The challenge for aspiring first home buyers now the toughest in the 18-year history of our Home Loan Affordability Report

The likelihood of owning your own home in New Zealand sank to a new low in October, according to interest.co.nz’s Home Loan Affordability Report.

The report tracks three main indicators of housing affordability for typical first home buyers: the Real Estate Institute of New Zealand’s lower quartile selling price, mortgage interest rates and the median after-tax pay of 25-29 year-olds.

From this information it works out how much aspiring first home buyers would need to save for a 10% or 20% deposit on a lower quartile-priced home, how much they would need to borrow on the corresponding mortgage, the amount needed for mortgage payments at current interest rates and how much of their income that would consume.

It’s the last figure that’s the most important because the amount of weekly income eaten up by mortgage payments is a direct measure of housing affordability.

The October figures show home ownership is now the most unaffordable it has been for typical first home buyers since interest.co.nz began compiling the figures in 2004.

Mortgage payments are considered unaffordable when they eat up more than 40% of take home pay. That figure is particularly important when living costs are rising strongly, as they currently are.

The tables below show the main affordability measures by region and in the main urban districts throughout the country.

The first table shows affordability for first home buyers able to save a 10% deposit for a home purchased at the REINZ’s lower quartile price. This would range from $36,000 in Southland to $85,400 in Auckland.

To buy a home at October’s national lower quartile price of $610,000 they would need to save $61,000 for a 10% deposit and borrow $549,000 on a mortgage. To meet the payments on their mortgage at October’s average two-year fixed rate of 5.88%, they would need to set aside $849 a week.

The national, combined, median after-tax pay for couples aged 25-29 was $1835 a week in October, which meant the mortgage payments would have been eating up 46% of their take home pay, putting it well into unaffordable territory.

The national mortgage affordability measure has been above 40% and therefore unaffordable for people on average wages, since house prices peaked in November last year, and it is continuing to rise, meaning unaffordability is getting worse.

Most regions unaffordable

Not only are the national figures at record unaffordable levels, the majority of regions are now also considered unaffordable for buyers with a 10% deposit.

The only regions where the mortgage payments on a lower quartile-priced home would be below 40% of take home pay for typical first home buyers are Manawatu/Whanganui, Taranaki, Otago and Southland.

And Otago is only marginally affordable and with mortgage payments at 39.97% of after-tax pay, it’s just squeaking in below the 40% affordability threshold.

Otago is likely to move into unaffordable territory over the next few months and Taranaki isn’t far behind, which would leave Manawatu/Whanganui and Taranaki as the only affordable regions in the country for typical first home buyers.

Affordability is obviously easier for buyers who can scrape together a 20% deposit, which would be no easy ask for hopeful buyers on average incomes.

Around the regions, a 20% deposit for a lower quartile-priced home would range from $72,000 in Southland to $170,800 in Auckland.

And even with a 20% deposit, the mortgage payments would still be considered unaffordable to typical first home buyers in Auckland and the Bay of Plenty, while repayments with a 20% deposit are getting close to unaffordable levels in Waikato, Wellington, and Nelson/ Marlborough.

Unless they are on high incomes, the situation for aspiring first home buyers in Auckland and the Bay of Plenty is already dire and with mortgage interest rates continuing to rise, most of the rest of the country is not far behind.

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