She’ll be right, but will you? BNZ calls for New Zealanders to remember their financial basics

BNZ’s latest Financial Futures Research suggests that most Kiwis are neglecting long-term financial planning in favour of their short-term goals. The research revealed two thirds (68%) of us think we have a financial plan, yet only 34% of us know how much we need to save for retirement.

Donna Nicolof, BNZ Head of Wealth and Private Bank, says it’s alarming that although people acknowledge interest rates are likely to rise and there are ongoing debates about the retirement age, people are still not making financial plans for their future.

“Although we become more aware of how much money we need to save for retirement as we get older, more than half (59%) of 50-64 year olds are in the dark about what they need. KiwiSaver by itself will simply not be enough for most New Zealanders to live a comfortable life in retirement. We need to do more.”

Ms Nicolof says the research showing a drop in financial planning and a lack of understanding around how much we need for retirement suggests we’re continuing to apply the ‘she’ll be right’ attitude to all aspects of our life.

“The numbers have never been particularly strong, but it’s very concerning they are falling. In the last year, there has been a 5% drop in the number of us who have a financial plan and a 6% drop in the number of us who know how much we need to save for retirement. This suggests people are losing sight of their long-term goals and are living life for today.”

Ms Nicolof says Kiwis need to weigh up how their money is working for them – what they are spending and what they are saving: “In New Zealand, there’s a real lack of a savings culture, meaning most of us aren’t saving nearly enough for the short term, let alone the long term.

“Almost three out of four (73%) people say they have the capacity to save, but what’s important is that people are mindful about what they’re saving for. More than half (51%) of those surveyed think owning a house is the best way to set them up for the future, but I challenge people to build buffers around this and factor in long-term goals.

“It’s important people understand their financial position. You’re then able to make better decisions about what to do with your money and more importantly, how to make it work productively for you. A key thing people often overlook is diversification. You don’t want all your savings in one asset, and there are more ways to be financially successful than owning your own home.

“Also, if you don’t yet have KiwiSaver, join today. If you are in KiwiSaver, the two key decisions you should make are – the investment fund you are in and the amount you contribute. The decisions you make now impact your future financial security. 

“Take an interest and get engaged in your finances. If you’re not sure where to start or what to do then seek advice from a professional – their job is to help you make the best decisions for your financial future. Wealth Advisers in BNZ stores can help you with this.”

Ms Nicolof says people focus on today rather than tomorrow when it comes to saving. Every dollar saved today will yield more in the future due to the benefits of compounding interest.

“It may be daunting to think about saving more when you are just trying to manage day to day living costs, but interest earned on even $5 a week will accumulate over time and be worth a whole lot more in the future. KiwiSaver has been a great example of showing how quickly even a small amount can add up over time.  

“People may have a ‘she’ll be right’ attitude, but we are no longer in an environment where she will be right,” says Ms Nicolof. 

New Zealanders looking to cut essentials as interest rates rise

  • 20% of home owners are likely to extend the term of their mortgage to cover rates rises

Ahead of anticipated interest rate rises this year, BNZ Financial Futures Research shows that most homeowners with mortgages aren’t too fussed about a $80 increase each fortnight. But upwards of a $120 increase is a different story.

The research set out to understand at what point people would start to feel the pinch, and at what point would they need to reassess their budget. For most, a mortgage repayment increase of $80 per fortnight would be overcome by cutting a few luxuries.

However, the findings saw a noticeable change in what people would do when the mortgage payment increased by $120 per fortnight. Nearly one in three said they’d look to reduce utilities like insurance, petrol, heating and power, and one in fiveplanned to extend the term of their mortgage so that the payment amount stays the same.

Paul Carter, BNZ’s Director of Retail and Marketing, says it’s important New Zealanders understand all their budgeting options as the mortgage environment looks set to change.

“New Zealanders will still be enjoying some of the lowest rates in a generation. So it concerns me that too many people are jumping straight into what seems to be the easy option, which is a couple more years on the mortgage – especially when the changes we’re talking about are small.

“BNZ, like most New Zealand banks, stress-tests people with mortgages at an interest rate higher than the current rates, so we know that budgets and incomes can manage rate rises much bigger than this.  

“So while we know our customers have room to move within their budgets to absorb any rises, it’s particularly concerning that 20% of people with mortgages would extend the term of their mortgage if their repayments increased by $120 or more, as this is only going to set them back in the long term,” says Mr Carter.

More than one in three people (35%) also admitted that they’d fund interest rates out of their savings, including retirement savings. This was particularly true for under 30s. Whereas people over 50 with mortgages were slightly more likely to spend less on non-essentials like eating out, entertainment, clothes and shoes. 

“It’s a good idea to occasionally have a sobering conversation about the household budget and consider some ‘what ifs’.

“What are you prepared to make a small sacrifice on to either adjust to new rates or to proactively plan to reduce the interest you pay on your mortgage overall and cut the time it will take to pay it off?

“It’s important to look at the big picture when it comes to finances, because a restructure or a slight tweak to your weekly budget or mortgage structure could have a big impact in the long run,” says Mr Carter.

Mr Carter admitted he was surprised to learn that only 9% of home owners would talk to their bank about using their savings to offset their mortgage interest.

“Offsetting is a very sensible way to save on your mortgage and worth considering,” Mr Carter said.

The BNZ Financial Futures research also found that New Zealand home owners with mortgages were in the dark about how much they’d be impacted by a 1% interest rate rise – three out of five people underestimated how much extra people will pay on the average mortgage size.

“It’s concerning that despite 70% of people with mortgages anticipating interest rates will rise this year, 67% of mortgagors are not considering making any changes to their mortgage.

Mortgage holders missing a trick as interest rates look set to rise

  • Nearly seven out of 10 don’t plan to change their mortgage
  • 70% think interest rates will rise this year
  • 80% of people who think interest rates will rise believe they will rise by less than 1%
  • 24% of people say they regularly monitor interest rates and proactively restructure their mortgage

The release of the BNZ Financial Futures Research highlights that most people are unlikely to effectively prepare for this year’s expected interest rate rise by reviewing their mortgage.

Anthony Healy, BNZ chief executive, says the research shows there is a disconnect between what people think and how they are planning to respond.

“We found that 70% of mortgage holders believe that rates are going to rise this year. They’re also doing their homework because most are forecasting a rise of less than 1%, which is what most experts are predicting. But despite being aware of this, nearly seven out of 10 people confess they have no plans to change their mortgage.

“We’ve had two years of the lowest interest rate environment in a generation but it is frustrating to see that New Zealanders still seem to have a ‘set and forget’ or ‘she’ll be right’ mentality about their home loan.

“New Zealanders need to get savvy about updating their mortgage structure regularly, rather than being apathetic. Now’s an opportune time to ensure your mortgage suits the rates environment and your lifestyle. We’re on the cusp of a change, but it’s not necessarily going to be dramatic this year,” says Mr Healy.

Only a quarter (24%) of homeowners with mortgages say they regularly monitor interest rates and proactively restructure their mortgage.

“I urge mortgage holders to make the most of the low rates environment and talk to their bank about the changes they should be making,” says Mr Healy.

He suggests that part of the problem may be that New Zealanders don’t realise how small changes to their mortgage can have huge impacts in terms of reducing both the amount of interest they pay and how long they have their mortgage for.

“If we look at a $300,000 mortgage with 15 years left. Increasing fortnightly mortgage repayments by $100 will shave one year and nine months off your mortgage, as well as save nearly $16,000 in interest.

“But when we asked people how much time they believed they’d save by making small increases to repayments, they underestimated the positive impact it’ll have. New Zealand homeowners will be pleasantly surprised at how much they can save by making a small change now, which may just mean they have more financial freedom to do things like invest, retire earlier or travel,” says Mr Healy.

BNZ offers financial flexibility for flood-affected New Zealanders

BNZ today announced it would provide financial flexibility and support for New Zealanders affected by flooding.

Customers, both business and personal, can apply to:

 ·         Access temporary overdraft facilities or credit limit increases

·         Restructure business loans without incurring fees

·         Suspend loan payments on business and home loans

·         Access term deposits early, and without penalty.

BNZ CEO Anthony Healy said the bank understands that customers will have different needs now and in the coming weeks.

“If you are a BNZ customer and you need assistance, please get in touch with us and we will do our best to help. We know that our customers need to first look after themselves, their families and their businesses and that financial flexibility means different things to different people,” said Mr Healy.