Experts are backing a Government claim that New Zealand houses are affordable again - but warn that the sweet spot won't last when interest rates eventually go up.

Prime Minister John Key this week defended cancelling his party's flagship affordable housing scheme, Gateway, by saying interest costs on the average home had dropped by $200 a week since the scheme was promised before the 2008 election.

Housing Minister Phil Heatley confirmed yesterday that the scheme had been stopped completely after building only 24 houses, including 17 on the former Hobsonville air base in Auckland.

And Auckland mortgage broker Bruce Patten said a young couple such as 20-year-old Campbell Miller and his girlfriend Chantel Farrugia, who bought their Hobsonville house last October with a $181,000 Gateway loan that is interest-free for five years, could have bought the house without the subsidy at today's interest rates.


"That young couple could have bought the house outright," he said.

"The deposit is the hardest thing for people to come by, but KiwiSaver is having a big impact. I would say 70 to 80 per cent of the mortgages we are doing to first-home purchasers are now using KiwiSaver. It's not the whole deposit, but it's a very large portion."

Interest rates on new three-year fixed-rate mortgages have dropped from an average 8.71 per cent when the Gateway policy was unveiled in September 2008 to 5.75 per cent today.

Mr Patten said the banks had also loosened their lending policies, after tightening up during the recession, and were now lending up to 95 per cent of a property's value.

He said a couple earning pretax incomes of $60,000 and $30,000, adding up to the average Auckland household income last year of $90,000, could borrow between $480,000 and $600,000 under lending policies of the five main banks, assuming they had saved a 5 per cent deposit.

If they borrowed $465,500 (95 per cent) for 30 years to buy a house at the $490,000 median price of homes sold in Auckland in April, their mortgage payments would be $2747 a month, or 45 per cent of their net monthly income.

"A ratio most banks are comfortable with is up to 50 per cent," Mr Patten said.

But Community Housing Association chairman Alan Johnson warned that houses could become unaffordable again when interest rates rose.


"Home ownership is only affordable with interest rates at 15-year lows," he said. "You would be very foolish making a bet on that staying the case for the next 30 years."

Mr Miller and Ms Farrugia bought their two-bedroom Hobsonville house with a $36,000 deposit and topped up their Gateway loan with a $242,000 bank mortgage.

Mr Miller earns "close enough to the minimum wage" as an assistant restaurant manager for KFC in Takapuna, and Ms Farrugia, a trainee accountant aged 21, earns "not much more than that" as an accounts clerk for a law firm.

Their Gateway loan covers the land value of their 209sq m section. They pay no interest for five years, then pay interest that steps up gradually to 5 per cent after nine years.

After 10 years they have to buy the land, usually by topping up their commercial mortgage, at a price based on its valuation when they bought it last year plus 3 per cent a year.

Mr Miller said the couple tried two or three banks to try to buy a house outright before Ms Farrugia heard about the Gateway scheme through her work.

"We were very, very lucky."

Affordable now?
* $90,000: Average Auckland pre-tax household income, year to June 2011.
* $480,000-$600,000: What that household could borrow with 5 per cent deposit.
* $490,000: Median price of homes sold in Auckland, April 2012.
* $2747: Monthly payments on 30-year mortgage for $465,500 (95 per cent of $490,000).
Slice of after-tax monthly income that would go on the mortgage.