First-home buyers may still find mortgage payments unaffordable despite falling prices
Hopeful first-home buyers may find it a bit easier to get onto the property ladder in early 2022, thanks to lower housing prices at the bottom of the market and a slight decline in mortgage interest rates.
Read more: Mortgage payments surge past rent in New Zealand
interest.co.nz’s Home Loan Affordability Report showed that the Real Estate Institute of New Zealand's national lower quartile selling price declined to $650,000 in January – the second consecutive month that it has dropped since its peak at $670,000 in November. This means the national lower quartile price has retreated back to where it was in October last year.
January saw lower quartile prices decline in eight regions across the country: Auckland, Hawke's Bay, Manawatu/Whanganui, Wellington, Nelson/Marlborough, Canterbury, Otago and Southland, and rise in four regions: Northland, Waikato, Bay of Plenty and Taranaki, interest.co.nz reported.
The main centres saw the biggest declines. At number one was Otago with its lower quartile price in January down by $60,000 from October's peak of $580,000, followed by Canterbury, where January's lower quartile was down by $48,000 from December's peak of $548,000.
In Auckland, the lower quartile price decreased by $44,000 from November's peak of $966,000, to $922,000 in January.
Also providing first-home buyers with slight but welcome relief were the recent falls in mortgage interest rates.
Read next: Majority of Kiwis ahead on their mortgages – Westpac
The average of the two-year fixed rate offered by the major banks declined from 4.21% in December to 4.19% in January. The downward move in average rates was due to banks adjusting their competitive positions rather than the start of an easing trend. It is also not expected to last, interest.co.nz said.
But with prices already so high, these improvements in affordability offer very little relief.
The $20,000 drop in the national lower quartile price since November would have reduced the amount required for a 10% deposit by just $2,000. This means potential homebuyers would still need to scrape together $65,000 for a 10% deposit and $130,000 for a 20% deposit to buy a home at the national lower quartile price.
In Auckland, the country's most expensive region, a 10% deposit on a lower quartile-priced home would be $92,200 and a 20% deposit would be $184,400.
Typical first-home buyers on average incomes would also likely find mortgage payments prohibitively expensive. Mortgage payments are considered unaffordable if they take up more than 40% of the homeowners’ take-home pay, the report said.
For a home purchased at the national lower quartile price with a 10% deposit, the mortgage payments would be $757 a week – that would be 42.8% of the after-tax pay of a couple who are both working full time at the median rate of pay for 25- to 29-year-olds. That's down from 43.7% in November but still considered unaffordable.
In Auckland, the mortgage payments on a lower quartile-priced home bought with a 10% deposit would cost $1,074 a week, which would be 59.6% of the after-tax pay of a couple on average wages. That makes homeownership out of reach for people on average wages.
Mortgage payments would also be in unaffordable territory for buyers with a 10% deposit in Northland, Waikato, Bay of Plenty, Hawke's Bay, Wellington and Nelson/Marlborough, interest.co.nz reported.
