Higher mortgages, falling house prices lead to balance in affordability

By Bernard Hickey

The global credit market turmoil that has increased New Zealand fixed mortgage rates in the last month can take some of the blame for houses remaining unaffordable in February despite a fall in house prices.

The Fairfax Media Home Loan affordability report shows the average 2 year fixed mortgage rate rose almost a quarter of a percentage point to 9.56 per cent in February, which almost cancelled out the effect of a 0.7 per cent fall in the median house price to NZ$337,500.

This meant the proportion of median take home pay required to service the mortgage on a median house nudged down to 80.2 per cent in February from 80.8 per cent in January.

But this is still worse than the 74 per cent of after tax pay required in February last year and the 43.3 per cent required five years ago. Most bankers believe anything more than 40 per cent of after tax pay is unaffordable.

Affordability improved sharply in Northland because of a larger than average slump in house prices. Home loan affordability improved marginally in Auckland, Hawkes Bay, Gisborne, Manawatu, Wanganui, Otago and Southland because of falling house prices.

Affordability worsened in Waikato, Wellington and Christchurch as prices either continued to rise or were flat, adding to the impact of higher mortgage rates.

The proportion of median take home pay needed to service the mortgage on a median priced home in the Central Otago and Queenstown region bounced back to 132.8 per cent of an after tax median income, just below its record high in October last year of 137.9 per cent. It remains the only region where more than 100 per cent of take home pay is required to service the mortgage on a median house. No region is below the 40 per cent affordability threshold.

The least unaffordable region in New Zealand remains Southland, which saw the portion of after tax median income needed to service the mortgage on a median house falling to 52.7 per cent from 59 per cent in January. This was largely because of a sharp fall in house prices, although it remains above the 40 per cent threshold seen as affordable for anyone on a single median income.

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