Experts question long-term debt burden for Kiwi borrowers
US President Donald Trump has floated the idea of a 50-year mortgage, backed by the US government, to help first-home buyers get onto the property ladder. Federal Housing Finance Agency director Bill Pulte reportedly called the proposal “a complete game changer” for home buyers.
The question now being asked in New Zealand: Would a 50-year mortgage make sense here?
Longer terms mean lower weekly repayments – but at a cost
Ed McKnight (pictured left), economist at Opes Partners, said a 50-year loan would ease repayments but significantly increase total interest costs, RNZ reported.
McKnight calculated that at a 5% interest rate:
- $100,000 borrowed → $19 less per week on a 50-year vs 30-year loan
- $600,000 mortgage → $114 per week saved
He said buyers would also qualify for larger loans.
“Homebuyers would also be able to borrow about 13% more. Investors might be able to borrow an extra 20%," McKnight said.
But the long-term cost would balloon.
- Interest on $100,000 over 50 years: $172,000
- Interest on $100,000 over 30 years: $93,000
“It is absolutely certain that it would lead to some amount of house price inflation… you’ve got more money in the system but the same number of houses,” McKnight said.
He said it may help those “on the cusp” of affordability but warned that borrowers would be “taking over 60% longer to pay off [a] mortgage” for relatively small extra borrowing capacity.
Would it push prices even higher?
McKnight said longer loan terms would likely lift demand, adding: “If you allow people to borrow 10% more money or 20% more money… some of that money would flow through into higher house prices.”
While 30-year mortgages are standard in New Zealand, RNZ’s bank survey shows many borrowers pay their loans down faster than required, with some paying off up to 65% more than the minimum.
Most Kiwis still clear their mortgage before retirement
Squirrel chief executive David Cunningham said most buyers ultimately repay their loans within 25 to 30 years, even if they move homes along the way.
“The average age for a first-home buyer is around 36 and it’s those last few years pre-retirement where the big reductions in the mortgage happen,” he said.
Borrowers usually increase repayments as incomes rise, and "pretty consistently most but not all homeowners hit retirement with minimal or no mortgage".
Westpac economists: Diminishing returns and little benefit for FHBs
Westpac economists Michael Gordon and Kelly Eckhold both cautioned that ultra-long loans offer limited affordability gains.
Gordon said on LinkedIn that Westpac reviewed 50-year terms back in 2006: “We weren’t all that enthusiastic about it as a tool for first-home buyers… there are diminishing returns in terms of affordability – as you go beyond 30 years or so, the size of the repayments doesn’t get much smaller (but the total interest paid over the life of the loan gets a lot larger).”
He added that New Zealand has “a long and not-so-proud history of looking for quick fixes to housing affordability… It’s only more recently that we’ve made a serious effort to address the supply-side constraints".
Commenting on the RNZ report, Eckhold also raised a practical concern, in another LinkedIn post: “Some good points here. Also does a 40 year old want to sign up for a 50-year mortgage?”
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