Roost Home Loan Affordability report: Home loan affordability unchanged as incomes rise as much as house prices
Home loan affordability was unchanged in September as a slight rise in the national median house price was offset by
marginal income growth. Housing market activity is buoyant, however, as bank lending activity is growing and the Spring
Open home season fires up.
Competition between banks to poach market share and boost lending heated up in September and October. ANZ’s decision to
drop the National Bank brand has sparked a new round of fixed mortgage rate cuts and market activity.
The Roost Home Loan Affordability monthly reports show affordability for young working couples is still near its best
levels in almost eight years, although affordability for home buyers in central Auckland, Wellington and Christchurch
“Banks are fighting hard for market share, which means they are offering deals to win or retain certain customers,” said
Colleen Dennehy, a spokeswoman for Roost Mortgage Brokers, which sponsors the Roost Home Loan Affordability report from
Some banks have cut fixed mortgage rates to under 5% and are offering discounted legal fees, lower interest rates for
borrowers with high equity and, in some cases, the discounting of break fees. Pricing is often differentiated, depending
on the safety of the borrower and the size of the loan.
The Official Cash Rate is expected to be steady at 2.5% through until late 2013, before rising to a peak of around 4%
over the next couple of years.
Affordability was flat in September as the median house price for all of New Zealand rose to NZ$371,000 from NZ$360,000
in August. It is just below the record high NZ$372,000 set in June. This kept the proportion of single after tax income
needed to service an 80% mortgage on a median house at 53.5%, the Roost Home Loan Affordability report shows
Household affordability for first home buyers deteriorated to 21.8% of income from 21.5% the previous month because the
median lower quartile house price rose to NZ$260,000 from NZ$257,000, but remains around its best levels since late
First home buyer household affordability is measured by calculating the proportion of after tax pay needed by two young
median income earners to service an 80% home loan on a first quartile priced house.
Affordability deteriorated for Auckland, Waikato, Hawkes Bay, Wellington, Nelson/ Marlborough, Central Otago/Lakes and
Southland because of higher median house prices, while affordability improved in Northland, Taranaki and Canterbury due
to lower median prices. See the main report for links to regional reports.
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.
Affordability has generally been improving since December 2009 as house prices have flattened out and interest rates
have fallen, although there has been some deterioration in recent months as house prices have firmed again.
Around 60% of home owners are now on floating mortgages, although there has been a surge in fixed rate borrowing in
recent months as banks pared their rates. Advertised floating rates at around 5.75% are higher than 1 year fixed rates
at around 5%, but many banks are offering ‘unofficial’ floating rates of around 5.3% to solid customers with high levels
of equity that threaten to leave their bank. The Home Loan Affordability reports use the advertised floating rate.
Affordability for households with more than one income worsened slightly in August because of the higher median house
price. This measure of a ‘standard typical household' found the proportion of after tax income needed to service the
mortgage on a median house rose to 53.5% from 52.3% in June.
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
Links to individual reports for regions can be found here
Roost Home loan affordability for first-home buyers
Links to individual reports for regions can be found here
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