The rapid decline in mortgage interest rates since the COVID-19 crisis started to bite has made the mortgage payments on a starter home the most affordable they have been in nearly four years.
The average of the two year fixed mortgage rates offered by the major banks was 3.52% in February before severe lockdown restrictions were put in place, and had fallen to 2.76% in June. Over the same period the Real Estate Institute of New Zealand's national lower quartile selling price moved marginally, from $458,500 in February to $452,000 in June, after briefly peaking at $480,000 in March.
Lower quartile prices around the rest of the country followed a broadly similar pattern, mostly with relatively small movements up or down over the last few months, but generally staying close to their recent highs.
For a home purchased with a 20% deposit at the national lower quartile price of $458,500 in February, the mortgage payments at the average two year fixed rate would have been around $380.59 a week (assuming a 30 year term).
The slight reduction in the lower quartile price from $458,000 in March to $452,000 in June and more importantly, the reduction in the average mortgage interest rate from 3.52% to 2.76%, would have reduced the mortgage payments from $380.59 a week to $340,91, a saving of almost $40 a week.
However to get a better feel for housing affordability, you need to measure mortgage payments as a percentage of income.
If a couple were both earning the median pay of people aged 25-29, the mortgage payments in the examples above would have gobbled up 22.5% of their after-tax pay in February, but by June that would have dropped to just 20.0%. That is the lowest that the mortgage payment-to-income ratio for lower quartile-priced homes has been since October 2016.
A traditional financial planning measure of housing affordability has been that mortgage payments are considered affordable when they take up no more than 40% of the borrower's net income. By that measure, the current record low interest rates have made mortgage payments on lower quartile-priced homes extremely affordable for younger people on median incomes.
Even in Auckland, the most expensive region in the country where the lower quartile price was $726,000 in June, falling interest rates saw the mortgage payments on a lower quartile-priced home drop from $581.06 a week in February to $547.57 a week in June, a saving of $33.49 week, while the ratio of mortgage payments to net pay dropped from 33.8% to 31.6% over the same period.
So by traditional measures, Auckland should now be considered affordable for typical first home buyers. However the main hurdle facing most first home buyers is probably not being able to afford the mortgage payments, but being able to raise the deposit. A 20% deposit for a home at the national lower quartile price would be $90,400, and at Auckland's lower quartile price it would be $145,200.
Interest.co.nz estimates that if a young couple earning the median rate of pay for 25-29 years olds, set aside 20% of their after pay each week, it would take them five years to save a 20% deposit at the national lower quartile price and almost eight years to save a 20% deposit at Auckland's lower quartile price.
So it would not be surprising if they opted to take on a low equity mortgage, which would need a lower deposit. While that would push up their mortgage payments, interest rates are now so low that they would likely still be affordable for most first home buyers.
If a couple purchased a home at the national lower quartile price of $452,000 with a 10% deposit, the mortgage payments would be $443 a week. That's just 26% of the after-tax pay for couples earning the median wage for 25-29 year olds, putting it well within affordable limits.
If a couple purchased a home at Auckland's lower quartile price of $726,000 with a 10% deposit, the mortgage payments would be $712 a week, which would be 41.1% of the median after tax pay of Auckland couples aged 25-29. That's getting into unaffordable territory, but only just.
So provided potential first home buyers on average incomes can get a deposit together, even if it's less than 20% of the purchase price, they should be able to afford the mortgage payments on a cheaper home without over-stretching themselves.
The tables below show the mortgage affordability measures for lower quartile-priced homes in all of the main housing districts throughout the country, based on 10% and 20% deposits.
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| Lower Quartile Housing Affordability with 20% Deposit | ||||||
| June 2020 | ||||||
| Region | 20% Deposit $ | Years required to save 20% deposit | Amount of 80% mortgage $ | Weekly mortgage payments $ | Median take home pay $ | Affordability: Mortgage payments as a % of income |
| Northland | 80,000 | 4.7 | 320,000 | 301.69 | 1,608.59 | 18.8% |
| Auckland | 145,200 | 7.9 | 580,800 | 547.57 | 1,733.17 | 31.6% |
| Waikato | 97,000 | 5.5 | 388,000 | 365.80 | 1,673.76 | 21.9% |
| Bay of Plenty | 102,000 | 6.0 | 408,000 | 384.66 | 1,601.71 | 24.0% |
| Hawke's Bay | 85,100 | 5.1 | 340,400 | 320.92 | 1,602.41 | 20.0% |
| Wairarapa | 82,000 | 5.6 | 328,000 | 309.23 | 1,381.70 | 22.4% |
| Taranaki | 64,000 | 3.7 | 256,000 | 241.35 | 1,629.36 | 14.8% |
| Manawatu/Whanganui | 69,000 | 4.0 | 276,000 | 260.21 | 1,629.36 | 16.0% |
| Wellington | 108,000 | 5.8 | 432,000 | 407.28 | 1,759.41 | 23.1% |
| Nelson/Marlborough | 100,000 | 5.8 | 400,000 | 377.11 | 1,644.03 | 22.9% |
| Canterbury/Westland | 75,000 | 4.1 | 300,000 | 282.83 | 1,711.69 | 16.5% |
| Otago | 84,000 | 4.9 | 336,000 | 316.77 | 1,617.52 | 19.6% |
| Southland | 52,300 | 3.0 | 209,200 | 197.23 | 1,679.75 | 11.7% |
| New Zealand | 90,400 | 5.0 | 361,600 | 340.91 | 1,701.09 | 20.0% |
| Districts & Cities | ||||||
| Whangarei | 83,800 | 4.6 | 335,200 | 316.02 | 1,717.09 | 18.4% |
| Rodney | 152,000 | 8.3 | 608,000 | 573.21 | 1,733.17 | 33.1% |
| Auckland North Shore | 170,000 | 9.2 | 680,000 | 641.09 | 1,733.17 | 37.0% |
| Auckland Central | 159,600 | 8.7 | 638,400 | 601.87 | 1,733.17 | 34.7% |
| Auckland West | 141,000 | 7.7 | 564,000 | 531.73 | 1,733.17 | 30.7% |
| Auckland South | 134,000 | 7.3 | 536,000 | 505.33 | 1,733.17 | 29.2% |
| Papakura | 121,200 | 6.6 | 484,800 | 457.06 | 1,733.17 | 26.4% |
| Franklin | 125,000 | 6.8 | 500,000 | 471.39 | 1,733.17 | 27.2% |
| Hamilton | 111,000 | 6.3 | 444,000 | 418.60 | 1,667.93 | 25.1% |
| Tauranga | 119,000 | 6.9 | 476,000 | 448.76 | 1,618.89 | 27.7% |
| Rotorua | 82,500 | 4.7 | 330,000 | 311.12 | 1,662.10 | 18.7% |
| Gisborne | 68,600 | 4.5 | 274,400 | 258.70 | 1,454.62 | 17.8% |
| Napier | 97,000 | 5.7 | 388,000 | 365.80 | 1,608.83 | 22.7% |
| Hastings | 82,400 | 4.9 | 329,600 | 310.74 | 1,602.41 | 19.4% |
| New Plymouth | 78,000 | 4.6 | 312,000 | 294.15 | 1,603.91 | 18.3% |
| Whanganui | 62,000 | 3.9 | 248,000 | 233.81 | 1,506.34 | 15.5% |
| Palmerston North | 85,000 | 4.6 | 340,000 | 320.55 | 1,726.42 | 18.6% |
| Kapiti Coast | 105,000 | 6.3 | 420,000 | 395.97 | 1,572.54 | 25.2% |
| Porirua | 114,240 | 6.4 | 456,960 | 430.81 | 1,668.89 | 25.8% |
| Hutt Valley | 108,000 | 5.9 | 432,000 | 407.28 | 1,711.48 | 23.8% |
| Wellington City | 136,200 | 6.4 | 544,800 | 513.63 | 1,999.02 | 25.7% |
| Nelson | 100,000 | 5.8 | 400,000 | 377.11 | 1,644.03 | 22.9% |
| Christchurch | 77,400 | 4.3 | 309,600 | 291.89 | 1,705.55 | 17.1% |
| Timaru | 63,000 | 3.8 | 252,000 | 237.58 | 1,563.67 | 15.2% |
| Queenstown | 160,000 | 9.3 | 640,000 | 603.38 | 1,617.52 | 37.3% |
| Dunedin | 85,000 | 5.3 | 340,000 | 320.55 | 1,513.11 | 21.2% |
| Invercargill | 58,600 | 3.5 | 234,400 | 220.99 | 1,600.78 | 13.8% |
| Notes: Deposit figure is 20% of the REINZ's lower quartile selling price in each area. Years to save the deposit and median pay figures are based on the combined after-tax pay for couples working full time at the median pay rate in each each area, who save 20% of their net pay each week. Weekly mortgage payments based on a 30 year mortgage at the average of the two year fixed rates offered by the major banks. | ||||||
| LOWER QUARTILE HOUSING AFFORDABILITY WITH 10% DEPOSIT | ||||||
| June 2020 | ||||||
| Regions | 10 % Deposit $ | Years Required to Save 10% Deposit | Amount of 90% Mortgage $ | Weekly Mortgage Payments $ | Median Take Home Pay $ | Affordability: Mortgage Payments as % of Income |
| Northland | 40,000 | 2.4 | 360,000 | 392.07 | 1,608.59 | 24.4% |
| Auckland | 72,600 | 4.0 | 653,400 | 711.60 | 1,733.17 | 41.1% |
| Waikato | 48,500 | 2.7 | 436,500 | 475.38 | 1,673.76 | 28.4% |
| Bay of Plenty | 51,000 | 3.0 | 459,000 | 499.88 | 1,601.71 | 31.2% |
| Hawke's Bay | 42,550 | 2.5 | 382,950 | 417.06 | 1,602.41 | 26.0% |
| Wairarapa | 41,000 | 2.8 | 369,000 | 401.87 | 1,381.70 | 29.0% |
| Manawatu/Wanganui | 34,500 | 2.0 | 310,500 | 338.16 | 1,629.36 | 20.8% |
| Taranaki | 32,000 | 1.9 | 288,000 | 313.65 | 1,629.36 | 19.3% |
| Wellington | 54,000 | 2.9 | 486,000 | 529.29 | 1,759.41 | 30.1% |
| Nelson/Marlborough | 50,000 | 2.9 | 450,000 | 490.08 | 1,644.03 | 29.8% |
| Canterbury/Westland | 37,500 | 2.1 | 337,500 | 367.56 | 1,711.69 | 21.5% |
| Otago | 42,000 | 2.5 | 378,000 | 411.67 | 1,617.52 | 25.5% |
| Southland | 26,150 | 1.5 | 235,350 | 256.31 | 1,679.75 | 15.3% |
| New Zealand | 45,200 | 2.5 | 406,800 | 443.03 | 1,701.09 | 26.0% |
| Cities & Districts | ||||||
| Whangarei | 41,900 | 2.3 | 377,100 | 410.69 | 1,717.09 | 23.9% |
| Rodney | 76,000 | 4.1 | 684,000 | 744.92 | 1,733.17 | 43.0% |
| North Shore | 85,000 | 4.6 | 765,000 | 833.14 | 1,733.17 | 48.1% |
| Auckland Central | 79,800 | 4.4 | 718,200 | 782.17 | 1,733.17 | 45.1% |
| Auckland West | 70,500 | 3.8 | 634,500 | 691.02 | 1,733.17 | 39.9% |
| Auckland South | 67,000 | 3.7 | 603,000 | 656.71 | 1,733.17 | 37.9% |
| Papakura | 60,600 | 3.3 | 545,400 | 593.98 | 1,733.17 | 34.3% |
| Franklin | 62,500 | 3.4 | 562,500 | 612.60 | 1,733.17 | 35.3% |
| Hamilton | 55,500 | 3.2 | 499,500 | 543.99 | 1,667.93 | 32.6% |
| Tauranga | 59,500 | 3.5 | 535,500 | 583.20 | 1,618.89 | 36.0% |
| Rotorua | 41,250 | 2.4 | 371,250 | 404.32 | 1,662.10 | 24.3% |
| Gisborne | 34,300 | 2.2 | 308,700 | 336.20 | 1,454.62 | 23.1% |
| Napier | 48,500 | 2.9 | 436,500 | 475.38 | 1,608.83 | 29.5% |
| Hastings | 41,200 | 2.5 | 370,800 | 403.83 | 1,602.41 | 25.2% |
| New Plymouth | 39,000 | 2.3 | 351,000 | 382.26 | 1,603.91 | 23.8% |
| Whanganui | 31,000 | 2.0 | 279,000 | 303.85 | 1,506.34 | 20.2% |
| Kapiti Coast | 52,500 | 3.2 | 472,500 | 514.59 | 1,572.54 | 32.7% |
| Porirua | 57,120 | 3.2 | 514,080 | 559.87 | 1,668.89 | 33.5% |
| Hutt Valley | 54,000 | 3.0 | 486,000 | 529.29 | 1,711.48 | 30.9% |
| Wellington City | 68,100 | 3.2 | 612,900 | 667.49 | 1,999.02 | 33.4% |
| Nelson | 50,000 | 2.9 | 450,000 | 490.08 | 1,644.03 | 29.8% |
| Christchurch | 38,700 | 2.1 | 348,300 | 379.32 | 1,705.55 | 22.2% |
| Timaru | 31,500 | 1.9 | 283,500 | 308.75 | 1,563.67 | 19.7% |
| Queenstown | 80,000 | 4.7 | 720,000 | 784.13 | 1,617.52 | 48.5% |
| Dunedin | 42,500 | 2.7 | 382,500 | 416.57 | 1,513.11 | 27.5% |
| Invercargill | 29,300 | 1.7 | 263,700 | 287.19 | 1,600.78 | 17.9% |
| Notes: Deposit figure is 10% of the REINZ's lower quartile selling price in each area. Years to save the deposit and median pay figures are based on the combined after-tax pay for couples working full time at the median pay rate in each each area, who save 20% of their net pay each week. Weekly mortgage payments based on a 30 year mortgage at the average of the two year fixed rates offered by the major banks. | ||||||
*This article was first published in our email for paying subscribers early on Friday morning. See here for more details and how to subscribe.
53 Comments
So provided potential first home buyers on average incomes still maintain their jobs through furlough - then great they can cling on with their nails
Then you look at what you can buy for the same amount of money in Brisbane.
And Melbourne is a hot spot not just for property. Now there are anti-maskers yelling at retail workers and uploading their rants to YouTube. I find myself frequently using the word"dumbo" as more people get stupider by the day
For the price of my West Auckland 70s three-bedder? A brand new four bedder with 2x the floor area and a swimming pool. And then the same amount of land again. Terrifying.
What is stopping you GV27, I have heard enough stories about kiwis getting sh*t over there. My own brother been 25 years in oz is coming back in 12 months.
Family, for the most part, and various medical issues. That and not wanting to be at the mercy of whatever Australia decides is a 'fair suck of the sav' for Kiwis who live there. Also, the desire to never live in a country where 'fair suck of the sav' is acceptable parlance.
Does he have kids ready for uni and wants the taxpayer funded uni?
It's ridiculous isn't it. New Zealand doesn't make a lot of sense as a place to live.
There's a lot to love about New Zealand. The silly house prices are annoying, especially given the atrocious quality of most houses. The only other bad thing is the driving... don't get me started on that.
I would also add in that general cost of living is pretty damn high.
High relative to income sure. It's a great place to be if you're doing well.
As an Eastern European, I find kiwi drivers very courteous and sane compared to where I came from.
But yeah, houses are ridiculously bad. What most Europeans would call a sub-par weekend fishing cottage, is called a 'first home buyers dream' and sells for a million dollars here.
Those who were born here have a good reason to stay. You have the choice either way
On point there, almost finished building a 4bdrm, 2 bath, 2 car home for under $500k. Better weather and plenty of support $15k from QLD Govt just to build, then theres the Covid Support payments and family tax credits. I don't know why Kiwi's keep saying there is no support over here if you are working you get a fairly good suck of the sav.
And Brisbane houses could tumble after Covid-19 arrives from Victoria.....
TTP
In Auckland, provided house price have not increased.
So over the years the interest.co.nz affordability series has gone from 25yr mortgages and 20% deposit to 30yr mortgages and now 10% deposits to try to pretend house prices are affordable. When do we get 5% deposits and interest only as a scenario?
Of course ,June quarter RBNZ data shows of the total existing 281.238 billion in mortgage lending, interest only totals 75.275 billion (or 27 percent ) up 7 billion on the past quarter.
Between March and July - also to compare job and businesss loss or drop in wages and earning.
Once upon a time mortgages were 1.5 x the average wage earner's annual income. Now the deposit alone is 1.5 x the average wage earners income.
Why did wage earners "back in the day" even take out mortgages? Surely they could have just saved a bit harder and paid for the house in cash?
1.5? Where did you find that figure?
Remember that buying moved to household income from the 70s rather than individual salaries.
In the 1980s maybe price at 90k, income 30k, so 3x, but then that’s was when Mortgage interest rates were 20%!
early 80s, average wage was about $11,000, house prices in Auckland were ~$30k. Mortgages of 1.5x average wage if you had a decent deposit.
You're talking average house prices. This article is talking lower quartile. If the average house price was between two-to-three times the average household income, then the lower quartile is likely to be between one-to-two. Mortgage interest rates were 20% for a couple of years, in a period of very high inflation where the average weekly wage increased from $285 in 1984 to $529 in 1989.
From 1957 to the late 1980s the average New Zealand house price was between two-to-three times the average annual household income.
Why do you resort to using facts to support your position. Can't you just rely on anecdotes and erroneous subjective recollection like the majority of the older cohort do.
And Inflation was 15%. So real interest rates were 5%!
Once upon a time ... and they all lived happily
New Zealand’s historically high rate of homeownership was partly the result of
government subsidies through capitalisation of the Family Benefit and 3% loans
extended by the State Advances/Housing Corporation. Between the early 1960s
and the mid-1970s, there were on average 7,500 capitalisations and 3% loans for
newly built homes per year.
Capitalisation of this and that, low subsidized interest rate...why?
I only keep hearing that boomers and older gens had cheap house prices that a family on a single low income could afford their own home (after a week so to speak)
The ongoing post-lockdown demand from FHBs seems to be driving up the cheapest sector. Hard to find anything under $450k other than leasehold 2 bed flats.
Until one of the young couple gets made unemployed. Then not affordable
Small empirical problem: FHB sale price bracket of 600-850 sold fewer in June in Auckland than last year
It was brackets over 1.1m where sales rose markedly
I’m guessing exactly one quarter of houses sold for less than or equal to the lower quartile price
There is something really wrong with having to work 8 years to save only a 20% deposit for a roof over your head. Either people are completely financially stupid or the market is completely dysfunctional... I think it is a combination of both...
The 8 years was a simplification. Wages for people in their mid/late 20's won't be static, at least not in most industries. They'll gain one or two promotions in that time.
Sure, but won't house prices double over that time too, seeing as they supposedly double every 7-10 years? So a few promotions probably won;t even touch the sides.
People don't get promotions anymore, unless you work in a legacy or highly regulated industry. At best, you leave for a higher-paid workplace, if your skills are currently in demand.
Another thing the older cohort don't understand -- you can work well in the same job for years and never get a pay rise that exceeds the rate of inflation. This is not the 1970s in that regard. Or else you're on contracts that roll over, and if you ask for more they just get someone else to do it.
Promotion / Switch to higher paying job elsewhere = Same result.
It most definitely does still happen, and especially during your first few years of working.
If you're young and are skilled in something where there is no demand, then re-skill where there is demand. It will be worth it over time.
To add to that, the key is to make yourself valuable. Once you've worked that out, higher pay will come.
There are those who put up walls around their own job titles and those who put their hand up at every opportunity to assist in other areas. I've found success in by being the latter.
I'm available..does that work as well?
But if we were to fix it, that would reduce the portfolio wealth of "ma and pa" investors to whom the wealth has been carefully redistributed to date.
Won't somebody please think of "ma and pa" investors?
I take it Ron Hoy Fong is a Ma/Pa investor?
Maybe a Godpa.
Good lord what a piece of work:
"encouraged investors to look for the "seven Ds" - targeting deceased estates, desperate homeowners facing foreclosure, developers on the brink of bankruptcy, divorcees and "dummies" who didn't know the value of their home"
- https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12…
I can see why you're upset
Oops - my victim mentality revealed again.
Most affordable until the govt ceased all stimulus packages, that's when the fun starts!
how much fun will the government allow though? Will mass mortgagee sales really be a thing? I suspect dear caring kind leader wouldn't permit that.
If I was "dear caring kind leader", I definitely wouldn't want to see a crash as such before the election BUT anything after that is pretty much game on!
"30 year debt servitude more affordable by $40 p/w."
"Home loans haven't been this affordable in 4 years"
"Homes more expensive than ever but mortgage affordability up!"
"Buy now, but wait there's more"
"Mortgage more affordable, homes more unaffordable"
Any one of those headlines would've worked by itself without requiring all the data filler.
This is great provided prices don't simply rise further and erase the $40 saving.
The best time to buy a house is when you're young - 20-30'ish. When I look back there is a lot of things I'd wish I'd done earlier, & buying a lot of houses is still top of the list. Ho hum, two will have to do.
And the best time to be 20-30ish was 1950-60ish.
Still severely unaffordable, rates are lower but mortgages are longer than they have ever been. Not a great time for FHB until prices go down at least another 15-20%.
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