Affordability for young couples who both have jobs is near its best levels in seven years because of record low interest rates and rising incomes, although affordability for home buyers in central Auckland, Wellington and Christchurch remains difficult.

“There has been a surge of interest from first home buyers in recent months because of the low interest rate outlook and because many are now able to start withdrawing their KiwiSaver money,” said Rhonda Maxwell, spokeswoman for Roost Mortgage Brokers, which sponsors the Roost Home Loan Affordability report from Interest.co.nz.

After three years in the scheme KiwiSavers who want to buy a first home can withdraw contributions made by themselves and their employers for a deposit. They cannot withdraw the government’s kick-start or tax credits contributed by the government.

Many first home buyers reached their 3 year anniversary in late 2011 and banks are competing hard for these home buyers, often lending up to 95% of the value of the home and waiving loan fees to win business from rivals.

“Mortgage brokers and advisers are in the best position to get the best deal from any banks and either to advise borrowers directly on using their KiwiSaver contributions, or refer them to an authorized fianancial adviser,” said Maxwell.

Comments from the Reserve Bank over the last month and the darkening outlook for the global economy have further flattened the interest rate outlook. Most economists now see the Official Cash Rate on hold here until late this year or early next year.

Some banks even trimmed their fixed mortgage rates in early January as wholesale interest rates fell, making the fixed vs floating decision even tougher for borrowers.

Affordability improved nationally, with prices lower in central and South Auckland, and in central Christchurch. The median house price fell to NZ$355,000, which reduced the proportion of after tax income needed to service an 80% mortgage on a median house to 52.0% in December  from 53.8% in November, the Roost Home Loan Affordability report shows.

Household affordability for first home buyers improved to 21.5% of income from 22.1% 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 from two young median income earners required to service an 80% home loan on a first quartile priced house.

Affordability worsened somewhat in North Shore, West Auckland, Hamilton and Tauranga, where prices rose. 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.

Affordability for households with more than one income improved in December because of the fall in median house prices. This measure of a ‘standard typical household’ found the proportion of after tax income needed to service the mortgage on a median house fell to 34.0% from 35.2% in November.

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.

The Reserve Bank of New Zealand has held the Official Cash Rate (OCR) at a record-low 2.5%, as expected. Governor Alan Bollard said the global economy remained fragile and growth in New Zealand was modest. He said inflation pressures were reassuringly under control and it remained “prudent” to hold the OCR at 2.5%.

What does this mean for rates?

Most economists expect mortgage rates to remain near their record lows for the foreseeable future because the OCR is unlikely to be increased until after September this year. Some even think the key rate could be cut if the financial crisis in Europe worsens markedly. Most expect the OCR to be hold until September at the earliest and some are saying it could be on hold until well into 2013.

Floating rates

Advertised floating mortgage rates have been broadly unchanged at around 5.7% for almost a year and are likely to stay that way until the OCR is increased, although borrowers can often get cheaper deals through their brokers because the banks are competing hard for business. There is the remote chance that banks may choose to pass on the higher interest rates they are starting to have to pay on their foreign borrowing, but the Reserve Bank has said it is watching this and may use the OCR to offset any increase in floating mortgage rates. This means most expect floating rates to remain on hold until late 2012 or early 2013 at the soonest.

Fixed rates

Fixed mortgage rates have edged lower in recent months, but remain at or only slightly below floating rates, making the fixed vs floating decision a tougher one. Fixed rates depend more on wholesale interest rate moves rather than the OCR. Despite all the turmoil in Europe, New Zealand wholesale interest rates have been flat to falling in recent months because of subdued inflation and economic growth.

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 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.

However, low interest rates and the prospect they will stay lower for longer is boosting demand for home loans and helping to keep affordability at near its best levels since 2004.

Fixed and floating mortgage rates were steady at record lows in November and most economists now expect the Reserve Bank to hold the Official Cash Rate at 2.5% until late next year given the economic uncertainty generated by the European financial crisis.

“Home buying activity has improved along with the weather and the outlook for continued low interest rates,” said Rhonda Maxwell, spokeswoman for mortgage broking group Roost Home Loans.

“First home buyers are more confident about interest rates staying lower for longer and can see banks are competing hard for their business,” Maxwell said.

Affordability deteriorated nationally, with higher prices in Northland, North Shore, Central Auckland, South Auckland, Wellington, Christchurch and Dunedin. The median house price rose to NZ$367,500, which increased the proportion of after tax income needed to service an 80% mortgage on a median house to 53.8% in November from 52.6% in October, the Roost Home Loan Affordability report shows.

Affordability worsened dramatically in central Auckland because of a sharp rise in the median price.

A young couple earning the median wage could afford to buy a first quartile priced house in November, with 22.1% of their disposable income required to service an 80% mortgage. This is up from 21.1% in October and just above its best levels since August 2004.

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 50% 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 6.2%. The Home Loan Affordability reports use the floating rate.

Affordability for households with more than one income deteriorated in November because of the rise in median house prices. 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 35.2% from 34.5% in October.

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 homebuyer 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.

Governor Alan Bollard has warned the European financial crisis has worsened the economic outlook and reduced the pressure on inflation, leaving him more room to hold the OCR at what were once ‘emergency’ record lows for some time.

The Reserve Bank (RBNZ) also lowered its forecast track for the 90 day bill rate, which is a wholesale interest rate that usually sits about 0.2% above the OCR. The bank now sees it rising through the second half of 2012 and into 2013 to around 4%, which implies a peak for the OCR at around 3.75% by the end of 2013.

However, most economists expect the RBNZ to hold the OCR through until the end of 2012 and say there is an increased risk of a cut in the OCR if the European financial crisis deepens.

The Reserve Bank also commented that the international funding costs for banks was increasing and may cause them to pass on those costs in the form of higher mortgage rates.
Bollard said he would not necessarily cut the OCR to offset any increase in retail mortgage rates, but he said it would be something the RBNZ would take into account.

All this means the outlook for interest rates is they stay lower for longer, although there is a slight risk they may rise a little even if the OCR is held steady.

Floating mortgage rates are advertised at around 5.7%, which makes them cheaper than most fixed rates.

My view is that interest rates will stay lower for longer and may even be cut if the European financial crisis worsens significantly, which is possible given the political and financial pressures building inside Europe’s banking system.

That would make floating a better bet than fixing, but this depends on your interest rate view and your personal circumstances.

Assemble a natural cleaning kit – most of these ingredients can be found in your local supermarket.

In the living room

Furniture polish: Use olive oil for unvarnished or unpainted furniture. Spread lightly and dry with clean cloth. For varnished or lacquered wood, mix 2 tablespoons of olive oil with 1 tablespoon of white vinegar and 1 litre of water in a spray bottle. Spray lightly and dry with a clean cloth.

Carpet cleaner: Sprinkle baking soda on carpet before vacuuming to deodorise. To remove stains, make a spray from 1/4 cup of borax and 2 cups of water. Spray on and wipe off with a damp sponge. Alternatively, immediately rub with soda water, or sprinkle salt or corn flour on the stain and vacuum after 30 minutes.

In the bathroom

Bowl cleaner: Make a paste from borax and lemon juice for cleaning toilet bowls.

All-purpose cleaner: Clean tiles, sinks, toilets and baths with baking soda, using a damp cloth.

Grout & mildew cleaner: Dip an old toothbrush in vinegar and scrub the tile grout to remove mildew and mould and prevent new growth.

In the kitchen

Dishwashing detergent: Use pure soap to wash dishes and add white vinegar to the rinse water to give glasses extra shine.

Oven cleaner: Dissolve 3 tablespoons of washing soda in 1 litre of warm water. Spray on, wait 20 minutes and clean. For tough stains, scrub with steel wool and baking soda.

Pot cleaner: To remove burnt-on food, cover the burnt area with water, add two teaspoons of baking soda and bring to the boil. Leave to cool and scrape off.

Planning for the season

With a clear budget in mind you can reduce the stress. Planning can also reduce your holiday expenses without making it feel as though you have cut your Christmas back to nothing. In addition to gifts, make sure you account for groceries and any additional expenditures like heading away on that family camping trip. The cost of petrol and groceries alone over this period can really start to stack up. It is important to not over extend yourself so you don’t wind up in debt for the next year.

Stick to your plan

One of the most important things that you can do is to stick to your budget. Keep track of your spending and be detailed. You should budget how much you’re willing to spend on your holiday, including petrol and grocies as well as how much you’re willing to spend on each gift. You’ll be better off and also be able to buy everyone a nice gift without going over your budget. Often the carefully thought out gifts are a lot more meaningful than the more expensive ones. Keep track of who you have gotten a gift and who else you need to shop for. In addition to helping your wallet, this will help your stress levels.

Shop smart

Shop around for the best price. If the thought of a crowded mall or supermarket is too much, look online. You can often find discounted items and even with free or minimal delivery cost. Online shopping can also help to avoid impluse purchases if you’re checking things off against your list.

Boxing Day sales

Every year retailers offer the chance to purchase items on sale the day after Christmas. It is a great opportunity to get good deals from your favorite stores. Gift vouchers for a fussy teenager could be an ideal gift that will stretch much further after Christmas day.

Giving back

If you receive gifts that you may not use, find a local charity that helps people with food or gifts for children. Charities are often given plenty leading up to Christmas, but it’s after the holiday period that they need it the most.

And if you need help to better manage your mortgage, speak to your Roost broker today!

Source: Roost Home Loan Affordability Reports for August 2011 and October 2011.

1. Cut the emotional bond
   Remind yourself that the house is a product to sell.
2. Make minor repairs
   Paint faded window trim outside. Replace cracked tiles, patch holes in walls, replace broken light bulbs and get leaky taps seen to. Fix doors that don’t close properly and kitchen drawers that jam. Consider painting your walls in neutral colours.
   
3. Rent a storage unit
   Almost every home shows better with less furniture. Leave just enough furniture in each room to showcase the room’s purpose with plenty of room to move around.
   
4. Remove or replace favourite chattels
   If you want to take window coverings, built-in appliances or fixtures with you, remove or replace them. If a buyer sees it, they may expect it to come with the house.
   
5. Put away personal items
   Pack up personal photographs and family heirlooms. You want buyers to imagine their own photos on the walls, and they can’t do that if yours are there! You want buyers to say, “I can see myself living here.”
6. Get rid of clutter
   If you have anything you haven’t used in over a year, you probably don’t need it. Why not donate it or throw it away? Think of this as a head-start on the packing you’ll need to do anyway.
   
7. Tidy up cupboards
   Buyers love to snoop and may open cupboard doors. If a buyer sees everything organised, it suggests you probably take good care of the rest of the house as well.
   
8. Make the house sparkle
   Wash windows inside and out and clean out cobwebs. Polish taps and mirrors. Clean and air out any musty smelling areas. Dust ceiling fan blades and light fixtures. Wax floors and vacuum carpets. Make sure window coverings hang level and replace old bedspreads and worn rugs. Hang up fresh towels and consider fastening them with ribbons and bows.
   
9. Check every room
   Go outside and open your front door. Stand there. Do you want to go inside? Does the house welcome you? Linger in the doorway of every single room and imagine how your house will look to a buyer. Does it have impact and pizzazz?
   
10. Check curb appeal
    So keep the sidewalks cleared, mow the lawn and trim bushes. Group flower pots together and plant yellow flowers, as yellow evokes a buying emotion.

Happy selling! And of course, if you need help with your financing your next home, contact your friendly Roost mortgage broker.

Spring has sprung, the Rugby World Cup’s been won and home buyers are turning their attention back to the housing market.

The Roost Home Loan Affordability reports show affordability has been broadly stable over the last three months, as continued record low interest rates offset a small rise in median house prices.

Low interest rates and higher incomes

Household affordability is still at its best levels since early 2004, thanks to low interest rates and higher incomes. It now costs around 34% of after tax median income to service an 80% mortgage on a median priced house nationally. That’s down from a high of 54% in March 2008.

The outlook for interest rates and the economy has, however, changed for the better for borrowers through the spring season.

The Reserve Bank’s latest comments on the global economy and a relatively slow start to the rebuilding of Christchurch has forced many economists to delay their expectations for a hike in the Official Cash Rate, which is closely linked to floating mortgage rates.

Outlook for 2012

Most economists now see the Reserve Bank waiting until midway through 2012 before starting to increase the Official Cash Rate from 2.5% to around 4% over the following year. That would push up advertised floating rates from around 5.6% now to around 7% by the end of 2013.

Some economists are now even talking about the potential for rate cuts within the next year if the European financial crisis worsens. Banks have also sliced their advertised fixed mortgage rates by 10-50 basis points over the last two months as the global economic outlook has darkened. However, most fixed rates are still above floating rates.

Fixed versus floating

The fixed versus floating decision remains a tough one. It depends on a borrower’s individual situation. Those concerned about the economic outlook may choose a floating rate in the hope that rates will be cut. Those more confident about an economic rebound may choose to fix, given the risk of interest rates rising to combat inflation. Some will focus more on the their own appetite for risk around their income and spending pattern.

House prices continue to be broadly stable in most markets, although there is some heat building for stand-alone houses in central Auckland and Christchurch, partly because of a lack of supply due to leaky building problems and the destruction caused by earthquakes.

Talk to your Roost Mortgage broker today about getting a great mortgage rate and discuss the fixed versus floating decision.

Floating mortgage rates were steady and fixed mortgage rates edged lower, moving in line with financial market expectations for a fall in the Official Cash Rate over the next year. Last month economists and markets had expected the next move to be a rise in the rate from midway through next year.

The growing fear of a financial crisis in Europe and the outlook for slowing growth globally has dampened expectations for interest rate increases.

“Home buyers are heartened by the more solid outlook for low interest rates,” said Rhonda Maxwell, spokeswoman for mortgage broking company Roost.

“Banks remain very competitive and the potential for further falls in fixed and floating mortgage rates is strengthening the appetites of home buyers,” she said.

Affordability deteriorated nationally, with higher prices in North Shore, West Auckland, South Auckland, Wellington and Christchurch affecting affordability, although it remains near its best levels in 7 years overall, the Roost Home Loan Affordability report shows.  Affordability improved in Central Auckland because of a slight fall in the median price.

A young couple earning the median wage could afford to buy a first quartile priced house in October, with 216% of their disposable income required to service an 80% mortgage. This is up from 20.6% in September and just above its best levels since August 2004.

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.

The Roost Home Loan Affordability measure for all of New Zealand showed the proportion of a single median after tax income needed to service an 80% mortgage on a median was 52% in October from 51.8% in September. The worst level of affordability was 83.4% seen at the peak of the house price boom in March 2008 when 2 year mortgage rates were close to 10%.

Affordability has generally been improving since December 2009 as house prices have flattened out and interest rates have fallen.More than 50% 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 6.2%. The Home Loan Affordability reports use the floating rate.

Affordability is difficult in Auckland, Wellington, Christchurch, Hamilton and Tauranga for those on a single median income, but homebuyers in smaller provincial cities will find home ownership much more affordable. Households with two incomes are also in a stronger position, particularly those bidding for homes priced in the lower quartile. Affordability for households with more than one income improved in September because of the fall in median house prices. 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 34.4% from 33.5% 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.

Bernard Hickey
Managing Editor
www.interest.co.nz