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Home loan affordability at best levels in 8 years, rates low

Roost Home Loan Affordability report
For September 2011 – For release Friday, October 21, 2011

Home loan affordability at best levels in 8 years while rates stay low

Home loan affordability improved in September to its best levels in 8 years, thanks to a drop in the national median house price and interest rates staying at record lows.

The Roost Home Loan Affordability report for September shows an improvement from August to its best levels since September 2003 after a drop in the median house price to NZ$350,000 from NZ$355,000.

Economists expect the Reserve Bank to keep the Official Cash Rate at its record low level of 2.5% until well into 2012 because of an uncertain global economic outlook and a delayed start to the Christchurch earthquake rebuild. This would keep floating rates at their lows until then too.

“First home buyers are seeing very low interest rates and a stable outlook into early next year, which is improving confidence,” said Rhonda Maxwell, spokeswoman for mortgage broking group Roost Home Loans.

“Banks are also competing hard to boost their lending to property investors and first home buyers, who are increasingly withdrawing their KiwiSaver funds to use for deposits,” Maxwell said. KiwiSavers are able to withdraw their contributions to buy first homes after being in the scheme for three years.

Affordability improved nationally, but this disguised some deterioration in Central Auckland, North Shore, Central Wellington, Hutt Valley and Kapiti Coast because of a rise in median house prices, the Roost Home Loan Affordability report shows.

Lower house prices saw affordability improve in South Auckland, Porirua and Dunedin. Invercargill took back the title of the most affordable city in the country from Wanganui, while Queenstown is the least affordable for those on a median income. See the main report for links to regional reports.

A young couple earning the median wage could afford to buy a first quartile priced house in August, with 20.6% of their disposable income required to service an 80% mortgage. This is down from 20.7% in August and is at 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.

The Roost Home Loan Affordability measure for all of New Zealand showed the proportion of a single median after tax income needed to service an 80% mortgage on a median was 50.7% in September from 51.5% in August and is at its best level since September 2003. The worst level of affordability was 83.4% seen at the peak of the house price boom in March 2008 when 2 year mortgage rates were close to 10%.

Affordability has generally been improving since December 2009 as house prices have flattened out and interest rates have fallen.

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 is difficult in Auckland, Wellington, Christchurch, Hamilton and Tauranga for those on a single median income, but homebuyers in smaller provincial cities will find home ownership much more affordable. Households with two incomes are also in a stronger position, particularly those bidding for homes priced in the lower quartile.

Affordability for households with more than one income improved in September because of the fall 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 fell to 33.5% from 34.0% at the end of August. It is down from a record high of 54% in November 2007.

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:

Roost Home loan affordability for first-home buyers
General/New Zealand Report:

About Roost
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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