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Roost Home Loan Affordability Report shows worsening in Oct as median house price jumps to record high and fixed mortgage rates drop just slightly

Posted in Property
See video

By Bernard Hickey

Home loan affordability worsened sharply in October as house prices surged to record highs and interest rates fell only marginally, lifting the proportion of after tax pay needed to service an average home loan, the Roost Home Loan Affordability reports show.

Housing market activity and buyer interest perked up through the Spring open home buying season, pushing the national median house price to a record high NZ$380,000, up 5.8% from a year ago. Auckland’s median house price jumped to a record high NZ$530,000, up 14% from a year ago.

Advertised floating mortgage rates have been unchanged since March last year, but average 6 month and 1 year mortgage rates have dropped around 30 basis points and 20 basis points respectively since mid September as wholesale interest rates have nudged lower and bank competition has heated up.

This helped reduce interest costs for fixed rate borrowers, but not enough to improve overall affordability once the impact of higher house prices and marginal income growth is accounted for. 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 has deteriorated in the last month, but remains near its best levels in almost eight years. Affordability for home buyers in central Auckland, central Wellington and Christchurch remains difficult.

“The housing market is stronger and the banks are increasingly competitive, which makes finding the best mortgage deal even more important for home buyers wanting to make the best offer they can,” said Colleen Dennehy, a spokeswoman for Roost Mortgage Brokers, which sponsors the Roost Home Loan Affordability report 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 (OCR) is expected by economists to be steady at 2.5% through until late 2013, before rising to a peak of around 4% over the next couple of years. However, financial markets are pricing in expectations the OCR will be cut in the next year. Affordability worsened in October as the median house price for all of New Zealand rose to NZ$380,000 from NZ$371,000 in September.

This increased the proportion of single after tax income needed to service an 80% mortgage on a median house to 54.8% from 53.6% the previous month, the Roost Home Loan Affordability report shows. This is the worst level since March 2011.

Household affordability for first home buyers deteriorated to 22.0% of income from 21.8% the previous month because the median lower quartile house price rose to a record high NZ$262,000 from NZ$260,000. 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 to its worst level since August 201o. See the main report for links to regional reports.

The Roost Home Loan Affordability reports measure 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 interest rates have fallen, although there has been some deterioration in recent months as house prices have firmed again.

Just under 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 worsened in October 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 rose to 36.1% from 35.3% in September.

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      
 
Oct-12
Sep-12
Oct-11
Oct-10
Oct-09
Oct-08
New Zealand
54.8%
53.6%
53.1%
55.7%
63.3%
68.1%
Northland
41.7%
45.0%
47.4%
55.5%
61.4%
74.7%
- Whangarei
38.4%
38.0%
42.3%
51.1%
56.5%
69.5%
Auckland
72.7%
70.8%
65.4%
69.3%
76.9%
82.8%
- Central
80.2%
77.7%
68.2%
67.1%
87.1%
88.4%
- North Shore
77.4%
77.2%
72.7%
73.2%
83.5%
89.4%
- South
68.2%
68.0%
66.7%
70.8%
76.8%
81.2%
- West
62.3%
60.3%
59.2%
59.5%
67.6%
76.5%
Waikato/BOP
47.8%
47.6%
49.7%
52.0%
62.6%
67.9%
- Hamilton
51.9%
51.2%
52.2%
56.5%
64.1%
73.7%
- Tauranga
52.9%
57.0%
57.5%
55.5%
78.3%
75.5%
- Rotorua
37.0%
36.9%
34.1%
38.3%
49.1%
53.9%
Hawkes Bay
41.5%
42.3%
42.9%
52.1%
54.9%
59.8%
- Napier
49.6%
47.3%
48.6%
57.1%
56.3%
64.2%
- Hastings
35.4%
41.7%
38.8%
51.6%
57.1%
60.1%
- Gisborne
41.9%
42.1%
40.1%
50.0%
60.0%
56.0%
Manawatu/Wanganui
34.7%
34.8%
34.9%
40.0%
43.7%
50.7%
- Palmerston North
41.1%
39.4%
40.0%
46.4%
46.3%
57.4%
- Wanganui
30.8%
27.1%
25.7%
31.4%
41.6%
41.8%
Taranaki
39.7%
41.0%
45.8%
48.9%
53.5%
62.8%
- New Plymouth
50.4%
46.6%
49.3%
55.0%
63.7%
67.4%
Wellington region
53.6%
53.3%
53.5%
57.5%
68.3%
69.5%
- City
59.5%
55.5%
53.7%
59.8%
73.4%
71.5%
- Hutt Valley
49.7%
51.5%
48.2%
53.0%
59.9%
61.6%
- Porirua
50.5%
54.3%
61.7%
54.2%
63.2%
71.3%
- Kapiti Coast
48.9%
50.4%
56.4%
54.4%
65.6%
72.1%
Nelson/Marlborough
53.4%
55.5%
55.5%
56.2%
63.1%
72.5%
- Nelson
55.7%
53.4%
53.3%
60.6%
62.1%
70.2%
Canterbury/Westland
51.1%
49.2%
50.2%
52.3%
57.3%
61.2%
- Christchurch
55.6%
53.7%
54.6%
57.6%
64.8%
68.6%
- Timaru
37.1%
42.7%
38.4%
43.1%
48.9%
55.6%
Central Otago Lakes
64.3%
69.7%
68.3%
67.0%
94.1%
104.1%
- Queenstown
81.7%
91.2%
77.3%
83.1%
108.1%
109.1%
Otago
37.9%
37.2%
37.7%
42.6%
45.8%
50.4%
- Dunedin
42.7%
44.2%
43.7%
48.5%
53.3%
56.3%
Southland
31.3%
30.8%
32.3%
28.9%
34.5%
43.8%
- Invercargill
32.5%
32.4%
34.5%
30.5%
37.3%
43.7%

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)

 

 

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4 Comments

At 4.9% mortgages it's never

At 4.9% mortgages it's never been cheaper to own your own house, especially in the provinces.
RBA will be cutting rates in December. 
Interest rates will be tracking down, down, down into the next nasty recession. GFC II.
Home-owners will be the big winners.   Unless they lose their jobs as the world economy gets rougher and rougher.  

"Never cheaper"...shame that

"Never cheaper"...shame that property prices are rising so fast...fast enuff to snuff out any savings to be had from cheaper mortgages....doh
Oh gosh, you don't spose the cheaper mortgage drugs are boosting property prices do you...!

"drugs" yes...that would be

"drugs" yes...that would be the std pattern. Tulip anyone?
But as MB says whats happening in the provinces?  Sure we have some hot spots.  The broader picture though,  have the outer areas recovered or are recovering? not so sure....
Lets see how this summer silly season goes....if there are lots of houses held off the market I'd expect to see a rush to sell.....
..2 ppl I work with are "rushing" to buy....tired of being renters.  I tried to point out the risk, actually  to 3 ppl last week the first two didnt want to know the last didnt agree, but at least it was a thought about decision and not head in sand....un-fortunately the first 2 at least  are the cannon fodder......(huge mortgages; 95%, 30 years).
regards
 
 
 
 
 
 
 

This is AWESOME news for the

This is AWESOME news for the NZ economy!