NZ home buyers haven’t had it this good since the Rugby World Cup was last held in this part of the world, a survey shows. Photo / Paul Estcourt
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 there rose.
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 per cent a year. Lending was growing at 17 per cent 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 per cent and are discounting establishment and legal fees, Maxwell said.
"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 per cent of their disposable income required to service an 80 per cent mortgage.
This is down from 25.6 per cent in July a year ago and down from a June 2007 high of 35.1 per cent.
The national median house price fell to $345,000 from $360,000 in June and a record high of $365,000 in March. The first quartile house price fell to $245,000 from $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 per cent mortgage on a median was 50.2 per cent in July from 52.5 per cent in June.
The worst level of affordability was 83.4 per cent seen at the peak of the house price boom in March 2008 when 2 year mortgage rates were close to 10 per cent.
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 per cent of home owners are now on floating mortgages and most new borrowers are choosing to float, given advertised floating rates at around 5.75 per cent are cheaper than average longer term fixed rates at around 6.2 per cent.
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 per cent at the end of July from 34.6 per cent in June and a record high of 54 per cent 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 per cent 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 per cent in July from 21 per cent in June and a record high of 34.9 per cent in November 2007.
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 per cent is considered unaffordable in the longer term for such a household, while any level closer to 20 per cent is seen as attractive and coinciding with strong demand.