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S Auckland House prices wipe out benefits of lower interest

For July 2015 - for immediate release

Rapidly rising house prices in south Auckland wipe out benefits of lower interest rates for first home buyers -interest.co.nz Home Loan Affordability Reports show

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PLEASE NOTE: The full suite of Reports for a) First home buyers (aged 25-29 yrs), both as individuals and as a couple, and b) Young family buyers (aged 30-34), both as individuals and as a couple (with one partner working full time, one half time, and a 5 year old child), are nowpublished on our website.

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A big jump in the lower quartile selling price of homes in south Auckland over the last two months more than wiped out the benefits of falling mortgage interest rates for first home buyer households, according to the interest.co.nz Home Loan Affordability Report for July.

The report shows that the REINZ's lower quartile selling price of homes in the Auckland region has dropped from $616,500 in May to $602,000 in July, and that combined with recent falls in interest rates has improved affordability for first home buyers in most parts of the region.

Between May and July the average bank interest rate on two year fixed rate mortgages dropped from 5.61% to 5.17% and that combined with the drop in the lower quartile selling price would have reduced the mortgage payments on a lower quartile priced home in the Auckland region from $821.83 a week in May to $767.89 in July, a saving of $53.94 a week for typical first home buyers.

However not all parts of Auckland benefited from the lower interest rates.

Although lower quartile selling prices in central Auckland, the North Shore and west Auckland were all lower in July, they kept rising strongly in south Auckland to hit an all time high of $580,100 in July, up from $541,400 in May, and that more than wiped out the benefit of lower mortgage interest rates, pushing weekly mortgage payments on a lower quartile priced home from $714.38 a week in May to $737.86 a week in July.

Around the rest of the region, the weekly mortgage payments on a property purchased at July's lower quartile price would have been $739.50 in central Auckland (within the boundaries of the former Auckland City Council), $918.62 on the North Shore and $756.10 in west Auckland.

Mortgage payments are considered affordable when they take up no more than 40% of a couple's take home pay (when both are working), and even with the latest falls in prices and interest rates, lower quartile priced homes throughout the Auckland region remain significantly unaffordable for typical first homes buyers, with mortgage payments taking up between 46.49% of their take home pay in central Auckland, to 56.09% on the North Shore and 50.32% on a region-wide basis.

That suggests lower quartile dwelling prices in Auckland would need to fall by around 20% before they got back to the upper limit of the affordability range for first home buyers.

Around the country housing remains affordable for first home buyers in all regions apart from Auckland, the Report found.

The table below shows what the weekly mortgage payments on a lower quartile priced home in each region of the country would be, and how much they have changed over the last two years.

The most expensive region outside of Auckland is Central Otago Lakes at $476.32 a week and the cheapest is Southland at $166.88 a week.

That means the mortgage payments on a lower quartile priced house ranged from 11.64% of a first home buying couple's take home pay in Southland to 33.89% in Central Otago Lakes.

In Wellington the mortgage payments on a lower quartile priced house would take up 23.52% of a a typical first home buying couple's net pay and in Canterbury the mortgage payments would take up 27.7% of their pay.

So lower quartile priced housing remains affordable for typical first home buyers in all parts of the country except Auckland, where high prices are putting it of reach for first home buyers with average incomes.

Weekly household Mortgage Payments on a Lower Quartile Priced Home
July 2013July 2014May 2015July 2015
Northland$283.45$301.35$309.19$303.24
Auckland$576.62$690.95$821.83$767.89
Waikato/BoP$282.02$307.02$319.63$315.72
Hawkes Bay$230.41$243.04$249.81$245.77
Manawatu/Whanganui$208.69$208.48$186.68$195.41
Taranaki$274.99$326.32$275.28$259.07
Wellington$382.99$400.63$406.05$367.56
Nelson/Marlborough$359.33$375.96$362.84$354.25
Canterbury/Westland$367.75$446.28$429.08$419.13
Central Otago Lakes$435.39$459.46$496.19$476.32
Otago$234.12$242.67$226.97$219.00
Southland$170.13$168.28$159.56$166.88
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All NZ$330.73$366.00$376.15$357.82

Home Loan Affordability Report methodology:

The Home Loan Affordability Reports calculate the mortgage repayments on the REINZ's lower quartile selling price in each region, and calculate how much of a typical first home buying couple's income that would consume.

The mortgage payments are based on a 25 year mortgage at the average of the major banks' average interest rates for a two year fixed rate loan, while typical first home buyers' after tax incomes in each region are based on the regional median income of a couple aged 25-29, which is taken from Statistics NZ's Linked Employer-Employee Data Survey.

The deposits needed to buy a lower quartile-priced house in each region are calculated as the lesser of 20% of the purchase price, or the amount that would be accumulated if the couple saved 20% of their net income for four years, and earned interest at the average 90 day bank deposit rate.

The July 2015 home loan affordability report for typical young family buyers (30-34 yrs) is here and this gives links to all regional reports.

The July 2015 first home buyer affordability report (25-29 yrs) is here and this gives links to all regional reports.


ends

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