Community Scoop

Home loan affordability deteriorates

Press Release –

Home loan affordability worsened nationally in November because of a rise in median house prices to fresh record highs with the biggest deteriorations seen in central Auckland and Wellington.Roost Home Loan Affordability report

For November 2011For immediate release

Home loan affordability deteriorates as median house prices hit record highs

Home loan affordability worsened nationally in November because of a rise in median house prices to fresh record highs with the biggest deteriorations seen in central Auckland and Wellington.

However, low interest rates and the prospect they will stay lower for longer is boosting demand for home loans and helping to keep affordability at near its best levels since 2004.

Fixed and floating mortgage rates were steady at record lows in November and most economists now expect the Reserve Bank to hold the Official Cash Rate at 2.5% until late next year given the economic uncertainty generated by the European financial crisis.

“Home buying activity has improved along with the weather and the outlook for continued low interest rates,” said Rhonda Maxwell, spokeswoman for mortgage broking group Roost Home Loans.

“First home buyers are more confident about interest rates staying lower for longer and can see banks are competing hard for their business,” Maxwell said.

Affordability deteriorated nationally, with higher prices in Northland, North Shore, Central Auckland, South Auckland, Wellington, Christchurch and Dunedin. The median house price rose to NZ$367,500, which increased the proportion of after tax income needed to service an 80% mortgage on a median house to 53.8% in November from 52.6% in October, the Roost Home Loan Affordability report shows.

Affordability worsened dramatically in central Auckland because of a sharp rise in the median price. See the main report for links to regional reports.

A young couple earning the median wage could afford to buy a first quartile priced house in November, with 22.1% of their disposable income required to service an 80% mortgage. This is up from 21.1% in October and just above its best levels since August 2004.

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.

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 for households with more than one income deteriorated in November because of the rise in median house prices. 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 35.2% from 34.5% in October.

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
General/New Zealand Report:
Links to individual reports for regions can be found here
Roost Home loan affordability for first-home buyers
General/New Zealand Report:
Links to individual reports for regions can be found here
Question and Answers about the report
How does work out these numbers? 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. 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%.
About Roost

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

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