By Bernard Hickey

Home loan affordability deteriorated to the worst since late 2010 in November as house prices surged to record highs and average interest rates edged only marginally lower, the Roost Home Loan Affordability reports show.

A sharp increase in Spring house buying activity and shortages of supply in Auckland lifted the median house price to a record high NZ$383,250 in November, up 4.3% from a year ago.

Auckland’s median house price jumped to a record high NZ$540,000, up 10.2% from a year ago.

Advertised floating mortgage rates have been unchanged since March last year, but average 6 month and 1 year mortgage rates edged 9 basis points and 3 basis points lower respectively over the month.

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.

Affordability for home buyers in central Auckland, central Wellington and Christchurch remains difficult.

“Spring has definitely sprung in the housing market and both banks and mortgage brokers are busier than they have been in years,” 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.

Affordability worsened in November as the median house price for all of New Zealand rose to NZ$383,250 from NZ$380,000 in October. This increased the proportion of single after tax income needed to service an 80% mortgage on a median house to 55.3% from 54.9% the previous month, the Roost Home Loan Affordability report shows.

This is the worst level since December 2010.

Household affordability for first home buyers deteriorated to 22.8% of income from 22% the previous month because the median lower quartile house price rose to a record high NZ$270,000 from NZ$262,000.

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 2010. See below or 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 had 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 56% 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 November 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 36.4% from 36.1% the previous month. 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.

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)