The ability of aspiring first home buyers to scrape together a 20% deposit is probably now the key determining factor of whether they can afford a home of their own.
The latest home ownership calculations by interest.co.nz show the amount required for a 20% deposit on a home purchased at the Real Estate Institute of New Zealand's national lower quartile selling price in October, would be $121,800.
Around the country the amount required for a 20% deposit at October's lower quartile selling price would range from $75,000 in Invercargill, closely followed by Whanganui at $81,000, to a massive $203,000 in Queenstown.
Around the regions, you would need $159,000 for a 20% deposit on a lower quartile-priced home in Auckland, $127,000 in Wellington, and $114,000 in Christchurch.
The lower quartile price is the price point at which 25% of sales are below and 75% are above, representing fairly modest dwellings at the bottom end of the price scale.
Interest.co.nz also calculates what the mortgage payments would be on the resulting 80% mortgage and compares that with the after-tax income for a young couple (based on the median rates of pay for 25-29 year-olds) to see how much of their income would be eaten up by mortgage payments.
Mortgage payments are considered unaffordable if they take up more than 40% of after-tax pay.
The latest mortgage calculations are based on the average two-year fixed rates offered by the major banks in October (5.68%) with a 30-year term.
Using that formula, the mortgage payments on a lower quartile priced home purchased with a 20% deposit would range from $401 a week in Invercargill to $1085 a week in Queenstown.
Within the Auckland region they range from $739 a week in Papakura to $1047 on the North Shore.
When you compare the mortgage payments with after-tax pay for the aspiring first home buyers, this shows there are only three urban districts in the country where the mortgage payments would be considered unaffordable for young couples on average pay. They are Rodney and the North Shore in Auckland, and Queenstown.
Mortgage payments everywhere else would be below the 40% of income threshold that would make them unaffordable for young people on average incomes. However, Auckland at 39.5% overall is on the cusp of becoming unaffordable even for buyers with a 20% deposit.
So for the ever-hopeful first home buyers, the main obstacle they face in gaining home ownership is not being able to afford the mortgage payments, it's being able to get a 20% deposit together.
Of course they would have the option of buying a home with less than a 20% deposit and a low equity mortgage.
The problem with that option is that not only would they need to borrow more to cover the shortfall in the deposit, they would also be paying a premium for a low equity loan, which would significantly push up their mortgage payments.
For example, the mortgage payments on a lower quartile-priced home in Hamilton would jump from about $687 a week if it was purchased with a 20% deposit (affordable), to about $877 a week. That's an extra $190 a week, although the exact amount will vary from bank to bank, pushing it into unaffordable territory.
That would mean all of Auckland, Hamilton, Tauranga, Napier, most of the Wellington Region, Nelson and Christchurch would join Queenstown in the unaffordable basket for typical first home buyers with less than a 20% deposit.
The two tables below display the main affordability measures discussed above, for typical buyers with either a 10% or 20% deposit, in all of the country's main urban districts.
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26 Comments
More like we are at the point where no one is silly enough to spend the next 40 years paying banks interest for a new low quality garage style chicken coup (or vintage wooden tent).
Better to rent and invest the 20% deposit in stocks, startups, financing a local business - anything that is a vehicle to financial independence - and just rent. No ownership costs and employment location flexibility is worth more than being locked into a wealth sapping 'investment'.
No need for a house if you can't afford to get married or have children even on above median salaries.
To add to that, RNZ reported on 7 November ....
"First-home buyers have been responsible for 27% of all purchases in the first nine months of this year, well above the 21% long-term average".
For the month of October Core Logic reported FHBs bought close to 28% of the houses.
By design though. House prices have crashed 20% in places if not more, so when interest rates dropped they become more affordable and that then increases prices due to greed and lack of supply, and people being able to afford to pay more. There are currently some great deals if you shop around on newer builds espeically..
This has been the case ever since the introduction of the LVR.
Tell me, which 25-29yo couple has been saving for their house for 7 years on a 25-29 income? Oh, likely none as they were not in that income bracket for half the preceding time!
There's a reason average FHB age is in the late 30s.
The survey is a nonsense and they stubbornly stick to that stupid assumption despite having had the flaw pointed out repeatedly. I am Not prepared to financially support the website for exactly this sort of thing. Why should I support stuff that’s fundamentally flawed. A compelling reason for sticking with it has never been provided
In addition to your valid points, many young couples also have big student loan debt well into their late 20s / early 30s
I can assure you that there seems to be plenty of first home buyers out looking at the weekend in ChCh, and there will be more very shortly.
It is not that difficult to buy in the happiest city in NZ.
Went to an in-house auction today and there were several affordable homes that sold but next to no first home buyers there?
I appreciate it can cost money to do the due diligence, but the best way to buy property is when you have no competition.
That would back up the point of the article though, wouldn't it?
Much easier to leverage existing equity than start from scratch.
And if there were no FHBs present for 'NZs most desirable city' - then where are they?
I'd stab a guess at on a plane, and what you're seeing is Aucklanders cashing up and moving out, which has been happening for the almost 20 years of Auckland's property bubble.
I'd stab a guess at on a plane, and what you're seeing is Aucklanders cashing up and moving out, which has been happening for the almost 20 years of Auckland's property bubble.
Does it really make much sense for younger demogs to load up on more debt than any other time in history when it's becoming more obvious that we're at a quasi-Fourth Turning point in time? Not a question I can really answer, except for caveat emptor,
Yeah.
Scraping that deposit together ..
when you are competing for a basic right ...
against already well-healed 'investors' ...
thanks to b.s. tax policy for 30+ years ...
that the government most people voted for ...
that they voted for to enabled them to beat you ...
EVERY TIME ...
due to our obscenely corrupt and inequitable tax system ...
It's hard, right?
Don't bother. Other countries - with better tax system favor neither the rich, nor favor the old. But NZ does.
Leave. Make money. Come back and help fix it.
Please ...
From the regulatory impact statement on restoring interest deductions - Page 13
"Restoring interest deductions for residential rental property is likely to put some upward pressure on property prices, making buying a first home somewhat less affordable"
https://www.treasury.govt.nz/sites/default/files/2024-07/ris-ird-ridrip…
I thought that now the house prices are 20% off the 2021's peak, everyone will be able to buy 2 houses, not 1, but it seems that this is not the case though. For house in North Shore you need 200K deposit, that's a lot of money and I expect the house prices 10-15% up by the end of 2025.
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