The Reserve Bank of New Zealand has again held the Official Cash Rate (OCR) at a record-low 2.5% as expected, and has signalled it will leave it there until at least the end of 2013. It appeared to water down its warnings about a high New Zealand dollar, reducing the likelihood in the eyes of some of a rate cut to bring the currency down.

The bank again noted its concern about house price inflation, but held back from repeating previous warnings it may have to hike interest rates to cool the market. The Reserve Bank is currently working on a set of so-called
‘macro-prudential’ tools to slow the housing market without hiking interest rates. These tools could include limits on high loan to value ratio loans (LVR), increased capital requirements for banks issuing mortgages and higher capital requirements for high LVR loans. But the bank has said they are unlikely to push up interest rates much or slow lending that much.

The bank and the government are working on a framework for using the tools and expect to announce it around the middle of this year, with the potential for introducing them towards the end of 2013.

What does this mean for rates?

The Reserve Bank said it expected to keep the OCR at 2.5% through “the end of 2013″ and its last Monetary Policy Statement in March forecast 90 day bill rates, which are a proxy for the OCR, would only start rising in early 2014. Inflation is below the 1-3% target band and the high New Zealand dollar is keeping inflation under control, as is continually disappointing growth in Europe and the United States. Growth is also slowing in China, which is now the main driver for New Zealand’s external sector.

Bank economists expect the bank to start increasing the OCR from early 2014, and that the OCR would rise around 1.5% to 2% over the following 2-3 years.

Floating rates

Advertised floating mortgage rates have been broadly unchanged at around 5.7% since March 2011 and are likely to stay that way until the OCR is changed, although borrowers can often get cheaper deals through their brokers because the banks are competing hard for business. This means most expect advertised floating rates to remain on hold until early 2014. The Reserve Bank has forecast the 90 day bill rate would only rise by around 0.5% by early 2015. Bank economists see the OCR
peaking around 4-5%, which suggests a peak for floating rates at around 6-7%.

Fixed rates

Fixed mortgage rates have been relatively stable in recent months and shorter term rates are now at or below floating rates, making the fixed vs floating decision a tough one. Some banks have been nudging short term rates lower in recent weeks because international funding costs have been
falling as global financial markets have calmed. Fixed rates depend more on wholesale interest rate moves rather than the OCR and they have been edging lower in recent weeks on further disappointments about a global economic recovery. The fixed vs floating decision depends on your outlook for the OCR and your personal situation. A flat to falling OCR makes floating more attractive, while a fast rising OCR makes fixing more attractive. In my view, the OCR is flat to falling because of persistent deflationary pressures around the world.

What does this mean for the property market?

The prospect of lower interest rates for longer is encouraging many first home buyers to borrow and buy, particularly in Auckland and Christchurch where migration and a shortage of undamaged and
watertight buildings is putting upward pressure on house prices. Some new building has started in Auckland, but remains below expected demand from migrants from overseas and from the rest of New Zealand. The government and the Reserve Bank is doing little to force extra construction, slow migration or slow lending growth.

Elsewhere in New Zealand, where there is more housing supply and less migration, house prices are subdued.

If you’d like to talk through what this means for you and your mortgage, give your Roost mortgage broker a call.

A surge in house prices in Auckland worsened New Zealand-wide home loan affordability in March to its most expensive level in three years, the Roost Home Loan Affordability report shows.

Affordability was hardest hit in the Auckland region where the median house price has jumped 16% in a year to a record high. The report shows it now takes 87% of a single median after tax income to afford a median priced house in central Auckland, up from 67.3% as recently as January this year.

Central Auckland affordability is now at its worst level since March 2010, although it remains below its worst ever levels of 107.3% of income required in November 2007 when interest rates were over 10%. They are now closer to 5%.

Interest rates were broadly flat in March and after-tax wages rose just over NZ$1 per week, but this was overwhelmed by the 4.7% or NZ$18,000 jump in the national median house price to a record high NZ$400,000.
The issue of housing affordability is becoming a more prominent political issue as tensions grow between the National coalition government and the Auckland Council over land and housing supply shortages.

It is also becoming a broader economic issue after the Reserve Bank warned this month in its strongest terms yet that it may have to hike the Official Cash Rate and limit riskier mortgage lending to prevent a bubble developing in Auckland property prices that could burst and damage the banking system.

Nationally, affordability worsened by 2.5 percentage points in March from February, which meant it took 57.4% of a single median income after tax to afford an 80% mortgage on a median house , according to the Roost home loan affordability report released today.

“The weather may be cooling down, but the housing market remains hot, particularly in Auckland where buyers are fighting for a limited supply of listings and financing is easier to find than in previous years,” said Colleen Dennehy, a spokeswoman for Roost Mortgage Brokers, which sponsors the Home Loan Affordability report series from Interest.co.nz.

“First home buyers and rental property investors are continuing to take advantage of these record low mortgage rates and intense competition between banks to borrow to get into a rising market,” Dennehy said.

Affordability worsened in all major areas except Northland, Wellington and Waikato, where lower house prices made home loans more affordable. Affordability worsened the most in Auckland, central Otago Lakes and Southland, where house prices rose the most.
For first home buyers – which in this Roost index are defined as a 25-29 year old who buys a first quartile home – there was also a deterioration, particularly in Auckland, Taranaki, Otago and Southland. It now takes 97.3% of a first home buyer’s income to afford a first quartile priced house on the North Shore in Auckland. The most affordable city in New Zealand for first home buyers is Wanganui, where it takes 15.7% of a young person’s disposable income to afford a first quartile home.

However, apart from Auckland, Queenstown and Christchurch, it takes around 20-40% of after tax pay to afford an 80% mortgage on a lower quartile priced house. That percentage rises however to 71%, 79.5% and 59% respectively in those three most expensive areas.
Any level over 40% is considered unaffordable, whereas any level closer to 30% has coincided with increased buyer demand in the past.

For working households, the situation is similar although bringing two incomes to the job of paying for a mortgage makes life considerably easier. A household with two incomes would typically have had to use 37.8% of their after tax pay in March to service the mortgage on a median priced house. This is up from 36.2% the previous month.

On this basis, most New Zealand cities have a household affordability index below 40% for couples in the 30-34 age group. This household is assumed to have one 5 year old child.

For households in the 25-29 age group (which is assumed to have no children), affordability also worsened, with 23.7% of after tax income in households with two incomes required to service the debt, up from 22.3% the previous month.
Any level over 30% is considered unaffordable in the longer term for such a household, while any level closer to 20% is seen as attractive and coinciding with strong demand.

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.

Roost Home loan affordability for typical buyers

General/New Zealand Report: http://www.interest.co.nz/property/home-loan-affordability
Links to individual reports for regions can be found here

Roost Home loan affordability for first-home buyers

General/New Zealand Report:
http://www.interest.co.nz/first-home-buyer

Links to individual reports for regions can be found here

Contact

For more information, contact Interest.co.nz publisher David Chaston on 09 360 9670 or 021 997 311 or david.chaston@interest.co.nz for more information.
Question and Answers about the report

How does interest.co.nz work out these numbers?
Interest.co.nz gathers data from Statistics New Zealand and IRD on wages in each region, data from the Real Estate Institute from each region each month, and data from banks and non-banks on interest rates. It has calculated home loan affordability going back to the beginning of 2002.

How is this survey different from the Massey University survey of affordability?
The Massey study is only done quarterly rather than monthly and uses an index of Home affordability rather than actually measuring home loan affordability. It uses an index rather than the actual measure of the proportion of after tax pay needed to service an 80% mortgage on a median home. The exact composition and meaning of the index is not detailed.

Why use a single median income rather than household income?
It’s true that most homebuyers are using a combination of one or more full or part time incomes to service their mortgage. Each household is different and may be using incomes from different sources. The best measure of average national household income is calculated officially once in every three years by Statistics New Zealand. Interest.co.nz chose to use the median income data series from IRD and Statistics NZ because it can be measured monthly and can be drilled down by region and by age. We do include a chart showing how many median incomes are required to keep mortgage payments at 40% of take home pay. It is currently around 2 median incomes.

Why is home loan affordability important?
It is a useful way to work out if a housing market is overvalued. It’s clear house prices stopped rising when the national affordability ratio rose above 80% or 2 median incomes to service the average home loan. It’s a way of comparing affordability of housing markets with a national average and comparing housing values from one year to the next. For example, the affordability ratio in 2002 before the housing boom really took off was around 41%.

About Roost
Roost is the sponsor of this Report, and the Reports must be referred to as the Roost home loan affordability reports. Roost, owned by AMP, is one of New Zealand’s largest independent home loan and investment property mortgage brokers with 16 franchisees nationwide. Roost offers to source the perfect loan for its customers from a panel of lenders and insurance advice from Roost insurance specialists. Roost was established in 1996. For more information please visit www.roost.co.nz

Home loan affordability worsened in February to near its worst levels in two years after the national median house price surged to near a record high. A slight fall in some interest rates and a marginal rise in incomes was not enough to offset the rise in house prices.

 
New Zealand’s median house price rose to NZ$382,000 in February from NZ$370,000 in January and was just below a record high of NZ$389,000 set in December.

 
A surge in house prices in Auckland and Christchurch over the last year because of a shortage of supply is now beginning to leach out into those provincial areas where economic activity is stronger and emigration is slower. A relaxation of lending standards and more heated competition between banks to lend at record low interest rates has also helped boost housing market activity.

 
Nationally, affordability worsened by 1.6 percentage points in February from January, which meant it took 54.9% of a single median income after tax to afford an 80% mortgage on a median house in February, according to the Roost home loan affordability report released today.

 
“Market activity heated up again through the long hot summer. First home buyers and investors have been busy working with their brokers to get the best deal out of the intense competition between the banks,” said Colleen Dennehy, a spokeswoman for Roost, which sponsors the Home Loan Affordability report series from Interest.co.nz.

 
Affordability worsened in most of Auckland, Northland, Wellington, Rotorua and Porirua because of big rises in median house prices. Affordability only improved in South Auckland and Wanganui where median house prices fell.
Average advertised floating mortgage rates were flat in February, while advertised six month and 1 year mortgage rates have fallen over the last year and were down slightly in February.

 
For first home buyers – which in this Roost index are defined as a 25-29 year old who buys a first quartile home – there was also a deterioration, particularly in the biggest cities. However, apart from Auckland, Queenstown and Canterbury, it takes around 20-40% of after tax pay to afford an 80% mortgage on a lower quartile priced house. That percentage rises however to 66%, 67% and 47% respectively in those three most expensive areas.

 
Any level over 40% is considered unaffordable, whereas any level closer to 30% has coincided with increased buyer demand in the past.
For working households, the situation is similar although bringing two incomes to the job of paying for a mortgage makes life considerably easier. A household with two incomes would typically have had to use 36.2% of their after tax pay in February to service the mortgage on a median priced house. This is up from 35.1% the previous month.
On this basis, most New Zealand cities have a household affordability index below 40% for couples in the 30-34 age group. This household is assumed to have one 5 year old child.

 
For households in the 25-29 age group (which is assumed to have no children), affordability also improved, with 22.3% of after tax income in households with two incomes required to service the debt, up from 21.8% the previous month.
Any level over 30% is considered unaffordable in the longer term for such a household, while any level closer to 20% is seen as attractive and coinciding with strong demand.
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.

Roost Home loan affordability for typical buyers

General/New Zealand Report: http://www.interest.co.nz/property/home-loan-affordability
Links to individual reports for regions can be found here

Roost Home loan affordability for first-home buyers

General/New Zealand Report:
http://www.interest.co.nz/first-home-buyer

Links to individual reports for regions can be found here

Contact

For more information, contact Interest.co.nz publisher David Chaston on 09 360 9670 or 021 997 311 or david.chaston@interest.co.nz for more information.
Question and Answers about the report

How does interest.co.nz work out these numbers?
Interest.co.nz gathers data from Statistics New Zealand and IRD on wages in each region, data from the Real Estate Institute from each region each month, and data from banks and non-banks on interest rates. It has calculated home loan affordability going back to the beginning of 2002.

How is this survey different from the Massey University survey of affordability?
The Massey study is only done quarterly rather than monthly and uses an index of Home affordability rather than actually measuring home loan affordability. It uses an index rather than the actual measure of the proportion of after tax pay needed to service an 80% mortgage on a median home. The exact composition and meaning of the index is not detailed.

Why use a single median income rather than household income?
It’s true that most homebuyers are using a combination of one or more full or part time incomes to service their mortgage. Each household is different and may be using incomes from different sources. The best measure of average national household income is calculated officially once in every three years by Statistics New Zealand. Interest.co.nz chose to use the median income data series from IRD and Statistics NZ because it can be measured monthly and can be drilled down by region and by age. We do include a chart showing how many median incomes are required to keep mortgage payments at 40% of take home pay. It is currently around 2 median incomes.

Why is home loan affordability important?
It is a useful way to work out if a housing market is overvalued. It’s clear house prices stopped rising when the national affordability ratio rose above 80% or 2 median incomes to service the average home loan. It’s a way of comparing affordability of housing markets with a national average and comparing housing values from one year to the next. For example, the affordability ratio in 2002 before the housing boom really took off was around 41%.

About Roost
Roost is the sponsor of this Report, and the Reports must be referred to as the Roost home loan affordability reports. Roost, owned by AMP, is one of New Zealand’s largest independent home loan and investment property mortgage brokers with 16 franchisees nationwide. Roost offers to source the perfect loan for its customers from a panel of lenders and insurance advice from Roost insurance specialists. Roost was established in 1996. For more information please visit www.roost.co.nz

The bank said the interest rate outlook was finely balanced with the strong New Zealand dollar keeping imported inflation low, but with the Christchurch rebuild and stronger house prices threatening to boost inflation over the medium term.

Governor Graeme Wheeler warned he may have to cut the Official Cash Rate if the currency became even more over-valued. He also said he was concerned about a doubling of high loan to value ratio (LVR) lending to around 30% of all new lending over the last year. The Reserve Bank is looking at creating so-called macro-prudential tools to try to slow the housing market without slowing the rest of the economy.

These could include limits on LVRs and forcing banks to hold more capital for mortgage lending. The bank is currently consulting on these tools and may be in a position to use them by the end of this year, although opinion is divided on whether the bank will actually use them. Wheeler said in December he wouldn’t use them even if he had them because house price inflation wasn’t fast enough, although he didn’t repeat that today.

What does this mean for rates?
The Reserve Bank said more relaxed international markets had reduced the funding costs for banks, which was being passed on at least partially to borrowers in the form of slightly lower mortgage rates over the last year.

It forecast the 90 day bill rate to rise around 1.3% to 4% by early 2016, which was a slightly more aggressive interest rate track than in its December forecast. Economists forecast rates will rise around 1.5% to 2% through 2014 and 2015.

Floating rates
Advertised floating mortgage rates have been broadly unchanged at around 5.7% since March 2011 and are likely to stay that way until at least early 2014, given the Reserve Bank’s comments. However, borrowers can often get cheaper deals through their brokers because the banks are competing hard for business.

The Reserve Bank has forecast the 90 day bill rate, which is the basis for floating mortgage rates, will only start rising from early 2014, and then rise around 1.3% by early 2016. This suggests a peak for floating rates at around 7%.

Fixed rates
Fixed mortgage rates have been relatively stable in recent months and are now at or below floating rates, making the fixed vs floating decision a tough one. Fixed rates depend more on wholesale interest rate moves rather than the OCR and they have been nudging higher in recent weeks on hopes for a global economic recovery. But banks have held their rates low because their own funding costs have fallen. The fixed vs floating decision depends on your outlook for the OCR and your personal situation. A flat to falling OCR makes floating more attractive, while a fast rising OCR makes fixing more attractive. In my view, the OCR is flat for now. It may rise next year, but not quickly.

What does this mean for the property market?
The prospect of lower interest rates for longer is encouraging many first home buyers to borrow and buy, particularly in Auckland and Christchurch where migration and a shortage of undamaged and watertight buildings is putting upward pressure on house prices. Some new building has started in Auckland, but remains below expected demand from migrants from Overseas and from the rest of New Zealand. The Reserve Bank forecast house price inflation of 6.2% and 3.6% nationwide in 2013 and 2014 respectively. Elsewhere in New Zealand, where there is more housing supply and less migration, house prices are subdued.

If you’d like to talk through what this means for you and your mortgage, give your Roost mortgage broker a call.

Home loan affordability improved slightly in January after a fall in the national median house price, but is just above its worst levels since November 2010.

Interest rates also increased marginally, but are only just above record lows. House price inflation over most of the last year has been the driving factor in home loan affordability, and has been only partially offset by lower fixed mortgage rates linked to more intense competition between banks.

New Zealand’s median house price fell to NZ$370,000 from a record high NZ$389,000 in December, according to REINZ data, but remains up 4.2% from a year ago.

A surge in house prices in Auckland and Christchurch over the last year because of a shortage of supply is now beginning to leach out into some provincial areas where economic activity is stronger and emigration is slower.
Nationally, affordability improved by 2.6 percentage points in January from December, but remains worse than a year ago because of rising house prices. That is, it took 3.6 percentage points less of take home pay to afford the mortgage payments for a median priced house, according to the Roost home loan affordability report released today.
This means it cost $30.58 less per week in January 2012 than in December 2011 to make home loan payments on a median priced house.

“These record low interest rates and hot competition between the banks is making it easier for first home buyers and investors to buy in this market,” said Colleen Dennehy, a spokeswoman for Roost, which sponsors the Home Loan Affordability report series from Interest.co.nz.

Affordability improved in Northland, Auckland, Wellington, Canterbury and Otago, but deteriorated on Auckland’s North Shore, Hastings and Invercargill.

Average advertised floating mortgage rates rose slightly in January, but have been broadly unchanged over the last year. Advertised six month and 1 year mortgage rates have fallen over the last year.
For first home buyers – which in this Roost index are defined as a 25-29 year old who buys a first quartile home – the news is also better in January. Apart from Auckland, Queenstown and Canterbury, it takes around 20-40% of after tax pay to afford an 80% mortgage on a lower quartile priced house. That percentage rises however to 66%, 67% and 47% respectively in those three most expensive areas.

Any level over 40% is considered unaffordable, whereas any level closer to 30% has coincided with increased buyer demand in the past.

For working households, the situation is similar although bringing two incomes to the job of paying for a mortgage makes life considerably easier. A household with two incomes would typically have had to use 35.1% of their after tax pay in January to service the mortgage on a median priced house. This is down from 36.9% a year ago.

On this basis, most New Zealand cities have a household affordability index below 40% for couples in the 30-34 age group. This household is assumed to have one 5 year old child.

For households in the 25-29 age group (which is assumed to have no children), affordability also improved, with 21.8% of after tax income in households with two incomes required to service the debt, down from 22.8% the previous month.

Any level over 30% is considered unaffordable in the longer term for such a household, while any level closer to 20% is seen as attractive and coinciding with strong demand.

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.

Roost Home loan affordability for typical buyers

General/New Zealand Report: http://www.interest.co.nz/property/home-loan-affordability
Links to individual reports for regions can be found here

Roost Home loan affordability for first-home buyers

General/New Zealand Report:
http://www.interest.co.nz/first-home-buyer

Links to individual reports for regions can be found here

Contact

For more information, contact Interest.co.nz publisher David Chaston on 09 360 9670 or 021 997 311 or david.chaston@interest.co.nz for more information.

Question and Answers about the report

How does interest.co.nz work out these numbers?
Interest.co.nz gathers data from Statistics New Zealand and IRD on wages in each region, data from the Real Estate Institute from each region each month, and data from banks and non-banks on interest rates. It has calculated home loan affordability going back to the beginning of 2002.

How is this survey different from the Massey University survey of affordability?
The Massey study is only done quarterly rather than monthly and uses an index of Home affordability rather than actually measuring home loan affordability. It uses an index rather than the actual measure of the proportion of after tax pay needed to service an 80% mortgage on a median home. The exact composition and meaning of the index is not detailed.

Why use a single median income rather than household income?
It’s true that most homebuyers are using a combination of one or more full or part time incomes to service their mortgage. Each household is different and may be using incomes from different sources. The best measure of average national household income is calculated officially once in every three years by Statistics New Zealand. Interest.co.nz chose to use the median income data series from IRD and Statistics NZ because it can be measured monthly and can be drilled down by region and by age. We do include a chart showing how many median incomes are required to keep mortgage payments at 40% of take home pay. It is currently around 2 median incomes.

Why is home loan affordability important?
It is a useful way to work out if a housing market is overvalued. It’s clear house prices stopped rising when the national affordability ratio rose above 80% or 2 median incomes to service the average home loan. It’s a way of comparing affordability of housing markets with a national average and comparing housing values from one year to the next. For example, the affordability ratio in 2002 before the housing boom really took off was around 41%.

About Roost
Roost is the sponsor of this Report, and the Reports must be referred to as the Roost home loan affordability reports. Roost, owned by AMP, is one of New Zealand’s largest independent home loan and investment property mortgage brokers with 16 franchisees nationwide. Roost offers to source the perfect loan for its customers from a panel of lenders and insurance advice from Roost insurance specialists. Roost was established in 1996.

The bank and its new Governor Graeme Wheeler gave no guidance on when interest rates would move or in what direction. He also didn’t spell out what the Reserve Bank would do if house price inflation got too hot, but he has previously said the Reserve Bank would look at imposing loan-to-value ratio limits.

Use of such ‘macro-prudential’ tools may be some way off. The bank has yet to agree on how it would use such tools and is not expected to release its early thinking until the end of March. Wheeler also said as recently as December that house price inflation was yet hot enough to use the tools, even if they were ready to use.

What does this mean for rates?
The Reserve Bank said more relaxed international markets had reduced the funding costs for banks, which were being passed on, at least partially, to borrowers in the form of slightly lower mortgage rates. It gave no indication on when it might move the OCR, which is the basis for floating mortgage rates. Bank economists expect the bank to start increasing it from late 2013 or early 2014, and that the OCR would rise around 1.5% to 2% over the following 2-3 years.

Floating rates
Advertised floating mortgage rates have been broadly unchanged at around 5.7% since March 2011 and are likely to stay that way until the OCR is changed, although borrowers can often get cheaper deals through their brokers as banks are competing hard for business. This means most expect advertised floating rates to remain on hold until late 2013 at the soonest. They may even remain on hold until 2014. The Reserve Bank has forecast the 90 day bill rate, which is the basis for floating mortgage rates, will only start rising at the end of 2013, and then only rise by around 0.5% by early 2015. This suggests a peak for floating rates at around 6%.

Fixed rates
Fixed mortgage rates have been relatively stable in recent months and are now at or below floating rates, making the fixed vs floating decision a tough one. Fixed rates depend more on wholesale interest rate moves rather than the OCR and they have been nudging higher in recent weeks on hopes for a global economic recovery. But banks have held their rates low because their own funding costs have fallen. The fixed vs floating decision depends on your outlook for the OCR and your personal situation. A flat to falling OCR makes floating more attractive, while a fast rising OCR makes fixing more attractive. In my view, the OCR is flat to falling.

What does this mean for the property market?
The prospect of lower interest rates for longer is encouraging many first home buyers to borrow and buy, particularly in Auckland and Christchurch where migration and a shortage of undamaged and
watertight buildings is putting upward pressure on house prices. Some new building has started in Auckland, but remains below expected demand from migrants from overseas and from the rest of New Zealand. Elsewhere in New Zealand, where there is more housing supply and less migration, house prices are subdued.

If you’d like to talk through what this means for you and your mortgage, give your Roost mortgage broker a call.

Interest rates remain low and are virtually unchanged, and the slow rise in take-home pay continues in almost all regions. But it is house prices that are driving the index.

 
Median house prices reached a record $389,000 at December according to REINZ data, up $34,000 in a year. First quartile house prices reached $270,000, also a record, but only up $15,000 over the year.

 
In cities where there is a good balance between housing supply and demand, we are not seeing prices rise fiercely. But in those urban centers where supply is constrained, affordability is worsening markedly as the cost of buying a house rises.

 
Nationally, affordability deteriorated by 3.6% in the year to December 2012. That is, it took 3.6% more of take home pay to afford the mortgage payments for a median priced house, according to the Roost home loan affordability report released today. This means it cost $39.01 more per week in December 2012 than in December 2011 to make home loan payments on a median priced house.

 
Central Auckland, Auckland’s North Shore, Waitakere, Porirua, Christchurch and Queenstown all deteriorated quickly over the year, with Porirua making the biggest move, getting worse by 9.5%. Invercargill, the Kapiti Coast, Whangarei and Tauranga all improved their affordability over 2012.

 
Advertised floating mortgage rates have been unchanged since March last year, but average 6 month and 1 year mortgage rates edged lower by about half a percent over the year. 

Median take-home pay for homebuyers in the 30-34 age group – which is after-tax pay – grew by $19.70 per week, almost $1,025 per year during 2012. It grew the most in Wellington City – by $25.07 per week – and the least in Gisborne of $18.63 per week.

 
For first home buyers – which in this Roost index are defined as a 25-29 year old who buys a first quartile home – the news is not as bad.
For these buyers outside of the ‘usual suspects’ in Auckland and Queenstown, there have been small improvements in affordability. However, Wanganui, Porirua and Nelson all found housing for first home buyers less affordable as 2012 ended. It was tough in Christchurch as well.

 
Any level over 40% is considered unaffordable, whereas any level closer to 30% has coincided with increased buyer demand in the past.
For working households, the situation is similar although bringing two incomes to the job of paying for a mortgage makes life considerably easier.

 
On this basis, 18 of 24 New Zealand cities have a household affordability index below 40% for couples in the 30-34 age group.  This household is assumed to have one 5 year old child. Couples in central Auckland, Manukau and Porirua all found it more expensive to pay a mortgage at the end of 2012 than at the beginning, although in almost all other centers the change was minor over the year.

 
For households in the 25-29 age group (which is assumed to have no children), every city except Queenstown ended the year with the cost of a mortgage lower than 40% of their take-home pay. There was only a marked deterioration in central Auckland; couples in almost all other centers found it no harder to pay the mortgage at the end of the year than at the beginning.

 
Any level over 30% is considered unaffordable in the longer term for such a household, while any level closer to 20% is seen as attractive and coinciding with strong demand.

 
Of the 24 cities we monitor, 17 of them had an index below 30% as at December 2012, six were between 30-40% and one (Queenstown) was above 40%.

 
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.

Roost Home loan affordability for typical buyers

General/New Zealand Report: http://www.interest.co.nz/property/home-loan-affordability

Links to individual reports for regions can be found here

Roost Home loan affordability for first-home buyers

General/New Zealand Report:
http://www.interest.co.nz/first-home-buyer

Links to individual reports for regions can be found here

Contact
For more information, contact Interest.co.nz publisher David Chaston on 09 360 9670 or 021 997 311 or david.chaston@interest.co.nz for more information. 
 
Question and Answers about the report

How does interest.co.nz work out these numbers?
Interest.co.nz gathers data from Statistics New Zealand and IRD on wages in each region, data from the Real Estate Institute from each region each month, and data from banks and non-banks on interest rates. It has calculated home loan affordability going back to the beginning of 2002.

How is this survey different from the Massey University survey of affordability?
The Massey study is only done quarterly rather than monthly and uses an index of Home affordability rather than actually measuring home loan affordability. It uses an index rather than the actual measure of the proportion of after tax pay needed to service an 80% mortgage on a median home. The exact composition and meaning of the index is not detailed.

Why use a single median income rather than household income?
It’s true that most homebuyers are using a combination of one or more full or part time incomes to service their mortgage. Each household is different and may be using incomes from different sources. The best measure of average national household income is calculated officially once in every three years by Statistics New Zealand. Interest.co.nz chose to use the median income data series from IRD and Statistics NZ because it can be measured monthly and can be drilled down by region and by age. We do include a chart showing how many median incomes are required to keep mortgage payments at 40% of take home pay. It is currently around 2 median incomes.

Why is home loan affordability important?
It is a useful way to work out if a housing market is overvalued. It’s clear house prices stopped rising when the national affordability ratio rose above 80% or 2 median incomes to service the average home loan. It’s a way of comparing affordability of housing markets with a national average and comparing housing values from one year to the next. For example, the affordability ratio in 2002 before the housing boom really took off was around 41%.

About Roost
Roost is the sponsor of this Report, and the Reports must be referred to as the Roost home loan affordability reports. Roost, owned by AMP, is one of New Zealand’s largest independent home loan and investment property mortgage brokers with 16 franchisees nationwide. Roost offers to source the perfect loan for its customers from a panel of lenders and insurance advice from Roost insurance specialists. Roost was established in 1996. For more information please visit www.roost.co.nz

home loan affordability

A sharp increase in Spring house buying activity and shortages of supply in Auckland lifted the median house price to a record high NZ$383,250 in November, up 4.3% from a year ago. Auckland’s median house price jumped to a record high NZ$540,000, up 10.2% from a year ago.

Advertised floating mortgage rates have been unchanged since March last year, but average 6 month and 1 year mortgage rates edged 9 basis points and 3 basis points lower respectively over the month. 
This helped reduce interest costs for fixed rate borrowers, but not enough to improve overall affordability once the impact of higher house prices and marginal income growth is accounted for.

Competition between banks to poach market share and boost lending heated up in September and October.  ANZ’s decision to drop the National Bank brand has sparked a new round of fixed mortgage rate cuts and market activity.

The Roost Home Loan Affordability monthly reports show affordability for young working couples has deteriorated in the last month. Affordability for home buyers in central Auckland, central Wellington and Christchurch remains difficult.

“Spring has definitely sprung in the housing market and both banks and mortgage brokers are busier than they have been in years,” said Colleen Dennehy, a spokeswoman for Roost Mortgage Brokers, which sponsors the Roost Home Loan Affordability report from Interest.co.nz.

Some banks have cut fixed mortgage rates to under 5% and are offering discounted legal fees, lower interest rates for borrowers with high equity and, in some cases, the discounting of break fees.  Pricing is often differentiated, depending on the safety of the borrower and the size of the loan.

The Official Cash Rate (OCR) is expected by economists to be steady at 2.5% through until late 2013, before rising to a peak of around 4% over the next couple of years.

Affordability worsened in November as the median house price for all of New Zealand rose to NZ$383,250 from NZ$380,000 in October.

This increased the proportion of single after tax income needed to service an 80% mortgage on a median house to 55.3% from 54.9% the previous month, the Roost Home Loan Affordability report shows.  This is the worst level since December 2010.

Household affordability for first home buyers deteriorated to 22.8% of income from 22% the previous month because the median lower quartile house price rose to a record high NZ$270,000 from NZ$262,000.

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 deteriorated for Auckland to its worst level since August 201o. 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 had generally been improving since December 2009 as interest rates have fallen, although there has been some deterioration in recent months as house prices have firmed again.

Just under 56% of home owners are now on floating mortgages, although there has been a surge in fixed rate borrowing in recent months as banks pared their rates. Advertised floating rates at around 5.75% are higher than 1 year fixed rates at around 5%, but many banks are offering ‘unofficial’ floating rates of around 5.3% to solid customers with high levels of equity that threaten to leave their bank.

The Home Loan Affordability reports use the advertised floating rate.
Affordability for households with more than one income worsened in November because of the higher median house price. This measure of a ‘standard typical household’ found the proportion of after tax income needed to service the mortgage on a median house rose to 36.4% from 36.1% the previous month.

This measure assumes one median male income; half a median female income aged 30-35 and a 5-year-old child that receives Working-for-Families benefits. Any level over 40% is considered unaffordable for a household, whereas any level closer to 30% has coincided with increased buyer demand in the past.

The first home buyer household measure assumes a first home buyer household includes a median male income and a median female income aged 25-29 with no children. Any level over 30% is considered unaffordable in the longer term for such a household, while any level closer to 20% is seen as attractive and coinciding with strong demand.

Roost Home loan affordability for typical buyers
General/New Zealand Report:
http://www.interest.co.nz/property/home-loan-affordability

Links to individual reports for regions can be found here

Roost Home loan affordability for first-home buyers
General/New Zealand Report:
http://www.interest.co.nz/first-home-buyer

Links to individual reports for regions can be found here

Contact
For more information, contact Interest.co.nz Managing Editor Bernard Hickey on 09 360 9618 or 021 866 051 or Bernard.hickey@interest.co.nz for more information. 
 

Question and Answers about the report

How does interest.co.nz work out these numbers?
Interest.co.nz gathers data from Statistics New Zealand and IRD on wages in each region, data from the Real Estate Institute from each region each month, and data from banks and non-banks on interest rates. It has calculated home loan affordability going back to the beginning of 2002.

How is this survey different from the Massey University survey of affordability?
The Massey study is only done quarterly rather than monthly and uses an index of Home affordability rather than actually measuring home loan affordability. It uses an index rather than the actual measure of the proportion of after tax pay needed to service an 80% mortgage on a median home. The exact composition and meaning of the index is not detailed.

Why use a single median income rather than household income?
It’s true that most homebuyers are using a combination of one or more full or part time incomes to service their mortgage. Each household is different and may be using incomes from different sources. The best measure of average national household income is calculated officially once in every three years by Statistics New Zealand. Interest.co.nz chose to use the median income data series from IRD and Statistics NZ because it can be measured monthly and can be drilled down by region and by age. We do include a chart showing how many median incomes are required to keep mortgage payments at 40% of take home pay. It is currently around 2 median incomes.

Why is home loan affordability important?
It is a useful way to work out if a housing market is overvalued. It’s clear house prices stopped rising when the national affordability ratio rose above 80% or 2 median incomes to service the average home loan. It’s a way of comparing affordability of housing markets with a national average and comparing housing values from one year to the next. For example, the affordability ratio in 2002 before the housing boom really took off was around 41%.

About Roost
Roost is the sponsor of this Report, and the Reports must be referred to as the Roost home loan affordability reports. Roost, owned by AMP, is one of New Zealand’s largest independent home loan and investment property mortgage brokers with 16 franchisees nationwide. Roost offers to source the perfect loan for its customers from a panel of lenders and insurance advice from Roost insurance specialists. Roost was established in 1996. For more information please visit www.roost.co.nz

What does this mean for rates?
The Reserve Bank noted increased competition had pushed the average mortgage rate down 40 basis points over the last 12 months, despite the Official Cash Rate being flat. It expects further small falls in retail rates until the end of 2013, before interest rates start rising gradually in early 2014.

Floating rates
Advertised floating mortgage rates have been broadly unchanged at around 5.7% since March 2011 and are likely to stay that way until the OCR is changed, although borrowers can often get cheaper deals through their brokers because the banks are competing hard for business. This means most expect advertised floating rates to remain on hold until late 2013 at the soonest. They may even remain on hold until 2014. The Reserve Bank has forecast the 90 day bill rate, which is the basis for floating mortgage rates, will only start rising at the end of 2013, and is then rise by around 0.5%. This suggests
a peak for floating rates at around 6%.

Fixed rates
Fixed mortgage rates have been edging lower in the last three months and are now at or below floating rates, making the fixed vs floating decision a tough one. Fixed rates depend more on wholesale interest rate moves rather than the OCR and they have been nudging lower this year as expectations of economic recovery keep being dashed by the turmoil in Europe and slowing growth in China. The fixed vs floating decision depends on your outlook for the OCR and your personal situation. A flat to falling OCR makes floating more attractive, while a fast rising OCR makes fixing more attractive. In my view, the OCR is flat to falling.

What does this mean for the property market?
The prospect of lower interest rates for longer is encouraging many first home buyers to borrow and buy, particularly in Auckland and Christchurch where migration and a shortage of undamaged and watertight buildings is putting upward pressure on house prices. Elsewhere in New Zealand, where there is more housing supply and less migration, house prices are subdued.

If you’d like to talk through what this means for you and your mortgage, give your Roost mortgage broker a call.

Housing market activity and buyer interest perked up through the Spring open home buying season, pushing the national median house price to a record high NZ$380,000, up 5.8% from a year ago. Auckland’s median house price jumped to a record high NZ$530,000, up 14% from a year ago.

 
Advertised floating mortgage rates have been unchanged since March last year, but average 6 month and 1 year mortgage rates have dropped around 30 basis points and 20 basis points respectively since mid September as wholesale interest rates have nudged lower and bank competition has heated up.

 
This helped reduce interest costs for fixed rate borrowers, but not enough to improve overall affordability once the impact of higher house prices and marginal income growth is accounted for.
 Competition between banks to poach market share and boost lending heated up in September and October.  ANZ’s decision to drop the National Bank brand has sparked a new round of fixed mortgage rate cuts and market activity.

 
The Roost Home Loan Affordability monthly reports show affordability for young working couples has deteriorated in the last month, but remains near its best levels in almost eight years. Affordability for home buyers in central Auckland, central Wellington and Christchurch remains difficult.

 
“The housing market is stronger and the banks are increasingly competitive, which makes finding the best mortgage deal even more important for home buyers wanting to make the best offer they can,” said Colleen Dennehy, a spokeswoman for Roost Mortgage Brokers, which sponsors the Roost Home Loan Affordability report from Interest.co.nz.

 
Some banks have cut fixed mortgage rates to under 5% and are offering discounted legal fees, lower interest rates for borrowers with high equity and, in some cases, the discounting of break fees.  Pricing is often differentiated, depending on the safety of the borrower and the size of the loan.

 
The Official Cash Rate (OCR) is expected by economists to be steady at 2.5% through until late 2013, before rising to a peak of around 4% over the next couple of years. However, financial markets are pricing in expectations the OCR will be cut in the next year.

 
Affordability worsened in October as the median house price for all of New Zealand rose to NZ$380,000 from NZ$371,000 in September. This increased the proportion of single after tax income needed to service an 80% mortgage on a median house to 54.8% from 53.6% the previous month, the Roost Home Loan Affordability report shows.  This is the worst level since March 2011.

 
Household affordability for first home buyers deteriorated to 22.0% of income from 21.8% the previous month because the median lower quartile house price rose to a record high NZ$262,000 from NZ$260,000.

 
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 deteriorated for Auckland to its worst level since August 2010. 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 interest rates have fallen, although there has been some deterioration in recent months as house prices have firmed again.

 
Just under 60% of home owners are now on floating mortgages, although there has been a surge in fixed rate borrowing in recent months as banks pared their rates. Advertised floating rates at around 5.75% are higher than 1 year fixed rates at around 5%, but many banks are offering ‘unofficial’ floating rates of around 5.3% to solid customers with high levels of equity that threaten to leave their bank. The Home Loan Affordability reports use the advertised floating rate.

Affordability for households with more than one income worsened in October because of the higher median house price. This measure of a ‘standard typical household’ found the proportion of after tax income needed to service the mortgage on a median house rose to 36.1% from 35.3% in September.
This measure assumes one median male income; half a median female income aged 30-35 and a 5-year-old child that receives Working-for-Families benefits. Any level over 40% is considered unaffordable for a household, whereas any level closer to 30% has coincided with increased buyer demand in the past.
The first home buyer household measure assumes a first home buyer household includes a median male income and a median female income aged 25-29 with no children. Any level over 30% is considered unaffordable in the longer term for such a household, while any level closer to 20% is seen as attractive and coinciding with strong demand.

Roost Home loan affordability for typical buyers

General/New Zealand Report: http://www.interest.co.nz/property/home-loan-affordability

Links to individual reports for regions can be found here
Roost Home loan affordability for first-home buyers

General/New Zealand Report:
http://www.interest.co.nz/first-home-buyer

Links to individual reports for regions can be found here
Contact
For more information, contact Interest.co.nz Managing Editor Bernard Hickey on 09 360 9618 or 021 866 051 or Bernard.hickey@interest.co.nz for more information. 
 
 
Question and Answers about the report

How does interest.co.nz work out these numbers?
Interest.co.nz gathers data from Statistics New Zealand and IRD on wages in each region, data from the Real Estate Institute from each region each month, and data from banks and non-banks on interest rates. It has calculated home loan affordability going back to the beginning of 2002.

How is this survey different from the Massey University survey of affordability?
The Massey study is only done quarterly rather than monthly and uses an index of Home affordability rather than actually measuring home loan affordability. It uses an index rather than the actual measure of the proportion of after tax pay needed to service an 80% mortgage on a median home. The exact composition and meaning of the index is not detailed.

Why use a single median income rather than household income?
It’s true that most homebuyers are using a combination of one or more full or part time incomes to service their mortgage. Each household is different and may be using incomes from different sources. The best measure of average national household income is calculated officially once in every three years by Statistics New Zealand. Interest.co.nz chose to use the median income data series from IRD and Statistics NZ because it can be measured monthly and can be drilled down by region and by age. We do include a chart showing how many median incomes are required to keep mortgage payments at 40% of take home pay. It is currently around 2 median incomes.

Why is home loan affordability important?
It is a useful way to work out if a housing market is overvalued. It’s clear house prices stopped rising when the national affordability ratio rose above 80% or 2 median incomes to service the average home loan. It’s a way of comparing affordability of housing markets with a national average and comparing housing values from one year to the next. For example, the affordability ratio in 2002 before the housing boom really took off was around 41%.

About Roost
Roost is the sponsor of this Report, and the Reports must be referred to as the Roost home loan affordability reports. Roost, owned by AMP, is one of New Zealand’s largest independent home loan and investment property mortgage brokers with 16 franchisees nationwide. Roost offers to source the perfect loan for its customers from a panel of lenders and insurance advice from Roost insurance specialists. Roost was established in 1996. For more information please visit www.roost.co.nz