Have you ever wanted something so badly that you stubbornly ignored the warning signs and good advice that maybe, just maybe, it was not really a good idea? It might have been that extra helping of dessert that left you predictably suffering from indigestion for hours afterwards. Or that time you fell in love with a giant screen TV that you could see yourself watching the next game on with your mates – all the while conveniently ignoring the financial pain which would come from the ongoing high interest repayments.
As much as we all like to think of ourselves as responsible adults, sometimes our desires get in the way of good judgement and we end up doing dumb stuff that we later regret. As professional financial advisers, one of our jobs is to help guide people away from making bad financial decisions. While we understand people come to us to help make their dreams come true, we have cold hard facts to face and this can mean what people want isn’t always possible in the way they had envisaged. Facing these facts can be hard. What is harder though is ignoring those facts as a recent new client discovered. This is a salutary tale of what comes from wanting something too much.
S and K* were keen to buy their first home. We met at the end of last year after they were referred to us by an existing client. A review of their situation revealed that they had a bit of work to do to achieve their goal. We gave them our advice as to what their next steps should be and off, they went to think about it.
As is our standard practice, we sought to follow-up with them. Our long-standing clients know we like to keep in regular contact to help keep them on track. They did not respond. Unknown to us at the time, S and K* went house hunting. They found a property that they fell in love with and made an offer which was subsequently accepted.
Having secured their dream home (or so they thought) they came back to us to seek additional finance to fund some renovations they wished to complete once the sale went through. Imagine our horror when we discovered that not only had they failed to secure the finance they needed to complete the purchase; they had also gone unconditional with the purchase contract. Never mind the extra money they sought for renovations – they were now legally obliged to pay the purchase price and had no way of doing so, putting their entire deposit at risk!
On closer examination of the whole mess, we found that one of their mistakes was to misunderstand the nature of the offer of finance from the bank which they had obtained without our knowledge, which was one of NZ’s big four. In their desire to secure their home, they overlooked the fact that the finance offer was conditional. When the circumstances changed, the offer was no longer open despite the date on the letter. Compounding the tragedy, the bank then completely withdrew their conditional finance offer due to Covid-19; they were no longer prepared to finance such a high percentage loan (95%).
How S and K* will fare we do not know. They have elected to try and find a solution elsewhere as they were dissatisfied with our inability to achieve the impossible – we could not make their deposit larger for them. But this unfortunate case does highlight the need to take stock sometimes. Do not discount or blame your expert advisers when they tell you something you do not want to hear. Slow down. Think things through. It is ok to want something really badly, but timing is often critical. Remember, there will always be other opportunities available in the future.
*Disclaimer: Names and identifying features are withheld to protect their privacy.