Affordability for first home buyers improving - but not much

For August 2018 - for immediate release

Slightly lower prices, falling interest rates and slowly rising incomes are all helping to improve affordability for first home buyers - but not by much

PLEASE NOTE: The new http://www.interest.co.nz/property/home-loan-affordability covering a) First home buyers (aged 25-29 yrs), as a couple, b) second rung Young family buyers (aged 30-34), as a couple (with one partner working full time, one half time, and a 5 year old child), and c) second rung older families (aged 35-39) are now published on our website.

Housing finished the winter at its most affordable level for first home buyers in the last six months, according to interest.co.nz's latest Home Loan Affordability Reports.

The improvement in affordability is due to a combination of slightly softer lower quartile house prices overall, falling interest rates and slowly rising wages.

According to the Real Estate Institute of NZ, the lower quartile selling price of all homes sold throughout the country peaked at $381,000 in March and dropped to $375,000 in August.

Over the same period the average of the two year fixed mortgage rates offered by the major banks declined from 4.67% to 4.61%.

That meant the mortgage payments on a home purchased at the lower quartile price would have declined by just over $10 a week over the same period, from $366.70 a week in March to $356.32 in August.

Also during that period wages have been slowly rising, and the Home Loan Affordability Reports estimate that the combined after tax pay for a typical first home buying couple (both aged 25-29 and working full time for the median rate of pay for their age group) would have increased from $1585.82 per week in March to $1600.18 a week in August.

That meant the amount of their income that typical first home buyers would need to set aside each week to meet the mortgage payments on a lower quartile-priced home would have decreased from 23.1% in March to 22.3% in August, making home ownership the most affordable it has been for first home buyers since February.

Housing is considered affordable when it takes up no more than 40% of household take home pay.

By that measure, lower quartile-priced housing should still be affordable for typical first home buyers in most parts of the country.

Auckland is the only region of the country where the mortgage payments on a home purchased at the region's lower quartile price would exceed 40% of typical first home buyers' incomes (43.2% in August), although Queenstown is the most unaffordable town in the country for first home buyers, with the mortgage payments on a lower quartile-priced home there taking up just under half a typical first home buying couple's pay.

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