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Home loan affordability improving in Wellington, says survey

Press Release – Roost Home Loans
House affordability improved in Wellington in April, according to the Roost Home Loan Affordability report. Affordability in the Kapiti Coast and Porirua was significantly better.

Invercargill took back the title of the most affordable city in New Zealand from Wanganui, while Queenstown and central Auckland were again the least affordable.

Prices remain more buoyant in central Auckland and some of the coastal and mountain resort areas, reinforcing signs this year of a two-speed housing market where reduced supply and inward migration are boosting activity in the central suburbs of the biggest cities, while provincial and fringe city areas remain subdued.

Interest rates were flat in April and the outlook is for the Official Cash Rate to remain steady until December this year or early 2012. Wages rose slightly, helping to boost disposable income for borrowing marginally.

First home buyer affordability worsened slightly in April because of a rise in cheaper house prices, but remains near its best levels in 7 years because of low interest rates.

Bank executives have commented over the last month they are keen to resume lending growth. Roost mortgage brokers report some banks are offering discounted rates and establishment fees to some borrowers to encourage home lending.

“Banks are eager to lend and are able on occasion to go the extra step to make a loan happen,” said Rhonda Maxwell, spokeswoman for mortgage broking group Roost Home Loans.

Banks are offering loan to value ratios of up to 90 and 95% and are discounting establishment and legal fees in competitive situations, Maxwell said.

“First home buyers are seeing the best loan affordability ratios in seven years, particularly in areas where house prices are off their peaks,” Maxwell said.

A young couple earning the median wage could afford to buy a first quartile priced house in April, with 21.4% of their disposable income required to service an 80% mortgage. This is up from 21.3% in March and down from a June 2007 high of 35.1%.

The national median house price fell to NZ$360,000 from a record high NZ$365,000 in March. The first quartile house price rose to NZ$252,332 from NZ$250,000 in March. Prices outside of central Auckland, Auckland, Hamilton and the central Otago Lakes district were flat to lower. 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% mortgage on a median was 53.1% in April from 54.0% in March. This was slightly worse than the 52.7% seen in January, which was the best level since April 2004. The worst level of affordability was 83.4% seen at the peak of the house price boom in March 2008 when 2 year mortgage rates were close to 10%.

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.

Most home owners are still on fixed mortgages, but more new borrowers are choosing to float, given floating rates at around 5.75% are cheaper than average longer term fixed rates at around 6.2%. The Home Loan Affordability reports are now using the floating rate as most mortgages are now floating rather than fixed.

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 34.9% at the end of April from 35.6% in March.

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 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 21.4% in April from 21.3% in March.

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% 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.

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