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Lot improved for first home buyers

Falling interest rates, easing house prices and rising incomes have improved the lot of typical first home buyers in Auckland by nearly $90 a week since March 2017

Falling mortgage interest rates, slightly softer house prices and slowly rising wages are all helping to make the dream of home ownership more affordable for Auckland's first home buyers.'s Home Loan Affordability Reports for September estimate that mortgage payments on a lower quartile priced Auckland home would eat up 41.8% of a typical first home buying couple's take home pay each week. This is still considered unaffordable but is well down from where it was in March last year, when mortgage payments on a lower quartile-priced home would have chewed up 46.1% of a typical first home buying couple's take home pay.

Housing's considered unaffordable if it takes up 40% or more of take home pay.

Three factors have worked together to drive that improvement in affordability:

Mortgage interest rates are down. The average of the two year fixed rates offered by the major banks has dropped from 4.84% in March last year to 4.51% in September this year. That on its own would reduce the payments on a $500,000 mortgage from $608 a week to $585 a week, leaving the borrower better off by $23 a week.

House prices have eased back. In March last year the REINZ's lower quartile selling price in Auckland was $680,000, but in September this year it was $657,000, making a lower quartile-priced home $23,000 cheaper. The lower quartile price is the price point at which 75% of sales in a month would be above that point and 25% would be below, representing sales at the bottom quarter of the market where first home buyers are most active.

Incomes are slowly rising. In March 2017 the estimated, combined, median, after tax pay of an Auckland couple where both were aged 25-29 and working full time, was $1598.04 a week. In September this year that figure had increased to $1628,22, leaving them better off by $30.18 a week before allowing for any increases in living costs they may have faced.

When all of those factors are taken into account, the amount that typical first home buyers would need to set aside each week to meet the mortgage payments on a lower quartile-priced home has dropped from $737.24 in March last year (46.1% of their take home pay) to $680.34 in September this year (41.8% of their take home pay), leaving them better off by $56.90 a week.

When that is combined with the increase in their take home pay they are now better off by $87.08 a week compared to 18 months ago.

That assumes they would have saved 20% of their net income every year for four years to put towards a deposit.

Auckland not the only region with improved affordability

Affordability also improved in Taranaki, where the mortgage payments on a lower quartile-priced home dropped from 18.2% in March 2017 to 14.8% in September this year, and in Canterbury, where it dropped form 21% to 20.1% over the same period.

And in the Bay of Plenty the difference was so small, with mortgage payments' percentage of income rising from 27.6% to 27.9%, that affordability in that region was almost unchanged.

However homes became less affordable for first home buyers over the last 18 months in all other regions of the country.

In Manawatu/Whanganui the mortgage payments on a lower quartile-priced home increased from 11.8% of income in March 2017 to 14.3% in September this year, in Nelson/Marlborough it jumped from 25.7% to 34.8%, and in Otago it rose from 17.3% to 19.5%.

So although housing remains well within affordable limits for typical first home buyers in many regions, in most cases it is not as affordable as it was 18 months ago.

The full regional and district reports are available by clicking on the following link.


© Scoop Media

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