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Is the Kiwi dream of buying a house over?

June 29, 2020

Feeling locked out of the housing market? Here’s another way to grow your wealth.

kiwi house with red door

Three bedrooms, a veggie garden and a trampoline in the back yard – it’s often held up as the Kiwi dream.

But many of us don’t believe we’ll ever be able to turn that dream into reality.

In recent years, the cost of housing has skyrocketed. House prices across the country increased by 14.3 percent in February 2020 to a record median price of $640,000 – up from $560,000 in February 2019.

Since then, there has been some good news for first-home buyers. House prices stalled during lockdown, interest rates hit record lows and the Reserve Bank’s decision to remove loan-to-value ratio restrictions made it easier to get a bank loan to buy a house.

But while COVID-19 may have given a window of opportunity to first-home buyers who already have their finances sorted, home ownership is still out of reach for many Kiwis.

Alternative ways to save

The average age to buy a first home is 34 – in 1970, it was just 25 – so it’s taking much longer for buyers to get their foot on the housing ladder.

It’s also getting harder to pay off a mortgage before retirement, with the over-65s owing an average of $232,000.

While KiwiSaver is still a great way to save for a first home, it’s hard to even get a deposit together especially if you don’t have access to loans from parents or family.

So what are the alternatives?

Many New Zealanders are realising they don’t need to own the property they live in, and can find other paths to financial security.

One option is to keep renting and use any spare cash to invest, either in an investment property or in other assets.

An accessible way to achieve your goals

Kiwis have traditionally turned to term deposits as ‘safe’ places to grow their wealth. Term deposits are popular with investors who want their money locked away, earning predictable returns for a fixed period.

But with interest rates so low, there may be a better way to grow your money.

Over time, managed funds usually deliver higher returns than term deposits or savings accounts, providing you’re OK with a higher degree of risk.

The concept of managed funds is simple: your money is pooled together with other investors’ money and invested by an expert fund manager.

You choose the type of fund that suits your savings goal, attitude to risk and how long you have to invest.

Spreading the risk

Whether you’re creating another income stream to help you into your own house or investing as an alternative to get into the property market, managed funds have lots of advantages.

For starters, they spread the risk by investing in a wide range of assets and products, such as shares, bonds, property and cash.

They’re super flexible – you can withdraw your money whenever you want to, without penalties in some like Kiwi Wealth Managed Funds, and even set up regular withdrawals.

And while some funds require thousands of dollars to join, you can open an account in a Kiwi Wealth Managed Fund for $100 – and make regular contributions of as little as $1.

Another plus is that with Kiwi Wealth’s Managed Funds, you’re not restricted to having just one managed fund account. You can open multiple accounts for multiple goals, whether that involves getting into the housing market, saving for retirement or investing for your whanau’s future.

Tags: Investing, Managed Funds

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