understand compound interest.
FOURTH CURE: Guard thy treasures from loss.
Make sure you are insured.
FIFTH CURE: Make of thy dwelling a profitable investment.
Pay off the mortgage and own your own home – don’t rent forever.
SIXTH CURE: Insure a future income.
Make sure you have some sort of retirement fund.
SEVENTH CURE: Increase thy ability to earn.
No point working for the same salary forever – it is effectively working for less. Upskill and earn more.
Even in the UK, you will probably have seen the harrowing images of the bushfires in Australia. I wonder though how any people really take too much notice. You see, I remember seeing the news reports about wildfires in Australia and California when I lived in the UK, and it all seemed so – well – distant.
This week – not so much. Because at the end of that day – it could happen here. We too carry the risk of losing our homes to bushfires. On my Facebook page – there are a number of friends, including me – who are glad to see it rain. Given that a lot of us come from a very rainy UK – you could be forgiven for thinking we have indeed gone barmy. But we need rain. The ground in the Wairarapa, and all over New Zealand is tinder dry. Our gardens are dry and brown, the paddocks are straw, and the wheat has the lovely golden colour. And it will go up in flames instantly is some twat lights a fire for “fun”.
If that wasn’t close to home enough: we had two fires on the same day, just miles from our house, a while ago. One was contained fairly quickly. The other was a Scrub Fire on the hill in front of our house. Thankfully for us – there is a river in a ravine between us and the hill – but it was a bit too close for comfort. The fire was lit by the farmer who owned the land: he had been stripping back the trees and vegetation on the hill, I presume ready to plant something else. The fires were apparently lit to clear the rubbish, and then all of a sudden – the wind changed direction. What was a legitimate and controlled fire, became a fire that got into the woods and undergrowth, and took over 8 hours to get under control.
Fire teams from all over the area came out, and yes – we did have the Helicopter with the buckets flying down into the river (thankfully there was water in it at the time – not so much now). The fire crews (volunteers) work for free – the farmer pays for the helicopter! We spoke to one of the Firefighters afterwards; he told us that there were a huge number of problems they had in fighting the fire. The main one being lack of water and there is no mains access up on the hill. Water had to be tankered in – in exactly the same way as we do if we run of rainwater in our tanks here.
Coming to New Zealand for a new life is a fantastic idea, and I encourage anyone even vaguely thinking about it to give it go. Just be aware that while on the surface, life might be quite similar; sometimes it’s very different. Simply understanding that you cannot just light a bonfire when you want to; and that fire-bans can be put in place. Be aware of the rules, and don’t end up losing everything. And get your house and contents insured. Just in case.
No insurance company can replace what the people of Victoria have lost. It will, however give them something to start again with.
We need to get our butts off the couch (or from in front of the Laptops) and get ourselves a pump for the pool. Our best access to water is to get it out of the swimming pool: but buckets just wont do it. We have been meaning to do this since we came here – and just haven’t got round to it.
This month has been a bit of a wake-up call.
Filed under: Cost of living, General Budgeting, Property & General Investing, Retirement, Pensions and Kiwisaver
Yesterday we went to have a chat with our Financial Planner – Alan at FSB4. We really had to sit down and tackle our insurance policies: Life, Trauma, Critical Illness and Income Protection. None of which even I can consider exciting – but has to be done.
Now – generally when we have sat down with people about this – the conversation usually runs along the lines of the Sales person asking who much cover we want, and then getting us quotes for what it will cost us.
This one however –went a little differently (and I always like Different).
Alan asked us what we needed to cover.
So we had to go through all our mortgages, how we wanted to be “sent off” when we pop our clogs, how many people we wanted to supply flights for to send us off (Tough – you are on your own – pay for your own flights if you want to say goodbye!), any bequests, for how many years we wanted to not have to work if anything happened, and a really cool “Recovery fund” which is basically money we can use to help us “get over the trauma” of whatever goes wrong.
It was a VERY BIG NUMBER.
And – it’s going to COST A LOT.
How many suitcases stuffed with money we will need to spend to buy the level of cover we need – is being worked on. But I may have to add a shot of brandy to the coffee that Alan had better be buying me when we have that conversation.
Now – here’s an interesting thing: turns out we have “a lot” of investment properties (that’s 3!), and basically in times past – when people died – they just sell enough properties so that they can live of the rent. Only that ain’t gonna happen now – because prices have tanked. So one way or another – we actually need to make sure we can pay off those mortgages if Hubby is no longer able to earn.
We were woefully underinsured when we sat down and worked it out. At a rough guess – our Life Insurance is probably about half what it needs to be.
And also at a rough guess – we may need as much as an extra $500 a month to pay for it. As good as I think I am at budgeting – that is gonna be tough. We were due to do one of our Budget Reviews at the weekend, but I have decided that we may as well wait till we have some firmer numbers about the cost of this – and then at least I know what to aim for.
At that point – we have to prioritise our insurance requirements (because I’m not giving up my Coffee Budget for life Insurance – no way!).
Insurance and risk planning are things that tend to get forgotten about – but it doesn’t hurt to occasionally sit down and work out just how many $$$ your life is worth. It is probably an awful lot more than you think it is.