By Greg Ninness
Auckland’s first home buyers are the main beneficiaries of the recent falls in mortgage interest rates with rising prices in other regions taking the shine off the lower rates, according to interest.co.nz’s Home Loan Affordability Reports.
The reports measure how much of a typical first home buying couple’s after tax pay would be eaten up by the mortgage payments on a home purchased at the REINZ’s lower quartile selling price in each region.
Mortgage payments are considered affordable if they take up 40% or less of take home pay.
The Home Loan Affordability Reports show that mortgage payments have been under the 40% affordability threshold for typical first home buyers in Auckland since March this year. The most recent mortgage rate cuts saw affordability plunge to 35.77% in September, which was the lowest it has been since September 2014.
That was in spite of the fact that the REINZ’s lower quartile selling price for Auckland has increased by exactly 50% over that period, from $440,000 in September 2014 to $660,000 in September this year.
All of that increase occurred over the two years from September 2014 to September 2016, when the lower quartile price in Auckland increased from $440,000 to $655,000 and then flattened out over the next three years.
That means the improvement in affordability was mostly due to the decline in mortgage interest rates, with the average of the two year fixed rates offered by the major banks falling by 42.9%, from 6.13% to 3.50% over the same period.
To a much lesser degree, the improvement in affordability was also helped by a modest rise in wages, with take home pay for typical first home buyers in Auckland (based on the median pay rates for couples aged 25-29) increasing by 10.3% over the same period, rising from $1530.27 a week in September 2014 (for an Auckland couple where both work full time), to $1687.49 a week in September this year.
So the story in a nutshell for typical first home buyers in Auckland is that over the last five years, lower quartile dwelling prices have increased by 50%, take home pay has increased by 10.3% and mortgage interest rates have decreased by 42.9%.
The improvement in affordability occurred in all districts within the Auckland region and means that six of the region’s seven districts are now considered affordable for first home buyers, with the North Shore being the only district where mortgage payments on a lower quartile-priced home would take up more than 40% of typical first home buyers’ take home pay.
Lower mortgage rates also improved affordability in most of the rest of the country, with affordability improving in all but two regions (Manawatu/Whanganui and Otago), but the improvements in affordability have generally been more muted than in Auckland because in many regions lower quartile prices are still rising, while they have been largely static in Auckland for the last three years.
However housing is still considered affordable for first home buyers (with payments on lower quartile-priced homes taking up 40% or less of typical first home buyers take home pay) in all districts except Auckland’s North Shore and Queenstown.
In the Waikato, the mortgage payments on a lower quartile-priced home would take up just 22.64% of typical first home buyers’ take home pay in September, in the Bay of Plenty 24.99%, Wellington 24.88%, Canterbury 17.18% and Otago 19.53%, which means other regions still enjoy a considerable advantage over Auckland in terms of affordability for first home buyers.
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