Home Loan | Home Loan Affordability Improves As Median House Price Slips

February 9, 2012 – 3:59 am

Roost Home Loan Affordability report

For December 2011 – For immediaterelease

Home loan affordability improvesas median house price slips; 1st home buyerskeen

Home loan affordability improved in Decemberafter median house prices dipped nationwide, helping to liftdemand from first home buyers who see record low interestrates staying lower for longer and who can now use theirKiwiSaver money as a deposit.

Affordability for youngcouples who both have jobs is near its best levels in sevenyears because of record low interest rates and risingincomes, although affordability for home buyers in centralAuckland, Wellington and Christchurch remainsdifficult.

“There has been a surge of interest fromfirst home buyers in recent months because of the lowinterest rate outlook and because many are now able to startwithdrawing their KiwiSaver money,” said Rhonda Maxwell,spokeswoman for Roost Mortgage Brokers, which sponsors theRoost Home Loan Affordability report fromInterest.co.nz.

After three years in the scheme KiwiSaverswho want to buy a first home can withdraw contributions madeby themselves and their employers for a deposit. They cannotwithdraw the government’s kick-start or tax creditscontributed by the government.

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Many first home buyersreached their 3 year anniversary in late 2011 and banks arecompeting hard for these home buyers, often lending up to95% of the value of the home and waiving loan fees to winbusiness from rivals.

“Mortgage brokers and advisers arein the best position to get the best deal from any banks andeither to advise borrowers directly on using their KiwiSavercontributions, or refer them to an authorized fianancialadviser,” said Maxwell.

Comments from the Reserve Bankover the last month and the darkening outlook for the globaleconomy have further flattened the interest rate outlook.Most economists now see the Official Cash Rate on hold hereuntil late this year or early next year.

Some banks eventrimmed their fixed mortgage rates in early January aswholesale interest rates fell, making the fixed vs floatingdecision even tougher for borrowers.

Affordabilityimproved nationally, with prices lower in central and SouthAuckland, and in central Christchurch. The median houseprice fell to NZ$355,000, which reduced the proportion ofafter tax income needed to service an 80% mortgage on amedian house to 52.0% in December from 53.8% in November,the Roost Home Loan Affordability report shows.

Household affordability for first home buyersimproved to 21.5% of income from 22.1% the previous monthand is around its best levels since late 2004. First homebuyer household affordability is measured by calculating theproportion of after tax pay from two young median incomeearners required to service an 80% home loan on a firstquartile priced house.

Affordability worsened somewhat inNorth Shore, West Auckland, Hamilton and Tauranga, whereprices rose. See the main report for links toregional reports.

The Roost Home LoanAffordability report measures affordability nationally andregionally for individual income earners and households,taking into account median house prices, interest rates andincomes in their regions and cities.

Affordability hasgenerally been improving since December 2009 as house priceshave flattened out and interest rates have fallen, althoughthere has been some deterioration in recent months as houseprices have firmed again.

More than 60% of home owners arenow on floating mortgages and most new borrowers arechoosing to float, given advertised floating rates at around5.75% are cheaper than average longer term fixed rates ataround 5.8%. The Home Loan Affordability reports use thefloating rate.

Affordability for households with more thanone income improved in December because of the fall inmedian house prices. This measure of a ‘standard typicalhousehold’ found the proportion of after tax income neededto service the

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