This article was published on 1 April 2017. Some information may be out of date.

Q&As

  • University probably the best route to a new start for woman
  • Credit cards not linked to mortgages
  • Clearing up info on Residential Care Subsidy and gifting
  • Do small gifts count when apply for that subsidy?

QI’m 45, single (parent of an adult child) and a home owner on a low income. I need your advice as I have no one else to talk to.

I paid off my mortgage after selling my previous house, kept aside several thousand dollars in case of repairs or emergencies, and used the rest to buy my home without a mortgage a few years ago.

Recently I have not managed to find work and am getting worried about my future.

I am currently living on $210 a week from WINZ and have been for the past couple of years. It’s hugely demoralising after spending the past 21 years raising my daughter on a low income whilst putting everything I could towards my mortgage payments.

My savings have been stuck in a bank savings account without much interest, and I am starting to wonder if this was a bad decision. I am a KiwiSaver member with a balance of $8000 so far. Life on a low income is far from fun, but it feels wrong to dip into my savings now, when I might need it in future for major repairs or an unexpected life event.

In the meantime however, my appliances are breaking down, my daughter needs financial top-ups, my car needs replacing and my house is old, so I know it won’t be possible to live here much longer without spending anything on it.

I have considered using the savings I have left as a deposit to buy another cheap property that I would live in, and then rent out my house, but it seems very risky. I would also lose my basic weekly benefit. It’s not possible to earn rental income and receive a benefit.

After reading your advice it seems you’d recommend putting the money into my KiwiSaver account, but what if I need to access the money sooner?

I do not want to be on the benefit, but it’s been necessary for survival. So I have been applying to study elsewhere, as I don’t live near a university currently.

I am wanting to retrain, which is a very real possibility thanks to the student loans scheme.

The idea of going into debt scares me as jobs are not guaranteed either. However, if I can get accepted into a university then I can rent my house out to supplement the student allowance while flatting elsewhere. If I could buy near a university and get flatmates in that would also work, but I want to keep my family home to return to ideally. Appreciate your help.

AWell done for getting to be mortgage-free at your age, especially given your circumstances.

There’s a lot to consider here. Let’s take your ideas one at a time:

  • Buying a second property. I don’t think this is wise. Even if you have a big enough deposit, you’d have a big mortgage, and rental income might not cover mortgage payments plus other expenses. And what if your tenants didn’t pay, or wrecked the place?

    You’re not in a strong enough financial position to take on the risks.

  • Going to university, or another tertiary institution. This is a great idea.

    While running up a student loan might worry you, you won’t have to repay it until you earn above the repayment threshold, currently $19,084 a year. And then you repay 12 per cent of every dollar above the threshold, so it’s not big money unless you’re earning big money.

    Obviously, you’d be best to do a course that’s likely to lead to a good job — although the subject and field should also interest you or it just won’t work.

    “It’s really important to research what is involved in roles,” says careers consultant Angela McCarthy.

    To help you decide which fields offer the best mix of interest, transferable skills and accessibility for you, www.careers.govt.nz is a good starting place, says McCarthy. This government-run website helps you research and learn about yourself and careers, gives you tips on job hunting, what courses are available and so on.

    Also, most tertiary institutions have career centres or employability services or similar, which offer free advice. If you’re zeroing in on a course, ask for information about job prospects after you complete the course.

  • Deciding what to do with your savings. If an essential appliance — a fridge but not a flash TV — dies, obviously you have to replace it. And if your house needs urgent maintenance, it’s not a good idea to delay that.

    The car? Maybe you can manage with the current one for a while. The daughter? Please try to get her off your list by pointing out that your needs are probably greater than hers.

  • Adding to your KiwiSaver account. I’m not sure why you think I would suggest that. You’re right that you don’t want to make your savings inaccessible, as you’re likely to be spending the money soon, one way or another.

    So leave it in your bank savings account, or in short-term term deposits, despite the low interest. Or look on www.interest.co.nz to see if you could earn more interest with a different bank.

  • Deciding where to live. If you need to move to do your tertiary study, the options are to sell your home and buy near the university, or rent out your current home and flat near the university.

    Your choice may depend largely on rents and house prices in the two places. But keep in mind my warning about tenants. Some are fantastic but some are not.

    While it seems you love your home, it might be time to move on — especially given your worries about maintenance. And I like your idea of buying in the new town and then getting in flatmates — perhaps fellow students.

I’m picturing you heading out in a whole new direction, towards a much more satisfying life. Your history suggests you’ve got the strength of character to do it.

QI was reading your recent correspondence regarding the ANZ customer who spent an hour on the phone struggling to get an increase in his/her credit card limit, despite having a mortgage-free house and substantial term deposits.

Perhaps the struggle is because the house is mortgage-free. Something in the back of my mind tells me there’s a sneaky clause in most credit card contracts to the effect that the bank can tie the credit card debt back to an asset secured with the bank, commonly for a house mortgage.

Without a secured asset with the bank the credit card debt truly is unsecured, and therefore there is more risk for the bank. The borrower’s salary might stop, and the bank has no automatic recourse to any other source of repayment.

AInteresting theory, but it seems to be wrong.

“Our credit cards are unsecured lending, and this is made clear in the card terms,” says an ANZ spokesperson. “They are not connected to a customer’s mortgage, and we would not be able to sell a customer’s home to recover amounts they owe.”

What about other banks? I asked Banking Ombudsman Nicola Sladden. “Credit card debts are usually unsecured (and are priced as such),” she says.

“Whenever a customer requests a credit facility or an increased credit limit, the bank must assess the suitability and affordability of the lending under the Responsible Lending Code. Banks will consider the customer’s income, expenses and the likelihood of repayment.”

Sladden adds, “We are not aware of any case where a customer’s home has been sold solely to recover credit card debt.”

However, “We are aware of situations where a customer has sold his or her property, and the bank has asked the customer to repay a credit card debt from the sale proceeds. A credit card facility is an ‘on demand’ facility, so a bank can seek repayment at any time — including when a customer sells his or her home.”

But that would apply regardless of whether the home had a mortgage — although I suppose the bank would be more likely to know the home had just been sold if they have provided the mortgage.

Another reader made much the same point. “I understand most mortgages are “all obligations” mortgages, which means that if you have a credit card with the same bank who holds your mortgage, then the credit card debt is covered by that mortgage security,” he wrote, and added, “I have my credit card with a different bank from my mortgage.”

That makes me wonder if the reader plans to run up a huge credit card debt and not repay it. That’s not clever.

QIn your column two weeks ago, you quote a Ministry of Social Development spokesperson as saying in relation to the Residential Care Subsidy: “Current policy is that the $27,000 applies per individual, not per couple. Amounts over this are excess gifting.”

Could I suggest you double-check this statement? It is my understanding that a decision by the Court of Appeal upheld the Ministry’s contention that the $27,000 applied per married or de facto couple, even though this clearly differed from the now-repealed gift duty limit of $27,000 per person.

AWe’re talking here about what happens if you apply for a Residential Care Subsidy to pay for your costs in a rest home or private hospital.

When deciding whether a person is eligible, the Ministry first looks at the value of a person’s assets, including their spouse or partner’s assets.

“If you or your partner give away assets, they still may be counted as assets in your financial means assessment,” says MSD’s website (at tinyurl.com/NZResCare).

“You can gift up to $6,000 within a 12 month period in each of the five years before you apply (this applies to each application for the Residential Care Subsidy).

“Eg, if both you and your partner apply for the Residential Care Subsidy, gifts of $6,000 each per year can be excluded. Gifts of more than $27,000 per year, per application made before the 5 year gifting period, may be added into the assessment (for couples, gifting is $27,000 in total, not per person).”

I hope that clarifies it.

QIn relation to gifting rules and the Residential Care Subsidy, does one have to keep a detailed record of the likes of birthday and Christmas gifts or occasional treats to grandchildren? And does it make a difference whether it is an actual item or in cash?

AThere’s no need to keep track of such gifts “as long as they are not excessive, outside what would normally be given,” says Matt Hay, principal of Succeed Legal.

“The rules are there for people who deliberately deprive themselves of property to make themselves eligible. If you bought a child or grandchild a car or a house as a birthday present, then yes of course the rules would apply,” says Hay.

“But if your gifts are of the type and value appropriate for the occasion, and consistent with what you have given in the past, you would not be expected to disclose these as gifts in the application.”

Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to [email protected] or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.