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SEPTEMBER 2018 PORIRUA CITY WWW.INTEREST.CO.NZ / [email protected] / P. 09 3609670 PORIRUA CITY HOME LOAN AFFORDABILITY REPORT September 2018 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 Septem- 33.1% Take Home Septem- 30.9% Take Home Septem- 21.0% Pay ber 18 Pay ber 18 Pay $1,588.95 ber 18 Septem- 28.5% $1,398.29 Septem- 33.5% $1,943.93 per Week per Week per Week Septem- 20.1% ber 17 ber 17 ber 17 Septem- 24.0% Septem- 28.5% Septem- 17.1% ber 16 ber 16 ber 16 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 City. 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 age It is assumed that both are paid at the median rate for people $1,588.95 a week. in Porirua City, and that they receive the Working for Families of their age in Porirua City, and that they no longer receive the It is assumed they would have saved $73,295 to use as a deposit, 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 $1,398.29 That would give them total after tax weekly income of $1,943.93 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 ago To buy a home at Porirua City’s lower quartile price they would ago for $285,000, which was the lower quartile selling price in for $290,000, which was the lower quartile selling price in Porirua need a mortgage of $449,355. Porirua City at the time. City at the time. They would need to set aside $525.68 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 33.1% of their take home Porirua City of $522,650, they would have equity of $295,281 to Porirua City of $522,650, they would have equity of $316,856 to pay. use as a deposit on a new home. use as a deposit on a new home. Mortgage payments are considered affordable when they take up If they purchased a home at Porirua City’s current median price of If they purchased a home at Porirua City’s current median price of no more than 40% of take home pay. $665,000 they would need a $369,719 mortgage. $665,000 they would need a $348,144 mortgage. On that basis it would be affordable for a young couple earning The repayments on this would be would be $432.51 a week which The repayments on this would be would be $407.28 a week which the median pay rate to buy a lower quartile-priced home in would be 30.9% of their weekly income. would be 21.0% of their weekly income. Porirua City. 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 Porirua City’s median price. at Porirua City’s median price of $665,000. 2 WWW.INTEREST.CO.NZ / [email protected] / P. 09 3609670 PORIRUA CITY KEY DRIVERS OF HOME LOAN AFFORDABILITY Septem- 2018 HOUSE PRICES INTEREST RATES AND MORTGAGE PAYMENTS The median house price was $665,000 in September, up from The average bank interest rate for two year fixed 2 Year Fixed rate $650,000 last month. The median house price was $550,000 in mortgage rate was 4.510% for September, -27 basis points less than the 4.778% twelve months This Month 4.510% September 2017 which puts annual growth at 20.9%. Five years ago earlier. the median was $370,000. The RBNZ has had a rate cut program with the A Month Ago 4.612% Dwelling sales in September were 48, down from August’s 65. They first reduction occurring in June 2015 and the A Year Ago 4.778% latest one in November 2016. However, no more are now higher than the 44 sales twelve months ago and lower than Mortgage cuts are expected although turmoil in markets the 57 sales five years ago. Payment recently may change that expectation. Whole- (Weekly) The lower-quartile house price was $522,650 in September, up from sale rates have been rising steadily recently and First Home Buyers $525.68 $486,000 last month. Annual growth was 18.8%, from the $440,000 that is now putting upward pressure on fixed lower-quartile house price in September. mortgage rates. Young Families $432.51 Our model assumes borrowers switched to a 2 First Rung Buyers $407.28 year fixed rate in June 2014, following the shift First Quartile Median House reflected in RBNZ data. House Price Price Porirua City Septem- $522,650 $665,000 ber 18 INCOMES (WEEKLY TAKE HOME PAY) August 18 $486,000 $650,000 First Home Buyers Young Families First Rung Buyers Septem- $440,000 $550,000 First home buyers are aged 25-29. A Young families are ages 30-34. A First rung buyers are ages 35-39. A ber 17 household is on male and on female household is one make, a female household is one male, one female, Septem- $390,000 $500,000 both earning median incomes. There and a child aged five. One partner and school aged children. Both par- ber 16 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 Median House Price Growth home pay is gross pay less income gross pay less income tax. gross income less income tax. Septem- $285,000 $370,000 tax. ber 13 The growth in these are as follows: The growth in these are as follows: The growth in these are as follows: National Weekly Change Weekly Change Weekly Change Septem- $380,000 $556,000 ber 18 Sep- $1,588.95 2.12% Sep- $1,398.29 2.07% Sep- $1,943.93 2.03% tember tember tember August 18 $375,000 $550,000 18 18 18 Sep- $1,555.89 0.86% Sep- $1,369.99 0.91% Sep- $1,905.27 0.84% Septem- $350,000 $550,000 tember tember tember ber 17 17 17 17 Septem- $335,000 $520,000 Sep- $1,542.60 2.58% Sep- $1,357.63 2.65% Sep- $1,889.36 2.40% ber 16 tember tember tember Septem- $275,000 $400,000 16 16 16 ber 13 Sep- $1,503.86 Sep- $1,322.55 Sep- $1,844.99 tember tember tember 15 15 15 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.