What Is Good Debt vs Bad Debt When Buying Canterbury Property

Canterbury buyers often hear that property debt is good debt. This is broadly true compared to consumer debt, but the distinction requires some nuance to be useful in practice.

Why Mortgage Debt Is Considered Good Debt

A mortgage on a Canterbury property is secured against an asset that has historically appreciated in value - Christchurch property prices have grown at an average of 4.56% per year over 20 years. The debt is used to acquire an asset whose value typically exceeds or grows relative to the debt over time. Meanwhile, the mortgage is serviced through a combination of your own income and the implicit rent-saving of owning rather than renting. The net effect over a 20-30 year mortgage is that the debt is progressively reduced while the asset grows - a wealth-building mechanism that renting does not provide.

Why Consumer Debt Is Problematic for Property Buyers

Consumer debt - credit cards, personal loans, car finance, buy-now-pay-later facilities - works against Canterbury property buyers in two specific ways. First, every consumer debt reduces your borrowing capacity through the DTI calculation. The RBNZ's DTI limit of 6x for owner-occupiers means every dollar of existing debt directly reduces the maximum mortgage you can access. A $20,000 car loan at a 6x DTI costs you $120,000 in potential mortgage capacity. Second, consumer debt is typically high-interest compared to a mortgage. Carrying $10,000 of credit card debt at 20% interest while accumulating a deposit in a savings account earning 5% is a net negative. Paying down expensive consumer debt before buying property is almost always the right financial sequence.

Preparing Your Balance Sheet

Before applying for Canterbury mortgage pre-approval, review all your existing debt: credit cards (close ones you do not need - the limit counts, not just the balance); personal loans; car finance; student loans (these factor into DTI assessments); and any BNPL facilities. Systematically pay down and close unnecessary credit facilities in the months before you apply. The improvement to your DTI position and credit profile is material and directly affects your borrowing capacity.

For general information only. Always consult a qualified mortgage adviser and financial adviser about your specific situation before making property purchasing decisions.