Gordon Campbell | Parliament TV | Parliament Today | News Video | Crime | Employers | Housing | Immigration | Legal | Local Govt. | Maori | Welfare | Unions | Youth | Search

 


Home loan affordability worsens by most in 12 years

Home loan affordability worsens by most in 12 years as interest rates and house prices rise


Home loan affordability worsened across most of New Zealand in March at the fastest rate since January 2002 as median house prices rose and interest rates started rising, the Roost Home Loan Affordability reports show.

A 6% rise in the national median house price in March from February drove most of the deterioration. The Reserve Bank's decision to raise the Official Cash Rate by 0.25% on March 13 drove the rest of the increase in borrowing costs measured in the reports.

Banks passed on the increase in full to floating mortgage borrowers and average fixed mortgage rates have risen around 0.7% in the last eight months in anticipation of the Reserve Bank's tightening. The Reserve Bank's imposition of a speed limit on low deposit mortgages in October has also cooled activity and prices in the housing market in recent months, although medians continued to rise.

However, banks are increasing their appetites to lend to both high and low deposit borrowers and brokers report banks are returning to the market in droves now they have adjusted to the Reserve Bank's speed limit.

"The banks are back out looking for high LVR borrowers and are doing deals for those borrowers who are well organized and argue their case well through a broker," said Roost Home Loans spokeswoman Colleen Dennehy.

The Roost Home Loan Affordability reports show national affordability worsened to 63.3% in March from 58.8% in February after the national median house price rose to NZ$440,000 from NZ$415,000 in February. This was the biggest increase in the borrowing costs percentage since January 2002.

Average floating mortgage rates rose the full 25 basis points to 6.01% in March and the average advertised 2 year mortgage rate rose to 6.13% from 5.96% at the end of February. It is up from 5.4% in May last year.

The Roost Home Loan Affordability reports for March showed affordability for regular home buyers worsened in 19 cities, including all of Auckland, the Waikato/Bay of Plenty, and all of the South Island except Invercargill. Affordability only improved in Rotorua, Napier, Gisborne and Wellington City because of lower median house prices.

It was toughest for first home buyers on the North Shore of Auckland, which kept the title of the least affordable city. It took 109.1% of a single median after tax income to afford a first quartile priced house on the North Shore in March, up from 103.4% in February.

Fixed mortgage rates, which more than 50% of new borrowers now use, have risen around 40 basis points since mid December and rose again through March. The Reserve Bank is forecasting it will raise rates by 2.5% or 250 basis points by early 2017, although aggressive discounting by banks in early April may soften some of that blow for borrowers.

Housing affordability has become a major economic and political issue over the last year. The Reserve Bank and Government agreed on a toolkit of 'macro-prudential' controls a year ago that would see the central bank impose limits growth in high LVR mortgages and force banks to hold more capital. Central and local governments are also moving to address housing supply shortages. The Reserve Bank's speed limit was applied on October 1 and it said in its March quarter Monetary Policy Statement it appeared to have worked to reduce house price inflation by around 2.5 percentage points.

For first home buyers – which in this Roost index are defined as a 25-29 year old who buys a first quartile home – there was an worsening in affordability in 15 of the 24 regions covered.

It took 52.0% of a single first home buyer's income to afford a first quartile priced house nationally, up from 48.3% a month earlier. The most affordable cities for first home buyers were Wanganui and Invercargill, where it took 20.9% of a young person's disposable income to afford a first quartile home. The least affordable was the North Shore of Auckland at 109.1%.

Any level over 40% is considered unaffordable, whereas any level closer to 30% has coincided with increased buyer demand in the past.

For working households, the situation is similar, although bringing two incomes to the job of paying for a mortgage makes life considerably easier. A household with two incomes would typically have had to use 41.5% of their after tax pay in March to service the mortgage on a median priced house. This is up from 38.6% the previous month.

On this basis, most smaller New Zealand cities have a household affordability index below 40% for couples in the 30-34 age group. This household is assumed to have one 5 year old child.

For first-home buying households in the 25-29 age group (which are assumed to have no children), affordability nationally worsened to 25.2% of after tax income in households with two incomes required to service the debt, up from 23.3% the previous month. The lower quartile house price rose to NZ$295,000 from NZ$280,000 the previous month.

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.

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.

Ends

© Scoop Media

 
 
 
 
 
Parliament Headlines | Politics Headlines | Regional Headlines

 

Parliament Today:

Werewolf: The Defence Pretence

Last year, the world began spending more money on weapons again, for the first time since 2011... New Zealand belongs to a region – Asia and Oceania – where military spending rose sharply in 2015, by 5.4 per cent. More>>

ALSO:

Gordon Campbell: On Not Crying Foul, Argentina

So a couple of guys found to be criminally liable of environmental pollution in Argentina lodge an application with the Overseas Investment Office… in order to buy some prime New Zealand rural land. Seems that their factory back home had carelessly and/or intentionally discharged toxic waste into the Lujan river. Bummer... More>>

ALSO:

Urban & Rural: $303m To Merge And Modernise New Zealand’s Fire Services

Internal Affairs Minister Peter Dunne today announced funding of $303 million over five years to combine urban and rural fire services into one organisation from mid-2017. More>>

ALSO:

High Trust Regime: What Did The PM Tell His Lawyer About Foreign Trusts?

The Government stopped the IRD from reviewing New Zealand foreign trusts shortly after the Prime Minister’s lawyer wrote to the Revenue Minister claiming John Key had promised him the regime would not be changed. More>>

ALSO:

Road Crime: Wicked Campers Vans Classified As Objectionable

The definition of publication includes any "thing that has printed or impressed upon it, or otherwise shown upon it, 1 or more (or a combination of 1 or more) images, representations, signs, statements, or words", The Classification Office has previously classified such 'things' as billboards, t-shirts, and even a drink can. This is the first time the Classification Office has classified a vehicle. More>>

ALSO:

'When New' Repairs: Landmark EQC Settlement

The Earthquake Commission has cut a deal with 98 Canterbury homeowners that affirms the government entity's responsibility to repair earthquake-damaged property to a 'when new' state, as well as covering repairs for undamaged parts of a property and clarifying its position on cash settlement calculations. More>>

ALSO:

Gordon Campbell: On Kiwirail’s Latest Stint In The Dogbox

The denigration of Kiwirail continues. The latest review (based on a 2014 assessment) of the options facing the company have enabled Kiwirail to be hung out to dry once again as a liability and burden on the taxpayer. More>>

ALSO:

Royal Society Report: Good Opportunities To Act Now On Climate Change

There are many actions New Zealand can and should take now to reduce the threat of climate change and transition to a low-carbon economy, a report released today by the Royal Society of New Zealand finds... More>>

ALSO:

Get More From Scoop

 

LATEST HEADLINES

 
 
 
 
 
 
 
 
 
Politics
Search Scoop  
 
 
Powered by Vodafone
NZ independent news