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Home loan affordability improves slightly

Roost Home Loan Affordability report

For February 2011 – For immediate release

Home loan affordability improves slightly as incomes nudge higher

Home loan affordability improved again slightly in February as the national median house price was stable, interest rates remained at record lows and incomes nudged up a little.

The Roost Home Loan Affordability monthly reports show affordability for young working couples remains near its best levels in seven years, although affordability for home buyers in central Auckland, Wellington and Christchurch remains difficult.

“First home buyers are much more active in the market as they use their KiwiSaver nest eggs for deposits and force the banks to compete hard for their business with record low interest rates,” said Colleen Dennehy, a spokeswoman for Roost Mortgage Brokers, which sponsors the Roost Home Loan Affordability report from

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. Eligible first home borrowers can also receive a Housing NZ subsidy of up to NZ$5,000 each when they withdraw their KiwiSaver funds.

Banks have held their floating and fixed mortgage rates at record lows over the last month despite some signs of rising wholesale interest rates. Some bank economists have suggested floating borrowers fix their mortgages to avoid any increases over the next two years, but others are saying rates are unlikely to rise fast or far, making the fixed vs floating decision a tougher one.

Bank economists have forecast the Reserve Bank will hold rates until December 2012, although calmer global financial markets and signs of growth have pushed up longer term wholesale rates this month.

Affordability improved slightly nationally in February, with incomes up a touch, while the median house price for all of New Zealand was unchanged at NZ$355,000. This reduced the proportion of after tax income needed to service an 80% mortgage on a median house to 51.8% in February from 51.9% in January, the Roost Home Loan Affordability report shows.

Household affordability for first home buyers improved to 20.9% of income from 21.0% 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 Northland, Auckland Central, North Shore, South Auckland, Wellington City, Christchurch, Queenstown, Timaru and Dunedin, where house prices rose. It improved in most 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.

Affordability for households with more than one income improved slightly in February because of slightly higher incomes. 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 33.9% from 34.0% in February.

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:

Links to individual reports for regions can be found here

Roost Home loan affordability for first-home buyers

General/New Zealand Report:

Links to individual reports for regions can be found here

Question and Answers about the report

How does work out these numbers? 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. 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

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