NZ renters urged to assess home loan affordability now

Here are some things tenants should consider before they decide to take the homeownership plunge

NZ renters urged to assess home loan affordability now

“Now is the time for renters to do their sums on lending affordability,” despite rising interest rates and tighter lending conditions from banks, said Tim Kearins (pictured), owner of Century 21 New Zealand.

With the national median rent at nearly $600 a week, Kearins said securing a mortgage and locking in a two-year rate, at say 5.25%, might make the cost of homeownership comparable, if not more cost effective, for many.

Read more: Mortgage payments surge past rent in New Zealand

“With a 20% deposit, you can still buy a $600,000 property for a weekly mortgage repayment cost of $610,” he said. “Even if you need to spend more, it gets you on the property ladder, you’re not working to pay your landlord, and long-term you’ll make good capital gain. What’s more, homeownership does improve living standards later in life.”

To make it happen, Kearins urged hopeful first-home buyers to consider getting a flatmate or boarder. By showing an additional income stream, a single person or couple could get over the line on serviceability assessments.

Read next: Rental prices in New Zealand: Still affordable or now unattainable?

“While the government is set to tweak the Credit Contract & Consumer Finance Act (CCCFA) this winter, many first and next-home buyers are still finding it difficult to satisfy the banks,” he said. “However, borrowers have other options.”

The Century 21 boss said mortgage brokers can offer competitive rates and greater borrowing flexibility than traditional banks. Kearins also urged buyers not to wait for a house to get cheaper before they make their move.

“It can be much more cost effective to buy at a higher price with a lower interest rate than the other way round,” he said. “Right now, prices are softening but more importantly interest rates remain below New Zealand’s historical average.”

Last month, the OCR increased by 50 basis points to 1.5% – marking the fourth consecutive hike since October last year and the biggest jump in over 20 years. The Reserve Bank’s next OCR decision is on May 25.

“Some economists are now forecasting that the OCR will rise to 3.5% by the end of this year,” Kearins said. “In the meantime, interest rates remain miles off where they have been in previous decades, with the average over the years about 6% or 7% for Kiwi borrowers.”

House prices may be softening and sales slowing, but no-one’s yet predicting falling rents.

“Landlords are facing high compliance costs and inflationary pressures, so rents may just keep going up, particularly while demand is still strong,” Kearins said. “The prospect of future rent rises is yet another consideration for tenants when they’re on the mortgage calculators, deciding to take the homeownership plunge or not.”