Waikato/Bop / [email protected] / P

OCTOBER 2016

WAIKATO/BOP WWW.INTEREST.CO.NZ / [email protected] / P. 09 3609670 WAIKATO/BOP HOME LOAN AFFORDABILITY REPORT October 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 October 16 21.6% Take Home October 16 28.1% Take Home October 16 19.6% Pay Pay Pay $1,484.27 October 15 19.7% $1,274.37 October 15 27.3% $1,665.08 October 15 17.2% per Week October 14 19.6% per Week October 14 31.4% per Week October 14 17.9% October 11 20.6% October 11 30.9%

This report estimates how affordable it would be for a couple where This report estimates how affordable it would be for a couple with a This report estimates how affordable it would be for a couple who both are aged 25–29 and are working full time, to buy a home at the young family to move up the property ladder and buy their next home are both aged 35-39 and working full time, to move up the property lower quartile price in Waikato/BOP. at the current median price. ladder and buy their next home at the current median price. It assumes they earn the median rate of pay for people of their age It is assumed that one partner works full time and one works half It is assumed that both are paid at the median rate for people of their in their region, which would give them a take home pay of $1,484.27 time and both are paid at the median rate for people of their age age in Waikato/BOP, and that they no longer receive the Working for a week. in Waikato/BOP, and that they receive the Working for Families Families allowance. It is assumed they would have saved $67,562 to use as a deposit, by allowance. That would give them total after tax weekly income of $1,665.08 a putting aside 20% of their net pay each week for up to four years, That would give them total after tax weekly income of $1,274.37 a week. earning interest on the savings at the 90 day bank deposit rate, or week. It is also assumed they purchased their current home 10 years ago 20% of the house price, whichever is lower. It is also assumed they purchased their current home five years ago for $232,300, which was the lower quartile selling price in Waikato/ To buy a home at Waikato/BOP’s lower quartile price they would need for $239,800, which was the lower quartile selling price in Waikato/ BOP at the time. a mortgage of $274,338. BOP at the time. If they sold that home for the current lower quartile price in Waikato/ They would need to set aside $320.29 a week to cover the mortgage If they sold that home for the current lower quartile price in Waikato/ BOP of $341,900, they would have equity of $180,611 to use as a payments, which would be 21.6% of their take home pay. BOP of $341,900, they would have equity of $154,016 to use as a deposit on a new home. Mortgage payments are considered affordable when they take up no deposit on a new home. If they purchased a home at Waikato/BOP’s current median price of more than 40% of take home pay. If they purchased a home at Waikato/BOP’s current median price of $460,750 they would need a $280,139 mortgage. On that basis it would be affordable for a young couple earning the $460,750 they would need a $306,734 mortgage. The repayments on this would be would be $327.06 a week which median pay rate to buy a lower quartile-priced home in Waikato/BOP. The repayments on this would be would be $358.11 a week which would be 19.6% of their weekly income. would be 28.1% of their weekly income. Mortgage payments are considered affordable when they take up no Mortgage payments are considered affordable when they take up no more than 40% of take home pay. more than 40% of take home pay. Weekly Deposit LQ House Int. rate Weekly Index Weekly Deposit Meedian Int. rate Weekly Index Weekly Deposit Median Int. rate Weekly Index Income saved Price % pymt % Income saved House Price % pymt % Income saved House Price % pymt % $ $ $ $ $ $ $ $ $ $ $ $ Oct 16 1,484.27 67,562 341,900 4.49 320.29 21.6 Oct 16 1,274.37 154,016 460,750 4.49 358.11 28.1 Oct 16 1,665.08 180,611 460,750 4.49 327.06 19.6 Oct 15 1,445.51 58,700 293,500 4.84 285.33 19.7 Oct 15 1,241.45 101,221 380,000 4.84 338.78 27.3 Oct 15 1,621.06 150,425 380,000 4.84 278.98 17.2 Oct 14 1,416.77 50,360 251,800 5.95 277.03 19.6 Oct 14 1,223.63 62,521 341,750 5.95 384 31.4 Oct 14 1,596.89 134,418 341,750 5.95 285.13 17.9

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

HOUSE PRICES INTEREST RATES AND MORTGAGE PAYMENTS

The median dwelling price was $460,750 in October 2016, down from The average bank interest rate for two Average 2 Year $458,500 in September. In October 2015 it was $380,000, which puts annual year fixed rate mortgages was 4.493% for Fixed rate growth at 21.3%. Five years ago the median was $315,475. October, -35 basis points less than the 4.838% 12 months earlier. This Month 4.493% They were 1,138 homes sold in October, up from 1,254 in September. That The RBNZ has recently had a rate cut pro- A Month Ago 4.421% compares with 1,525 sales in October last year and 652 sales five years ago. gram with the first reduction occurring in A Year Ago 4.838% June 2015 and the latest one in November The lower-quartile house price was $341,900 in October 2016, down from 2016. The reserve bank recently signaled Mortgage $341,700 in July. Annual growth was 16.5%, from the $293,500 lower-quartile that further rate cuts are now unlikely. Payment (Weekly) house price in August 2015. Wholesale rates have been rising recently and that will put upword pressure on fixed First Home Buyers $320.29 Lower Quartile Median House mortgage rates. Second Rung- Young $358.11 House Price Price Our model assumes borrowers switched to families a 2 year fixed rate in June 2014, following Second Rung- Older $327.06 Waikato/BOP the shift reflected in RBNZ data. buyer

October 16 $341,900 $460,750 September 16 $341,700 $458,500 INCOMES (WEEKLY TAKE HOME PAY) October 15 $293,500 $380,000 October 14 $251,800 $341,750 First Home Buyers Young Families Older Families First home buyers are aged Second Rung- Young Second rung- Older family October 11 $239,800 $315,475 25-29. A household is a male families are aged 30-34. buyers are aged 35-39. A and a female both earning A household is a male, a household is a male, a female, All NZ First Quartile House Price Growth Median House Price Growth median incomes. There is no female and a child aged five. and school aged children. child in this household. Take One partner works part- Both parents work full time. October 16 $334,500 $510,000 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. September 16 $335,000 $515,000

The change in take home pay is as The change in take home pay is The change in take home pay is as October 15 $305,000 $460,000 follows: as follows: follows:

October 11 $250,000 $359,000 Weekly Change Weekly Change Weekly Change

Oct 16 $1,484.27 2.68% Oct 16 $1,274.37 2.65% Oct 16 $1,665.08 2.72%

Oct 15 $1,445.51 2.03% Oct 15 $1,241.45 1.46% Oct 15 $1,621.06 1.51%

Oct 14 $1,416.77 2.58% Oct 14 $1,223.63 1.26% Oct 14 $1,596.89 1.73%

Oct 13 $1,381.19 Oct 13 $1,208.35 Oct 13 $1,569.76

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

National New Zealand

Auckland Region Auckland Central North Shore Auckland South Auckland West Papakura Rodney Pukekohe 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 Whanganui

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 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.