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Home , Auckland Region, Porirua, Timaru

MAY 2016

PORIRUA WWW.INTEREST.CO.NZ / [email protected] / P. 09 3609670 HOME LOAN AFFORDABILITY REPORT May 2016 Home loan affordability is a measure of the proportion of take-home pay that is needed to make the mortgage payments for a typical household. If that is no more 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 Second Rung - YOUNG FAMILY 30-34 Second Rung - OLDER FAMILY 35-39 First home buyers earn the me- Young family buyers earn medi- Older family buyers earn dian income for their age group, an incomes in their age bracket, median incomes in their age and buy a lower quartile priced and buy a median priced home bracket, and buy a median home in their area. Both parties in their area. One partner works priced home in their area. Both work full-time. half-time. partners work full-time. Mortgage payments as a Mortgage payments as a Mortgage payments as a percentage of take home pay percentage of take home pay percentage of take home pay Take Home May 16 25% Take Home Take Home Pay Pay May 16 28.3% Pay May 16 16% May 15 23.6% $1,534.04 $1,339.70 May 15 35.4% $1,878.45 May 15 19.1% per Week May 14 24% per Week per Week May 14 33.9% May 14 17.4% May 11 26.4% May 11 29.8%

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 Porirua. 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 $1,534.04 a week. age in Porirua, and that they receive the Working for Families their age in Porirua, and that they no longer receive the Working It is assumed they would have saved $69,838 to use as a deposit, allowance. 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 $1,339.70 That would give them total after tax weekly income of $1,878.45 years, earning interest on the savings at the 90 day bank deposit a week. a week. rate, or 20% of the house price, whichever is lower. 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 Porirua’s lower quartile price they would need ago for $315,000, which was the lower quartile selling price in ago for $258,300, which was the lower quartile selling price in a mortgage of $334,162. Porirua at the time. Porirua at the time. They would need to set aside $383.55 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 25% of their take home pay. Porirua of $404,000, they would have equity of $155,402 to use Porirua of $404,000, they would have equity of $223,785 to use Mortgage payments are considered affordable when they take up as a deposit on a new home. as a deposit on a new home. no more than 40% of take home pay. If they purchased a home at Porirua’s current median price of If they purchased a home at Porirua’s current median price of On that basis it would be affordable for a young couple earning $486,250 they would need a $330,848 mortgage. $486,250 they would need a $262,465 mortgage. the median pay rate to buy a lower quartile-priced home in The repayments on this would be would be $379.74 a week which The repayments on this would be would be $301.26 a week which Porirua. would be 28.3% of their weekly income. would be 16% of their weekly income. 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.

2 WWW.INTEREST.CO.NZ / [email protected] / P. 09 3609670 PORIRUA KEY DRIVERS OF HOME LOAN AFFORDABILITY May 2016

HOUSE PRICES INTEREST RATES AND MORTGAGE PAYMENTS

The median dwelling price was $486,250 in May 2016, up from The average bank interest rate for two year Average 2 Year $481,000 in April. In May 2015 it was $438,500, which puts annual fixed rate mortgages was 4.348% for May, Fixed rate -126 basis points less than the 5.607% 12 growth at 10.9%. Five years ago the median was $365,000. months earlier. This Month 4.348% They were 90 homes sold in May, down from 97 in April. That The RBNZ has started a rate cut program A Month Ago 4.452% compares with 85 sales in May last year and 73 sales five years ago. with the first reduction occurring in June The lower-quartile house price was $404,000 in May 2016, up from 2015 and the latest one in December 2015. No more cuts are expected although turmoil in Mortgage $390,000 in April. Annual growth was 21.5%, from the $332,500 markets recently may change that expecta- Payment (Weekly) lower-quartile house price in May 2015. tion. Wholesale rates have been volatile re- cently and that has kept downward pressure First Home Buyers $383.55 on fixed mortgage rates. Second Rung- Young $379.74 Lower Quartile Median House Our model assumes borrowers switched to a families House Price Price 2 year fixed rate in June 2014, following the Second Rung- Older $301.26 shift reflected in RBNZ data. buyer Porirua

May 16 $404,000 $486,250 April 16 $390,000 $481,000 INCOMES (WEEKLY TAKE HOME PAY) May 15 $332,500 $438,500 First Home Buyers Young Families Older Families May 14 $315,000 $405,000 First home buyers are aged Second Rung- Young Second rung- Older family 25-29. A household is a male families are aged 30-34. buyers are aged 35-39. A May 11 $315,000 $365,000 and a female both earning A household is a male, a household is a male, a female, First Quartile House Price Growth Median House Price Growth median incomes. There is no female and a child aged five. and school aged children. All NZ child in this household. Take One partner works part- Both parents work full time. home pay is gross pay less time. Take home pay is gross Take home pay is gross in- income tax. pay less income tax. come less income tax.

May 16 $325,000 $506,000 The change in take home pay is as The change in take home pay is The change in take home pay is as follows: as follows: follows: April 16 $319,000 $490,000

May 15 $305,000 $460,000 Weekly Change Weekly Change Weekly Change

May 11 $248,750 $350,000 May 16 $1,534.04 2.75% May 16 $1,339.70 2.59% May 16 $1,878.45 2.62% May 15 $1,492.95 2.57% May 15 $1,305.83 2.90% May 15 $1,830.55 2.95%

May 14 $1,455.55 4.16% May 14 $1,269.07 4.48% May 14 $1,778.05 6.38%

May 11 $1,397.41 May 11 $1,214.69 May 11 $1,671.40

3 WWW.INTEREST.CO.NZ / [email protected] / P. 09 3609670 SEPERATE HOME LOAN AFFORDABILITY REPORTS ARE AVAILABLE TO EACH OF THE FOLLOWING AREAS

National

Auckland Region Central North Shore Auckland South Auckland West Papakura Rodney Region Wellington City Porirua Katpiti Coast Wairarapa

Northland Whangarei

Waikato and Hamilton

Hawkes Bay and Gisborne Napier Hastings Gisborne

Taranaki, Manawhatu and Whanganui New Plymouth Whanganui

Nelson and Marlbourough Nelson

Cantebury

Otago, Central Lakes and Southland Queenstown 4 WWW.INTEREST.CO.NZ / [email protected] / P. 09 3609670

Notes This work must be referred to as The interest.co.nz Home Mortgage payments: Disclaimer Loan Affordability series. Mortgage repayments are based on the value of the home loan, IMPORTANT – PLEASE READ paid weekly for 30 years, using the average bank interest rate. No reader should rely on the contents of this Report for making From May 2016 it refers solely to households. There are other The home loan is assumed to be a standard table mortgage, a specific investment or purchase decision. The information in important changes. There are now three related components – where both interest and principal is repaid in a fixed weekly this Report is supplied strictly on the basis that only overall The First Home Buyer household series which tracks home loan payment made in arrears. The repayment is calculated us- market trends are being reported on, and that all data, con- affordability for households aged 25 to 29 years, Second Rung ing the tools at http://www.interest.co.nz/calculators/mort- clusions and opinions expressed are provisional and subject to young family buyers, aged 30-34 years, and Second Rung old- gage-calculator revision. If you are making a specific investment or purchase er family buyers, aged 35-39 years. They have all been pro- decision, you are strongly advised to seek independent advice duced by interest.co.nz. Mortgage Rates: from a qualified professional you trust. Average mortgage interest rates are sourced from www.in- Sources / Definitions / Methodology terest.co.nz. These averages are for banks only as banks have The conditions and disclaimers set out at http://www.interest. First home buyer households have two partners working full 90%+ of the mortgage market. Affordability calculations are co.nz/terms-conditions are applicable to this Report as well. time, and use a purchase deposit based on what they saved done for mortgages at the floating rate and one year through over the prior four years to buy a lower quartile priced home. to the five fixed-rate terms. In these Reports, the two-year fixed These Reports is made available on these terms only, and JDJL Second Rung young family buyers have one partner working mortgage interest rate is used. Until August 2010 this series Limited (or www.interest.co.nz) is not responsible for any ac- full time, one half time, and a child under 5 years of age. It is used a 2 year fixed rate loan as the basis for interest rates. In tions taken on the basis of information in these Reports, or for assumed they buy a median priced house, using the equity and September 2010 it was switched to the floating rate, reflecting any error in or omission from these Reports. capital gain from their First Home. (If Working for Families tax actual market shifts by borrowers. In June 2014, it was switched credits apply, they are added to the household income.) back to the 2 year fixed rates, again reflecting market shifts. Contact Second Rung older family buyers have two partners working For more information, contact full time. It is assumed they buy a median priced house using House price data: Greg Ninness the equity and capital gain from their First Home. Median house prices are as reported by the Real Estate Insti- Property Editor, tute of New Zealand. Although the REINZ series is more vola- www.interest.co.nz / JDJL Limited Interpreting the Index: tile than the QV equivalent, there is a highly positive correlation 206 Jervois Road, Herne Bay The home loan affordability index in each segment measures between the two series. The REINZ series is more current and PO Box 47-756, Ponsonby Auckland, New Zealand the proportion of their after-tax income they would need to offers an earlier indication of market trends. Phone: (09) 361-6682 set aside each week for their mortgage payments. An index Mobile: 027 500 5110 measure is generated for each region (some sub regions), and Saving Rates: Fax: (09) 360-9319 nationally. A mortgage is ‘affordable’ when the mortgage pay- These are used to calculate the First Home Buyer deposit. Av- Email: [email protected] ment is no greater than 40% of household weekly take-home erage savings interest rates are sourced from www.interest. pay. The value of the mortgage is based on the criteria below. co.nz. These averages are for banks only, and use the 90 day term deposit rate. Saving calculations take into account the in- Weekly Income: dividuals, marginal tax rates as defined by IRD. From the July 2007 Report onward, the source on which we base our estimates of weekly income is the LEEDS (Linked em- ployer- employee data survey) data from Statistics New Zea- land. Income tax is deducted to give take-home pay. Income tax rates are from the IRD are vary over time and income levels.