The benefits of lower interest rates for first home buyers are being more than wiped out by rising prices at the lower end of the housing market, according to the latest figures from interest.co.nz’s Home Loan Affordability Reports.
The reports show that mortgage interest rates have tumbled since the Reserve Bank slashed the Official Cash Rate (OCR) from 1.5% to 1.0% in August, with the average of the two year fixed mortgage rates offered by the major banks falling from 3.81% in July to 3.46% in October.
That should have helped aspiring first home buyers get into their own homes by reducing mortgage payments, but it appears that the fall in interest rates has simply helped to pump up house prices at the bottom end of the market, meaning first home buyers are likely worse off now than they were before mortgage rates were cut.
According to the Real Estate Institute of New Zealand (REINZ), the national lower quartile selling price (the price at which 25% of sales are below and 75% are .above, representing the bottom quarter of the market), has risen steadily from $401,900 in July to $437,500 in October.
According to the Home Loan Affordability Reports that has pushed the mortgage payments for a home purchased at the national lower quartile price from $351.31 a week in July to $372.64 a week in October, even though mortgage interest rates have declined over the same period.
That suggests first home buyers are probably worse off now than they were before the Reserve Bank slashed the OCR, because higher prices not only push up mortgage payments, reducing affordability, they also mean first home buyers will need to find a bigger deposit.
And that trend has been evident throughout most of the country.
The REINZ’s lower quartile selling price was higher in November than it was in July in all regions of the country except Nelson/Marlborough, and in most cases the increases were significant.
In Auckland where housing affordability pressures are greatest, the REINZ’s lower quartile price increased from $643,000 in July to $689,000 in November, the highest it has ever been.
Lower quartile prices also hit record highs in November in Waikato, Bay of Plenty, Hawke’s Bay, Manawatu/Whanganui, Wellington region, Otago and Southland.
The reports show that Queenstown remains the most unaffordable place in the country for first home buyers, with the mortgage payments on a lower quartile-priced home in the town eating up 48.7% of a typical first home buying couple’s take home pay each week, followed by Auckland’s North Shore where the mortgage payments on a lower quartile-priced home would consume 46% of typical first home buyers’ take home pay.
Whanganui is the most affordable centre for first home buyers, with the mortgage payments on a lower quartile-priced home there taking up just 13.3% of typical first home buyers’ take home pay followed by Invercargill at 14.8%.
Home Loan Affordability Reports for individual regions and major urban centres are available by clicking on the appropriate links in the box below.
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