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JANUARY 2020 PAPAKURA DISTRICT WWW.INTEREST.CO.NZ / [email protected] / P. 09 3609670 PAPAKURA DISTRICT HOME LOAN AFFORDABILITY REPORT January 2020 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 Take Home Take Home January 31.6% January 31.5% January 15.2% Pay Pay Pay 20 20 20 $1,705.18 $1,478.75 $2,037.73 per Week January 33.3% per Week January 27.6% per Week January 15.3% 19 19 19 January 37.5% January 26.4% January 17.5% 18 18 18 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 Papakura 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 $1,705.18 a week. age in Papakura District, and that they receive the Working for their age in Papakura District, and that they no longer receive the It is assumed they would have saved $77,874 to use as a deposit, Families allowance. 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 $1,478.75 That would give them total after tax weekly income of $2,037.73 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 Papakura District’s lower quartile price they ago for $411,000, which was the lower quartile selling price in ago for $252,500, which was the lower quartile selling price in would need a mortgage of $517,126. Papakura District at the time. Papakura District at the time. They would need to set aside $538.35 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 31.6% of their take home Papakura District of $595,000, they would have equity of $261,481 Papakura District of $595,000, they would have equity of $411,868 pay. to use as a deposit on a new home. to use as a deposit on a new home. Mortgage payments are considered affordable when they take up If they purchased a home at Papakura District’s current median If they purchased a home at Papakura District’s current median no more than 40% of take home pay. price of $709,000 they would need a $447,519 mortgage. price of $709,000 they would need a $297,132 mortgage. On that basis it would be affordable for a young couple earning The repayments on this would be would be $465.89 a week The repayments on this would be would be $309.33 a week the median pay rate to buy a lower quartile-priced home in which would be 31.5% of their weekly income. which would be 15.2% of their weekly income. Papakura 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 Papakura District’s median price. at Papakura District’s median price of $709,000. 2 WWW.INTEREST.CO.NZ / [email protected] / P. 09 3609670 PAPAKURA DISTRICT KEY DRIVERS OF HOME LOAN AFFORDABILITY January 2020 HOUSE PRICES INTEREST RATES AND MORTGAGE PAYMENTS The median house price was $709,000 in January, up from $679,000 The average bank interest rate for two year 2 Year Fixed rate last month. The median house price was $650,000 in January 2019 fixed mortgage rate was 3.542% for January, -71 basis points less than the 4.248% twelve months This Month 3.542% which puts annual growth at 9.1%. Five years ago the median was earlier. $479,000. The RBNZ is back cutting its benchmark interest A Month Ago 3.542% Dwelling sales in January were 80, down from December’s 109. They rate again. It surprised with a -50 bps cut in A Year Ago 4.248% August and sharp falls in mortgage interest are now lower than the 69 sales twelve months ago and higher than Mortgage rates have followed. Although they hope this is the 59 sales five years ago. Payment all they have to do for a while, the weakening (Weekly) The lower-quartile house price was $595,000 in January, down from international situation may see more downward First Home Buyers $538.35 $620,000 last month. Annual growth was 4.9%, from the $567,000 pressures. lower-quartile house price in January last year. Our model assumes borrowers switched to a 2 Young Families $465.89 year fixed rate in June 2014, following the shift First Rung Buyers $309.33 reflected in RBNZ data. First Quartile Median House House Price Price Papakura District January 20 $595,000 $709,000 INCOMES (WEEKLY TAKE HOME PAY) December $620,000 $679,000 19 First Home Buyers Young Families First Rung Buyers January 19 $567,000 $650,000 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, January 18 $590,000 $679,000 both earning median incomes. There and a child aged five. One partner and school aged children. Both par- First Quartile House Price Growth Median House Price Growth is no child in this household. Take works part-time. Take home pay is ents work full time. Take home pay is January 15 $411,000 $479,000 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: January 20 $445,000 $615,000 Weekly Change Weekly Change Weekly Change December $449,000 $629,000 Jan 20 $1,705.18 2.03% Jan 20 $1,478.75 2.08% Jan 20 $2,037.73 2.05% 19 Jan 19 $1,671.21 2.79% Jan 19 $1,448.55 2.36% Jan 19 $1,996.85 1.73% January 19 $385,000 $550,000 Jan 18 $1,625.88 2.04% Jan 18 $1,415.17 1.80% Jan 18 $1,962.97 1.54% January 18 $350,000 $520,000 Jan 17 $1,593.39 Jan 17 $1,390.21 Jan 17 $1,933.13 January 15 $287,500 $425,000 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.