APRIL 2020 HASTINGS DISTRICT WWW.INTEREST.CO.NZ / [email protected] / P. 09 3609670 HASTINGS DISTRICT HOME LOAN AFFORDABILITY REPORT April 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 April 20 30.3% April 20 22.6% April 20 15.2% Pay Pay Pay $1,577.76 April 19 20.3% $1,301.55 April 19 24.4% $1,719.50 April 19 16.5% per Week per Week per Week April 18 20.6% April 18 24.9% April 18 16.4% 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 Hastings 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 $1,577.76 a week. age in Hastings District, and that they receive the Working for their age in Hastings District, and that they no longer receive the It is assumed they would have saved $71,193 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 $1,301.55 That would give them total after tax weekly income of $1,719.50 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 Hastings District’s lower quartile price they ago for $228,000, which was the lower quartile selling price in ago for $210,600, which was the lower quartile selling price in would need a mortgage of $468,807. Hastings District at the time. Hastings District at the time. They would need to set aside $478.11 a week to cover the If they sold that home for the current lower quartile price If they sold that home for the current lower quartile price mortgage payments, which would be 30.3% of their take home in Hastings District of $540,000, they would have equity of in Hastings District of $540,000, they would have equity of pay. $353,839 to use as a deposit on a new home. $385,726 to use as a deposit on a new home. Mortgage payments are considered affordable when they take up If they purchased a home at Hastings District’s current median If they purchased a home at Hastings District’s current median no more than 40% of take home pay. price of $645,000 they would need a $291,161 mortgage. price of $645,000 they would need a $259,274 mortgage. On that basis it would be affordable for a young couple earning The repayments on this would be would be $294.16 a week which The repayments on this would be would be $261.94 a week which the median pay rate to buy a lower quartile-priced home in would be 22.6% of their weekly income. would be 15.2% of their weekly income. Hastings 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 Hastings District’s median price. at Hastings District’s median price of $645,000. 2 WWW.INTEREST.CO.NZ / [email protected] / P. 09 3609670 HASTINGS DISTRICT KEY DRIVERS OF HOME LOAN AFFORDABILITY April 2020 HOUSE PRICES INTEREST RATES AND MORTGAGE PAYMENTS The median house price was $645,000 in April, up from $546,000 The average bank interest rate for two year 2 Year Fixed rate last month. The median house price was $462,000 in April 2019 fixed mortgage rate was 3.302% for April, -67 basis points less than the 3.974% twelve months This Month 3.302% which puts annual growth at 39.6%. Five years ago the median was earlier. $315,000. Prior to the emergency rate cuts in March by the A Month Ago 3.343% Dwelling sales in April were 17, down from March’s 89. They are now RBNZ, market mortgage rates were stable but A Year Ago 3.974% soft. But as many countries shut down with the lower than the 109 sales twelve months ago and higher than the 90 Mortgage advancing Covid-19 coronavirus, the prospect of sales five years ago. Payment low fixed rates falling further is rising. (Weekly) The lower-quartile house price was $540,000 in April, up from Our model assumes borrowers switched to a 2 First Home Buyers $478.11 $452,000 last month. Annual growth was 54.3%, from the $350,000 year fixed rate in June 2014, following the shift lower-quartile house price in April last year. reflected in RBNZ data. Young Families $294.16 First Rung Buyers $261.94 First Quartile Median House House Price Price Hastings District April 20 $540,000 $645,000 INCOMES (WEEKLY TAKE HOME PAY) March 19 $452,000 $546,000 April 19 $350,000 $462,000 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, April 18 $325,000 $410,000 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 MedianApril 15 House$228,000 Price Growth$315,000 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: April 20 $462,000 $680,000 Weekly Change Weekly Change Weekly Change March 19 $480,000 $665,000 Apr 20 $1,577.76 2.18% Apr 20 $1,301.55 2.15% Apr 20 $1,719.50 2.20% April 19 $400,500 $580,000 Apr 19 $1,544.07 3.60% Apr 19 $1,274.18 3.14% Apr 19 $1,682.47 3.28% April 18 $375,000 $550,000 Apr 18 $1,490.42 3.00% Apr 18 $1,235.33 2.68% Apr 18 $1,628.96 2.62% April 15 $303,000 $452,000 Apr 17 $1,446.97 Apr 17 $1,203.08 Apr 17 $1,587.44 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. There are two related components gage, where both interest and principal is repaid in a fixed IMPORTANT – PLEASE READ – the Standard Home Loan Affordability series, and the First- weekly payment made in arrears.