By Greg Ninness
Typical first home buyers in Auckland would have to save for an average of more than seven years to get a 20% deposit for their first home, according to interest.co.nz's latest Home Loan Affordability Reports.
In Wellington, typical first home buyers could save a 20% deposit in just over four years, and in Canterbury it would take 3.8 years.
The figures show just how far out of reach home ownership is becoming for aspiring first home buyers on average wages in Auckland.
The Home Loan Affordability Reports track the median take home pay of couples aged 25-29 in each region, if both were working full time, and then estimates how much money they would save if they put aside 20% of their after tax pay each week, and earned interest on their savings at the 90 day term deposit rate.
It then calculates how long it would take them to save a 20% deposit for a home at the REINZ's lower quartile selling price in each region (see table below).
|Number of years it would take typical First Home Buyers* to save a 20% deposit on a lower quartile-priced home|
|Bay of Plenty||4.8|
That shows that it would take 7.3 years to save a 20% deposit in Auckland, where the REINZ's lower quartile selling price was $665,000 in May, compared to just two years in Southland, where the lower quartile selling price was just $174,000 in May (see table below for all regions).
Within the Auckland Region the cheapest places to buy a first home were the Papakura and Franklin districts on the city's southern fringes, where the lower quartile prices were $570,000 and $575,000 respectively in May.
That means it would take typical first home buyers 6.3 years to save a 20% deposit for a lower quartile-priced home in Papakura or Franklin.
The most expensive area for first home buyers in Auckland was the North Shore, where it would take 8.7 years for typical first home buyers to save a 20% deposit on a home at the North Shore's lower quartile selling price of $792,500.
According to the Home Loan Affordability Reports ,the median after-tax pay for Auckland couples aged 25-29 is $1590.83 a week.
If they saved 20% of that each week ($318.17) to put towards a deposit, they would have $1272.66 left between them ($636.33 each), from which they would have to pay all of their living expenses including rent, so they wouldn't be living a lavish lifestyle.
That assumes they have no children and do not receive the Working for Families allowance and do not make KiwiSaver contributions or student loan repayments, which would affect their ability to save for a deposit.
Welcome Home Loans
However first home buyers may be eligible for a Welcome Home Loan which would only require a 10% deposit, a scheme which is administered by Housing New Zealand, although the mortgages come from a mainstream bank or other lender.
To be eligible a couple would need to earn less than $130,000 a year between them (before tax), and in Auckland the maximum price of their property they were purchasing would be $650,000 for a brand new home or $600,000 for an older home.
The gross income of the typical first home buyers used in the Home Loan Affordability Reports is $101,400 a year, so they would be eligible for the Welcome Home Loan, allowing them to buy a home for up $650,000 if it was brand new, or $600,000 if it was older, with a 10% deposit (up to $60,000 or $65,000 depending on the age of the property).
However there are some disadvantages to such an arrangement, the main ones being that it increases the size of the borrower's mortgage from 80% to 90% of the purchase price, which would also increase the amount of their mortgage payments.
It is also likely to restrict where they could buy a property because Pukekohe and Franklin are the only districts within the Auckland region where the median selling price is below $650,000, and many, if not most of the new homes that are being built are priced at the middle to upper end of the market, putting them beyond the reach of most first home buyers.
So it's likely that even if they qualify for a mortgage with a 10% deposit, they may have difficulty finding a home that they would want to live in and that they could afford.
Separate Home Loan Affordability Reports are available for each of the regions and districts listed in the box at left.
To read them click on the areas from the list (at left) that you are interested in.