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Roost Home Loan Affordability Report shows little change in Sept as median house price rises offset by slightly higher incomes and low interest rates

Posted in Property
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By Bernard Hickey

Home loan affordability was unchanged in September as a slight rise in the national median house price was offset by marginal income growth.

Housing market activity is buoyant, however, as bank lending activity is growing and the Spring Open home season fires up. Competition between banks to poach market share and boost lending heated up in September and October. ANZ’s decision to drop the National Bank brand has sparked a new round of fixed mortgage rate cuts and market activity.

The Roost Home Loan Affordability monthly reports show affordability for young working couples is still near its best levels in almost eight years, although affordability for home buyers in central Auckland, Wellington and Christchurch remains difficult.

“Banks are fighting hard for market share, which means they are offering deals to win or retain certain customers,” said Colleen Dennehy, a spokeswoman for Roost Mortgage Brokers, which sponsors the Roost Home Loan Affordability reports from Interest.co.nz.

Some banks have cut fixed mortgage rates to under 5% and are offering discounted legal fees, lower interest rates for borrowers with high equity and, in some cases, the discounting of break fees. Pricing is often differentiated, depending on the safety of the borrower and the size of the loan.

The Official Cash Rate is expected to be steady at 2.5% through until late 2013, before rising to a peak of around 4% over the next couple of years. Affordability was flat in September as the median house price for all of New Zealand rose to NZ$371,000 from NZ$360,000 in August.

It is just below the record high NZ$372,000 set in June. This kept the proportion of single after tax income needed to service an 80% mortgage on a median house at 53.5%, the Roost Home Loan Affordability report shows. Household affordability for first home buyers deteriorated to 21.8% of income from 21.5% the previous month because the median lower quartile house price rose to NZ$260,000 from NZ$257,000, but remains 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 deteriorated for Auckland, Waikato, Hawkes Bay, Wellington, Nelson/ Marlborough, Central Otago/Lakes and Southland because of higher median house prices, while affordability improved in Northland, Taranaki and Canterbury due to lower median prices. See the main report for links to regional reports and below.

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.

Around 60% of home owners are now on floating mortgages, although there has been a surge in fixed rate borrowing in recent months as banks pared their rates. Advertised floating rates at around 5.75% are higher than 1 year fixed rates at around 5%, but many banks are offering ‘unofficial’ floating rates of around 5.3% to solid customers with high levels of equity that threaten to leave their bank. The Home Loan Affordability reports use the advertised floating rate.

Affordability for households with more than one income was also flat in September because of the higher median house price.

This measure of a ‘standard typical household' found the proportion of after tax income needed to service the mortgage on a median house was 53.5%. 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.

 

Regional home loan affordability comparison:      
mortgage payment as a % of weekly take-home pay      
 
Sep-12
Aug-12
Sep-11
Sep-10
Sep-09
Sep-08
New Zealand
53.5%
53.5%
51.9%
57.8%
59.6%
71.1%
Northland
44.9%
47.0%
47.1%
54.9%
53.8%
70.3%
- Whangarei
37.9%
40.6%
42.0%
47.9%
47.5%
59.0%
Auckland
70.7%
69.5%
66.9%
70.4%
73.4%
84.9%
- Central
77.5%
78.1%
71.1%
80.7%
80.3%
88.1%
- North Shore
77.1%
76.8%
71.4%
78.1%
83.5%
91.7%
- South
67.9%
71.1%
66.5%
68.9%
74.3%
81.2%
- West
60.2%
59.7%
56.5%
62.8%
62.5%
74.9%
Waikato/BOP
47.5%
46.8%
47.4%
55.6%
57.4%
71.9%
- Hamilton
51.1%
50.8%
53.4%
61.2%
58.4%
73.5%
- Tauranga
56.9%
52.5%
52.1%
60.2%
67.0%
77.0%
- Rotorua
36.9%
38.9%
40.2%
41.3%
49.4%
57.6%
Hawkes Bay
42.2%
41.0%
44.8%
49.8%
51.0%
65.4%
- Napier
47.2%
44.1%
50.6%
55.9%
53.8%
66.2%
- Hastings
41.6%
43.0%
40.9%
49.2%
51.6%
60.1%
- Gisborne
42.0%
35.7%
41.4%
43.2%
54.6%
55.5%
Manawatu/Wanganui
34.7%
33.1%
34.7%
38.6%
41.8%
52.7%
- Palmerston North
39.3%
41.3%
38.2%
43.4%
50.5%
60.3%
- Wanganui
27.1%
29.2%
33.1%
34.9%
38.4%
42.8%
Taranaki
41.0%
42.9%
41.3%
48.0%
52.5%
60.1%
- New Plymouth
46.5%
51.0%
46.6%
54.3%
60.8%
65.2%
Wellington region
53.2%
51.2%
51.9%
61.0%
59.4%
69.7%
- City
55.4%
56.0%
58.2%
64.9%
68.4%
75.9%
- Hutt Valley
51.4%
45.1%
47.1%
58.3%
53.2%
60.5%
- Porirua
54.2%
49.9%
57.5%
62.8%
67.6%
72.6%
- Kapiti Coast
50.4%
47.0%
51.8%
59.2%
58.2%
63.8%
Nelson/Marlborough
55.4%
51.9%
52.8%
60.1%
63.6%
75.8%
- Nelson
53.3%
51.2%
54.2%
60.3%
65.1%
77.1%
Canterbury/Westland
49.1%
51.5%
47.7%
51.2%
54.9%
64.5%
- Christchurch
53.6%
56.4%
54.0%
58.8%
60.6%
70.0%
- Timaru
42.6%
40.4%
39.5%
38.0%
42.6%
60.0%
Central Otago Lakes
69.6%
67.7%
62.8%
83.9%
75.3%
111.8%
- Queenstown
91.0%
73.2%
87.9%
87.1%
85.9%
117.8%
Otago
37.1%
35.8%
37.5%
41.5%
44.1%
51.6%
- Dunedin
44.2%
40.9%
42.8%
46.9%
53.9%
56.0%
Southland
30.7%
30.2%
27.1%
32.7%
34.5%
43.9%
- Invercargill
32.4%
32.1%
29.2%
35.2%
37.4%
48.2%

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)

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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4 Comments

Generally speaking ,

Generally speaking , politicians have short term memories , except when it comes to dredging up stuff to use as ammo to batter the other side ...... such as NZ Labour walloping National with Muldoon's legacy of killing off Norman Kirk's original superannuation scheme for Kiwis .. ...
 
... and one ponders if this is the reason that neither political party wants to seriously attack the reasons behind home ownership unaffordability in NZ at the moment ...
 
No one wants to be tarred with the brush of being the bubble poppers , who presided over a several hundred billion dollar loss of " wealth " by all homeowners the length of our country ....
 
... and as such , the issue is tip-toed around , as if there is no problem ...... or at least , nothing which can be done . Hence Wild Bill's ineffective and cack-handed disallowance of depreciation on investment properties ..... as if they don't depreciate !
 
... Little Johnny and the Gnats are praying that the bubble stays inflated until 2017 .... unless  of course , they lose the 2014 election to Winnie-Green-Labour  , in which case , burst baby , burst !!!

Best mortgage rate strategy

Best mortgage rate strategy -  go with the lowest rate - but no longer than 2 years.  Forget about the future & future predictions.  Just get the savings in the bank right now. 
E.g. roll over 6 month rates at 4.95%    Get the affordability right now.

From my personal perspective

From my personal perspective is that this is relatively fair. One factor is raised, while another is reduced. In order to help ease off a little bit of the borrowers' financial burden, banks reduce their interest rates to make mortgage loans more affordable. This is definitely in favour of the homeowners who at the same time have a pay increment which further reduces their financial burden. If this practice can be a constant and regular trend, then the housing market would be a more "friendly" environment for homeowners, investors and banks.