I have a similar question to one asked by one of your readers recently. I have $15,000 saved as a deposit on a house and my wife and I are saving $1500 a month. Should we follow the advice you gave the previous reader and invest it for 24 to 36 months or should we invest it for longer and wait for government's KiwiSaver plan to come into effect (as our income is not above the maximum $100,000). Of course we would have to wait at least five years but at least then we would have saved a large deposit and receive a sizable contribution from the government for our troubles. Our main worry wit this is that in five years' time we will both be into our late 30s and is it wise to take on a large mortgage at that age?
The 20% deposit benchmark should apply to every property purchase that you intend to live in, in my view. This can be treated a little differently if the property is a speculative purchase and the security of other assets is brought into play. That is, you are more established and developing an investment portfolio of some sort – not stretching your resources to gain a first home.
KiwiSaver is not a reality until 2012. I not sure I am able to contemplate what shape the world or local economy will in at that distant point however long run trends would suggest most everything will be numerically more expensive by then.
What will $5,000 contribute at that point? Not a lot I guess - but for those folk inline for a handout it is better than nothing for sure. I also ponder if this recently introduced policy of the current Labour Government will stand the test of future elected governments.
To base a future purchase on a promised hand out is not a good call. If you can continue your current regime of saving, get a reasonable investment rate, and aim for that magic 20% deposit on your own, I suggest that is the safest route.
Even with inflation remaining at around the 3.00% level, six or seven years makes near 20.00% difference. Wages may have followed suite but the numbers will still be bigger for sure.
As for taking on a mortgage in your late thirties, health and accidents notwithstanding you should have around forty five years still ahead of you. During which, most folk would be working or at least earning income for twenty, twenty five or more of those years. I do not think this is a problem to worry about.
Original Article published August 2005
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