Roost Home Loan Affordability report
Home loan affordability best since Rugby World Cup in Australia in 2003
New Zealand home buyers haven’t had it this good since September 2003 when the Rugby World Cup was last held in this
part of the world, a new survey of affordability has found.
A fall in house prices nationwide and renewed expectations of lower interest rates for longer has improved affordability
to its best levels since September 2003, just before the Rugby World Cup was contested in Australia and just before
house prices surged, the Roost Home Loan Affordability report shows
Affordability improved in most cities and provincial areas, including Auckland Central, South Auckland, Hutt Valley,
Tauranga, Whangarei and Queenstown. Affordability worsened around Christchurch, Otago and Southland as house prices
Interest rates remained flat at record lows in July and are now expected to remain there until late this year. Before
signs of a global economic slowdown emerged in late July, economists had forecast a rise in the Official Cash Rate on
September 15. But concerns about slowing growth in America and Europe has seen economists push out their rate hike
expectations until December 8.
First home buyer affordability also improved in July to its best levels since July 2004.
Banks eased their lending criteria in the first half of 2011 in an effort to boost lending volume growth from record
lows of around 1% a year. Lending was growing at 17% per annum in 2004.
“Banks remain keen to grow their lending and are willing to do deals,” said Rhonda Maxwell, spokeswoman for mortgage
broking group Roost Home Loans.
Some banks are offering loan to value ratios of up to 95% and are discounting establishment and legal fees, Maxwell
“The prospect of lower interest rates for longer is encouraging many first home buyers to look at their options now
affordability is back at pre-boom levels,” Maxwell said.
A young couple earning the median wage could afford to buy a first quartile priced house in July, with 20.5% of their
disposable income required to service an 80% mortgage. This is down from 25.6% in July a year ago and down from a June
2007 high of 35.1%.
The national median house price fell to NZ$345,000 from NZ$360,000 in June and a record high of NZ$365,000 in March. The
first quartile house price fell to NZ$245,000 from NZ$249,000 in June.
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.
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 50.2% in July from 52.5% in June. 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
Affordability has been improving since December 2009 as house prices have flattened out and interest rates have fallen, the monthly measure calculated by interest.co.nz in association with Roost found
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 slightly because of the fall in interest rates. This
measure of a ‘standard typical household' found the proportion of after tax income needed to service the mortgage on a
median house was 33.0% at the end of July from 34.6% in June and 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 survey’s measure of a ‘standard first-home-buyer household' found the proportion of after tax income needed to
service the mortgage on a first quartile home fell to 20.5% in July from 21% in June and a record high of 34.9% in
This 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.
Question and Answers about the report
How does interest.co.nz work out these numbers?
Interest.co.nz gathers data from Statistics New Zealand and IRD on wages in each region, data from the Real Estate
Institute from each region each month, and data from banks and non-banks on interest rates. It has calculated home loan
affordability going back to the beginning of 2002.
How is this survey different from the Massey University survey of affordability?
The Massey study is only done quarterly rather than monthly and uses an index of Home affordability rather than actually
measuring home loan affordability. It uses an index rather than the actual measure of the proportion of after tax pay
needed to service an 80% mortgage on a median home. The exact composition and meaning of the index is not detailed.
Why use a single median income rather than household income?
It’s true that most homebuyers are using a combination of one or more full or part time incomes to service their
mortgage. Each household is different and may be using incomes from different sources. The best measure of average
national household income is calculated officially once in every three years by Statistics New Zealand. Interest.co.nz
chose to use the median income data series from IRD and Statistics NZ because it can be measured monthly and can be
drilled down by region and by age. We do include a chart showing how many median incomes are required to keep mortgage
payments at 40% of take home pay. It is currently around 2 median incomes.
Why is home loan affordability important?
It is a useful way to work out if a housing market is overvalued. It’s clear house prices stopped rising when the
national affordability ratio rose above 80% or 2 median incomes to service the average home loan. It’s a way of
comparing affordability of housing markets with a national average and comparing housing values from one year to the
next. For example, the affordability ratio in 2002 before the housing boom really took off was around 41%.
Roost is the sponsor of this Report, and the Reports must be referred to as the Roost home loan affordability reports.
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 www.roost.co.nz