By Bernard Hickey

Home loan affordability improved again slightly in January as median house prices were broadly stable and interest rates remained at record lows.

The Roost Home Loan Affordability monthly report shows affordability for young working couples remains near its best levels in seven years, although affordability for home buyers in central Auckland, Wellington and Christchurch remains difficult.

“First home buyers are increasingly using their KiwiSaver nest eggs for deposits and banks are competing hard to lend up to 95% to help them get into the market,” said Rhonda Maxwell, a spokeswoman for Roost Mortgage Brokers , which sponsors the Roost Home Loan Affordability report from Interest .co.nz.

After three years in the scheme KiwiSavers who want to buy a first home can withdraw contributions made by themselves and their employers for a deposit. They cannot withdraw the government’s kick-start or tax credits contributed by the government.  Eligible first home borrowers can also receive a Housing NZ subsidy of up to NZ$5,000 each when they withdraw their KiwiSaver funds.

Some banks further trimmed some of their longer term fixed mortgage rates in early February to nearer floating rate levels, but many new borrowers are still choosing to float in the expectation that interest rates will stay lower for longer and could even fall again if economic conditions worsen.

Bank economists have forecast the Reserve Bank will hold rates until late 2012, although calmer global financial markets have in recent weeks begun to push up longer term wholesale rates, causing some to consider fixing.

Affordability improved slightly nationally in January, with incomes up a smidgen while the median house prices was unchanged at NZ$355,000. This reduced the proportion of after tax income needed to service an 80% mortgage on a median house to 51.9% in January from 52% in December, the Roost Home Loan Affordability report shows. 

Household affordability for first home buyers improved to 21.0% of income from 21.5% the previous month and is around its best levels since late 2004. First home buyer household affordability is measured by calculating the proportion of after tax pay needed by two young median income earners to service an 80% home loan on a first quartile priced house.

Affordability worsened somewhat in Northland, Whangarei, Kapiti Coast and South Auckland, where house prices rose. It improved in most other areas where median prices were flat to slightly lower. See the main report for links to regional reports.

The Roost Home Loan Affordability report measures affordability nationally and regionally for individual income earners and households, taking into account median house prices, interest rates and incomes in their regions and cities.

Affordability has generally been improving since December 2009 as house prices have flattened out and interest rates have fallen, although there has been some deterioration in recent months as house prices have firmed again.

More than 60% of home owners are now on floating mortgages and most new borrowers are choosing to float, given advertised floating rates at around 5.75% are cheaper than average longer term fixed rates at around 5.8%. The Home Loan Affordability reports use the floating rate.

Affordability for households with more than one income improved slightly in January because of slightly higher incomes. This measure of a ‘standard typical household' found the proportion of after tax income needed to service the mortgage on a median house fell to 33.95% from 34.0% in December.

This measure assumes one median male income; half a median female income aged 30-35 and a 5-year-old child that receives Working-for-Families benefits. Any level over 40% is considered unaffordable for a household, whereas any level closer to 30% has coincided with increased buyer demand in the past.

The first home buyer household measure assumes a first home buyer household includes a median male income and a median female income aged 25-29 with no children. Any level over 30% is considered unaffordable in the longer term for such a household, while any level closer to 20% is seen as attractive and coinciding with strong demand.

See the Standard Home Buyer Affordability reports here.

See the First Home Buyer Affordability reports here.

Details of our household profiles, the data sources, and the methods used, are set out in the Notes section of this report, below.

Full regional reports are available below:
- New Zealand (159kb .pdf)
- Northland (159kb .pdf)
    - Whangarei (159kb .pdf)
- Auckland region (159kb .pdf)
    - Auckland Central (159kb .pdf)
    - Auckland North Shore (159kb .pdf)
    - Auckland South(159kb .pdf)
    - Auckland West(159kb .pdf)
- Waikato and Bay of Plenty (159kb .pdf)
    - Hamilton (159kb .pdf)
    - Tauranga (159kb .pdf)
    - Rotorua (159kb .pdf)
- Hawkes Bay and Gisborne (159kb .pdf)
    - Napier (159kb .pdf)
    - Hastings (159kb .pdf)
    - Gisborne (159kb .pdf)
- Taranaki (159kb .pdf)
    - New Plymouth (159kb .pdf)
- Manawatu and Wanganui(159kb .pdf)
    - Palmerston North(159kb .pdf)
    - Wanganui(159kb .pdf)
- Wellington region (159kb .pdf)
    - Wellington City (159kb .pdf)
    - Wellington Hutt Valley(159kb .pdf)
    - Porirua (159kb .pdf)
    - Kapiti Coast (159kb .pdf)
- Nelson and Marlborough (159kb .pdf)
    - Nelson (159kb .pdf)
- Canterbury (156kb .pdf)
    - Christchurch (156kb .pdf)
    - Timaru (156kb .pdf)
- Central Otago Lakes (159kb .pdf)
    - Queenstown (159kb .pdf)
- Otago (159kb .pdf)
    - Dunedin (159kb .pdf)
- Southland (159kb .pdf)
    - Invercargill (159kb .pdf)