Home loan affordability worsened nationally in November because of a rise in median house prices to fresh record highs with the biggest deteriorations seen in central Auckland and Wellington.
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.