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First home buyers facing price, repayment headwind

media release


03 July 2014

First home buyers facing price, repayment headwind

Average home loan size and repayment increase significantly over the decade.

Getting a foot on the home ownership ladder can be challenging – particularly in the face of interest rate increases and speed limits on high loan-to-value ratio (LVR) mortgage lending. CANSTAR has analysed the increase in average home loan repayments over the past decade when compared to inflation, and the news for first home buyers is not good, particularly for homebuyers in Auckland.

“Over the past ten years, average property values in New Zealand have been very healthy. It’s great news for established property owners and investors, but not so good for buyers trying to get a foot on the ladder,” said Derek Bonnar, CANSTAR General Manager – New Zealand. “In May 2004, the average home loan interest rate was 7.7%, quite a bit higher than the current average rate of 6.2%. Notwithstanding the lower current rate though, median home loan repayments for New Zeland in general have surged by 51% over the past decade. In Auckland, repayments are up by 61%. That compares to general inflation over the same timeframe of just 28.5%.”

Property LocationMay-04May-14Difference in repaymentInflation
Property Value1Loan Size2Loan Repay3Property Value1Loan Size2Loan Repay3%%
Auckland$339,000$271,200$2,040$625,000$500,000$3,283$1,24361%28.50%
Wellington$262,500$210,000$1,579$412,500$330,000$2,167$58737%28.50%
NZ total$248,000$198,400$1,492$430,000$344,000$2,259$76751%28.50%
Source: www.canstar.co.nz
1. REINZ Market Facts R100 - Median Housing Prices. 2. Loan size is based on a 20% deposit. 3. Monthly Loan repayment based on a 25 year loan and using the average interest rate obtained from RBNZ, M10 Housing for the relevant month and year. This comparison does not include fees and charges.

Mr Bonnar points out that the news could be worse. “Average home loan interst rates are 1.5% lower than they were ten years ago, which is keeping a lid on the repayment pain for first homebuyers. On 2004 levels, Auckland buyers with a $500,000 loan would be paying around $440 more per month than they curently are.”


Who offers outstanding first home buyer service?
Mr Bonnar encourages first homebuyers who are ready to take the plunge to actively negotiate a good-value loan – and potentially cut their loan term costs. To do that, it helps to know what is available in the market. In its annual First Home Buyer Award, released today, CANSTAR has analysed and compared what lenders are offering first home buyers. The institution offering outstanding value? Kiwibank.
“With interest rate rises and the introduction of high LVR lending speed limits, there has been a constant review of home loan rates, but Kiwibank has maintained consistently low rates that have been hard for other providers to compete against, particularly in the floating loan space,” said Mr Bonnar. “This win is the fourth year in a row for Kiwibank, really reinforcing the outstanding value for money that it offers first home buyers.”

In addition to rates, other elements that helped push Kiwibank to the top for first home buyers are the intuitive and educational first home owners’ “How to” guide, which is available on the website, the high number of mobile lenders and the highest number of branches in both the North and the South Island thanks to Kiwibank’s partnership with NZ Post.
Some other great features the institution offers include:

• 100% offset account with no monthly fees, enabling first home buyers to put all their money towards reducing interest costs
• No fees for borrowers to split their loan between fixed and floating
• Unlimited additional lump sum repayments on their floating loan
• The option of a three-month repayment holiday.

“A lower rate and great service can go a long way towards making a happy customer,” said Mr Bonnar. “We congratulate Kiwibank on their win.”
Consumers can download the first home buyer award report on www.canstar.co.nz

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