By David Chaston
Home loan affordability declined noticeably in March as the national median house price popped up, even though interest rates remained at record lows and incomes nudged up further.
However, the national result was skewed significantly by sharp rises in central Auckland and the North Shore. Almost all other urban areas recorded stable house prices.
The Roost Home Loan Affordability monthly reports show affordability for young working couples are still at their best levels in seven years in most parts of the country, although affordability for home buyers in central Auckland, Wellington and Christchurch remains difficult.
“Banks have plenty of cash to lend and are competing hard for business, particularly as the outlook for interest rates remains subdued,” said Colleen Dennehy, a spokeswoman for Roost Mortgage Brokers, which sponsors the Roost Home Loan Affordability report from interest.co.nz.
Rising rents and stable house prices in most provincial centres is changing the results for investors, improving returns which are now showing substantial gains. In increasing numbers of towns, after-tax returns beat bank term deposits by a substantial margin, without considering capital gains.
Banks have held their floating and fixed mortgage rates at record lows over the last month despite some substantial falls in wholesale interest rates recently. Some bank economists have suggested floating borrowers fix their mortgages to avoid any increases over the next two years, but with those recent falling wholesale rates some institutions may be tempted to lower fixed rates to win market share.
Bank economists have generally forecast the Reserve Bank will hold rates until December 2012, but with sharply slowing economies in Europe, a slowing of growth in China, and questions about how strong the US recovery will get, it is equally likely our rates will remain low for even longer.
Affordability declined nationally in March because median house prices rose to NZ$370,000. This increased the proportion of after tax income needed to service an 80% mortgage on a median house to 53.9% in March from 51.8% in February, the Roost Home Loan Affordability report shows.
Household affordability for first home buyers improved to 22.2% of income from 21.3% the previous month and is around its best levels since late 2004. 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 worsened somewhat in Auckland Central, North Shore, Hamilton, Rotorua, Napier, Palmerston North, the Hutt Valley, Nelson and Invercargill, where house prices rose. It improved in many other areas where median prices were flat to slightly lower. See 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 has generally been improving since December 2009 as house prices have flattened out and interest rates have fallen, although there has been some deterioration in recent months as house prices have firmed again.
More than 60% of home owners are now on floating mortgages and most new borrowers are choosing to float, given advertised floating rates at around 5.75% are cheaper than average longer term fixed rates at around 5.8%. The Home Loan Affordability reports use the floating rate.
For investors, the situation is getting noticeably better. Nationally, investor returns (not including capital gains or losses) are now running at 4.2% after tax and these compare will a 3.1% after tax return for a one year term deposit. But in a number of smaller urban areas, returns of up to 8% after tax can be achieved. In almost all centres, returns are improving. Towns such as Rotorua, Hsstings, Gisborne, Wanganui, New Plymouth, Dunedin, and Invercargill are all centres where you can get at least 5% after tax returns. Parts of the Wellington region also give this level. (Contact us for more information about investor returns.)
| Regional home loan affordability comparison: | ||||||
| mortgage payment as a % of weekly take-home pay | ||||||
|
Mar-12
|
Feb-12
|
Mar-11
|
Mar-10
|
Mar-09
|
Mar-08
|
|
| New Zealand |
53.9%
|
51.8%
|
54.6%
|
64.7%
|
55.7%
|
83.4%
|
| Northland |
50.4%
|
50.5%
|
54.6%
|
63.8%
|
56.4%
|
84.5%
|
| - Whangarei |
41.9%
|
42.7%
|
42.2%
|
54.4%
|
49.6%
|
73.5%
|
| Auckland |
68.3%
|
64.6%
|
66.5%
|
80.9%
|
68.2%
|
97.7%
|
| - Central |
75.6%
|
71.3%
|
72.9%
|
91.5%
|
71.0%
|
104.8%
|
| - North Shore |
73.6%
|
69.8%
|
73.1%
|
87.1%
|
70.8%
|
103.9%
|
| - South |
67.8%
|
69.0%
|
65.5%
|
78.1%
|
70.1%
|
93.1%
|
| - West |
56.0%
|
54.9%
|
59.9%
|
68.2%
|
58.1%
|
82.4%
|
| Waikato/BOP |
48.4%
|
48.9%
|
48.7%
|
61.4%
|
54.8%
|
80.8%
|
| - Hamilton |
51.3%
|
49.2%
|
50.0%
|
63.2%
|
56.3%
|
81.9%
|
| - Tauranga |
55.2%
|
56.4%
|
59.6%
|
71.6%
|
62.1%
|
89.2%
|
| - Rotorua |
42.0%
|
35.7%
|
37.2%
|
48.3%
|
44.2%
|
62.9%
|
| Hawkes Bay |
46.2%
|
47.4%
|
44.1%
|
55.0%
|
48.9%
|
71.3%
|
| - Napier |
50.5%
|
48.0%
|
47.6%
|
62.6%
|
54.2%
|
72.8%
|
| - Hastings |
42.7%
|
46.6%
|
42.4%
|
54.9%
|
49.6%
|
74.4%
|
| - Gisborne |
42.4%
|
41.2%
|
41.8%
|
56.0%
|
44.9%
|
67.8%
|
| Manawatu/Wanganui |
35.9%
|
35.5%
|
35.0%
|
45.2%
|
40.4%
|
58.6%
|
| - Palmerston North |
40.0%
|
37.5%
|
39.2%
|
49.9%
|
44.8%
|
70.2%
|
| - Wanganui |
29.6%
|
29.5%
|
29.7%
|
41.4%
|
31.1%
|
49.8%
|
| Taranaki |
42.9%
|
42.5%
|
43.5%
|
54.6%
|
46.3%
|
66.0%
|
| - New Plymouth |
46.0%
|
50.0%
|
46.0%
|
59.5%
|
55.5%
|
88.0%
|
| Wellington region |
53.0%
|
52.3%
|
57.4%
|
67.8%
|
57.8%
|
90.7%
|
| - City |
57.5%
|
59.2%
|
59.0%
|
71.5%
|
61.3%
|
91.6%
|
| - Hutt Valley |
47.2%
|
45.1%
|
50.4%
|
58.9%
|
49.9%
|
71.7%
|
| - Porirua |
53.9%
|
53.3%
|
60.8%
|
69.0%
|
56.6%
|
86.5%
|
| - Kapiti Coast |
52.7%
|
51.4%
|
54.2%
|
71.2%
|
53.9%
|
86.2%
|
| Nelson/Marlborough |
52.6%
|
52.7%
|
54.1%
|
66.7%
|
58.3%
|
82.5%
|
| - Nelson |
55.1%
|
52.2%
|
54.2%
|
64.8%
|
57.6%
|
78.8%
|
| Canterbury/Westland |
48.3%
|
50.0%
|
45.0%
|
56.8%
|
49.6%
|
77.1%
|
| - Christchurch |
56.1%
|
54.8%
|
54.0%
|
65.3%
|
54.3%
|
84.4%
|
| - Timaru |
38.9%
|
44.0%
|
37.8%
|
46.3%
|
41.0%
|
61.1%
|
| Central Otago Lakes |
62.4%
|
62.5%
|
72.0%
|
86.0%
|
77.8%
|
123.9%
|
| - Queenstown |
70.3%
|
81.9%
|
83.8%
|
100.5%
|
95.2%
|
126.6%
|
| Otago |
39.0%
|
37.9%
|
35.0%
|
45.4%
|
41.2%
|
62.2%
|
| - Dunedin |
44.6%
|
44.0%
|
40.6%
|
52.3%
|
46.0%
|
71.8%
|
| Southland |
31.0%
|
28.3%
|
29.7%
|
36.7%
|
32.4%
|
50.0%
|
| - Invercargill |
32.6%
|
30.7%
|
32.5%
|
38.6%
|
34.2%
|
57.5%
|
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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