Home loan affordability worsened slightly in August after house prices rose again, more than offsetting marginal improvements in incomes and the effects of near record low interest rates for borrowers with large deposits.
Mortgage brokers report bank lending to those with a deposit of less than 20% of the value of a home has virtually ground to a halt in recent weeks as banks adjust to the late August announcement by the Reserve Bank of a 'speed limit' on high Loan to Value Ratio (LVR) loans.
Banks have already begun offering preferentially low interest rates to borrowers with more than 20% equity and are imposing 'low equity premiums' on borrowers with less than 20% equity.
Some are rejecting applications from those wanting to borrow more than 80%.
"Borrowers with more than 20% equity are in a much stronger position to negotiate good deals with banks and that's where a mortgage broker can help," said Roost Mortgage Brokers spokeswoman Colleen Dennehy.
"Banks are taking much less of a one-size-fits-all approach and that means some borrowers are having to negotiate harder to get what they want," Dennehy said.
The Roost Home Loan Affordability reports show national affordability worsened to 56% in August from 55.4% in July after the national median house price rose to NZ$390,000 from NZ$385,000 the previous month.
The reports show improvements in 9 regions and deteriorations in 15 regions, largely due to movements in house prices in those areas. The reports measure the percentage of after tax pay needed to service an 80% mortgage on a median priced house.
The Roost Home Loan Affordability report for August showed affordability for regular home buyers improved in
It is toughest for first home buyers in
Affordability on the North Shore is at its worst level in more than 3 years.
Nationally, affordability for someone on a single median income worsened by 0.6% in August from July, which meant it took 56% of after tax income to afford an 80% mortgage on a median house, according to the Roost home loan affordability report released today.
Average fixed mortgage rates, which more than 50% of new borrowers now use, rose slightly in August and after-tax wages rose less than NZ$1 per week.
Housing affordability has become a major economic and political issue over the last year. The Reserve Bank and Government agreed on a toolkit of 'macro-prudential' controls in May that would see the central bank impose limits growth in high loan to value ratio mortgages. Central and local governments are also moving to address housing supply shortages.
For first home buyers – which in this Roost index are defined as a 25-29 year old who buys a first quartile home – there was also a deterioration in affordability in most cities.
It now takes 46.9% of a single first home buyer's income to afford a first quartile priced house nationally, up from from 46.2% a month earlier. The most affordable city in
Any level over 40% is considered unaffordable, whereas any level closer to 30% has coincided with increased buyer demand in the past.
For working households, the situation is similar, although bringing two incomes to the job of paying for a mortgage makes life considerably easier. A household with two incomes would typically have had to use 36.9% of their after tax pay in August to service the mortgage on a median priced house. This is up from 36.4% in July.
On this basis, most smaller
For households in the 25-29 age group (which are assumed to have no children), affordability nationally worsened to 23.1% of after tax income in households with two incomes required to service the debt, up from 21.8% the previous month.
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.
First home buyer household affordability is measured by calculating the proportion of after tax pay needed by two young median income earners to service an 80% home loan on a first quartile priced house.
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