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AUGUST 2019 WHANGANUI DISTRICT WWW.INTEREST.CO.NZ / [email protected] / P. 09 3609670 WHANGANUI DISTRICT HOME LOAN AFFORDABILITY REPORT August 2019 Home loan affordability is a measure of the proportion of take-home pay that is needed to make the mortgage payment for a typical household. If that is less than 40%, then a mortgage is considered ‘affordable’. The following are typical assessments for households at three stages of home ownership. FIRST HOME BUYERS 25-29 YOUNG FAMILY 30-34 OLDER FAMILY 35-39 First home buyers earn a medi- Young family buyers earn medi- Older family buyers earn medi- an income for their age group, an incomes in their age bracket, an incomes in their age brack- and buy a first quartile house and buy a median house in et, and buy a median house in in their area. Both parties work their area. One partner works their area. Both partners work full-time. half-time. full-time. Mortgage payment as a Mortgage payment as a Mortgage payment as a percentage of the take home pay percentage of the take home pay percentage of the take home pay Take Home August 13.6% Take Home August 11.6% Take Home August 9.6% Pay 19 Pay 19 Pay $1,456.54 19 August 12.0% $1,219.22 August 14.1% $1,597.15 per Week per Week per Week August 9.1% 18 18 18 August 17 10.9% August 17 14.9% August 17 11.3% This report estimates how affordable it would be for a couple This report estimates how affordable it would be for a couple This report estimates how affordable it would be for a couple where both are aged 25–29 and are working full time, to buy a with a young family to move up the property ladder and buy their who are both aged 35-39 and working full time, to move up the home at the lower quartile price in Whanganui District. next home at the current median price. property ladder and buy their next home at the current median It assumes they earn the median rate of pay for people of their It is assumed that one partner works full time and one works half price. age in their region, which would give them a take home pay of time and both are paid at the median rate for people of their It is assumed that both are paid at the median rate for people of $1,456.54 a week. age in Whanganui District, and that they receive the Working for their age in Whanganui District, and that they no longer receive It is assumed they would have saved $46,600 to use as a deposit, Families allowance. the Working for Families allowance. by putting aside 20% of their net pay each week for up to four That would give them total after tax weekly income of $1,219.22 That would give them total after tax weekly income of $1,597.15 years, earning interest on the savings at the 90 day bank deposit a week. a week. rate. It is also assumed they purchased their current home five years It is also assumed they purchased their current home 10 years To buy a home at Whanganui District’s lower quartile price they ago for $106,000, which was the lower quartile selling price in ago for $140,000, which was the lower quartile selling price in would need a mortgage of $186,400. Whanganui District at the time. Whanganui District at the time. They would need to set aside $197.84 a week to cover the If they sold that home for the current lower quartile price in If they sold that home for the current lower quartile price in mortgage payments, which would be 13.6% of their take home Whanganui District of $233,000, they would have equity of Whanganui District of $233,000, they would have equity of pay. $147,083 to use as a deposit on a new home. $134,853 to use as a deposit on a new home. Mortgage payments are considered affordable when they take up If they purchased a home at Whanganui District’s current median If they purchased a home at Whanganui District’s current median no more than 40% of take home pay. price of $280,000 they would need a $132,917 mortgage. price of $280,000 they would need a $145,147 mortgage. On that basis it would be affordable for a young couple earning The repayments on this would be would be $141.07 a week which The repayments on this would be would be $154.05 a week which the median pay rate to buy a lower quartile-priced home in would be 11.6% of their weekly income. would be 9.6% of their weekly income. Whanganui District. Mortgage payments are considered affordable when they take up Mortgage payments are considered affordable when they take up no more than 40% of take home pay. no more than 40% of take home pay. On that basis it would be affordable for the couple in this example On that basis it would be affordable for the couple in this example to move up to next rung of the property ladder and buy a home to move up to next rung of the property ladder and buy a home at Whanganui District’s median price. at Whanganui District’s median price of $280,000. 2 WWW.INTEREST.CO.NZ / [email protected] / P. 09 3609670 WHANGANUI DISTRICT KEY DRIVERS OF HOME LOAN AFFORDABILITY August 2019 HOUSE PRICES INTEREST RATES AND MORTGAGE PAYMENTS The median house price was $280,000 in August, down from The average bank interest rate for two year 2 Year Fixed rate $292,000 last month. The median house price was $225,000 in fixed mortgage rate was 3.699% for August, -74 basis points less than the 4.434% twelve months This Month 3.699% August 2018 which puts annual growth at 24.4%. Five years ago the earlier. median was $152,500. The RBNZ is back cutting its benchmark interest A Month Ago 3.814% Dwelling sales in August were 54, down from July’s 86. They are now rate again. It surprised with a -50 bps cut in A Year Ago 4.434% August and sharp falls in mortgage interest lower than the 88 sales twelve months ago and higher than the 44 Mortgage rates have followed. Although they hope this is sales five years ago. Payment all they have to do for a while, the weakening (Weekly) The lower-quartile house price was $233,000 in August, up from international situation may see more downward First Home Buyers $197.84 $230,000 last month. Annual growth was 25.9%, from the $185,000 pressures. lower-quartile house price in August last year. Our model assumes borrowers switched to a 2 Young Families $141.07 year fixed rate in June 2014, following the shift First Rung Buyers $154.05 reflected in RBNZ data. First Quartile Median House House Price Price Whanganui District August 19 $233,000 $280,000 INCOMES (WEEKLY TAKE HOME PAY) July 19 $230,000 $292,000 August 18 $185,000 $225,000 First Home Buyers Young Families First Rung Buyers First home buyers are aged 25-29. A Young families are ages 30-34. A First rung buyers are ages 35-39. A household is on male and on female household is one make, a female household is one male, one female, August 17 $157,000 $205,000 both earning median incomes. There and a child aged five. One partner and school aged children. Both par- is no child in this household. Take works part-time. Take home pay is ents work full time. Take home pay is First Quartile House Price Growth MedianAugust 14 House$106,000 Price Growth$152,500 home pay is gross pay less income gross pay less income tax. gross income less income tax. tax. National The growth in these are as follows: The growth in these are as follows: The growth in these are as follows: August 19 $415,000 $580,000 Weekly Change Weekly Change Weekly Change July 19 $401,900 $575,000 Aug 19 $1,456.54 2.16% Aug 19 $1,219.22 2.13% Aug 19 $1,597.15 2.18% August 18 $375,000 $225,000 Aug 18 $1,425.72 2.64% Aug 18 $1,193.79 2.05% Aug 18 $1,563.01 2.04% Aug 17 $1,389.11 0.83% Aug 17 $1,169.83 0.33% Aug 17 $1,531.81 0.44% August 17 $350,750 $530,000 Aug 16 $1,377.63 Aug 16 $1,166.00 Aug 16 $1,525.10 August 14 $287,500 $420,000 3 WWW.INTEREST.CO.NZ / [email protected] / P. 09 3609670 National New Zealand Auckland Region Auckland Central North Shore Auckland South Auckland West Wellington Region Wellington City Hutt Valley Porirua Katpiti Coast Wairarapa Northland Whangarei Waikato and Bay of Plenty Hamilton Tauranga Rotorua Hawkes Bay and Gisborne Napier Hastings Gisborne Taranaki, Manawhatu and Whanganui New Plymouth Palmerston North Wanganui Nelson and Marlbourough Nelson Cantebury Christchurch Timaru Otago, Central Otago Lakes and Southland Queenstown Dunedin Invercargill 4 WWW.INTEREST.CO.NZ / [email protected] / P. 09 3609670 Notes This work must be referred to as The interest.co.nz Home rate. The home loan is assumed to be a standard table mort- Disclaimer Loan Affordability series.