New Zealand first home buyers smashed

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Interest.co.nz has updated its first home buyer housing affordability survey, which reveals that affordability for first home buyers is the worst it has been in records dating back to 2004.

Mortgage payments are considered unaffordable when they eat up more than 40% of take-home pay.

According to the survey, “the national, combined, median after-tax pay for couples aged 25-29 was $1,835 a week in October, which meant the mortgage payments would have been eating up 46% of their take home pay, putting it well into unaffordable territory”:

Home loan affordability
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Mortgage repayments for first home buyers first rose above 40% of income last year when house prices peaked in November 2021, and since then they have climbed even higher, meaning affordability is getting worse.

Basically, the sharp lift in mortgage rates has more than offset the circa 12% decline in home values over the past year.

As shown above, the largest and most expensive market of Auckland has by far the worst affordability for first home buyers, with average mortgage repayments chewing up 64% of take-home pay. But affordability is stretched across most regions.

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The Reserve Bank of New Zealand (RBNZ) is widely tipped to lift the official cash rate (OCR) by 0.75% to 4.25% at tomorrow’s monetary meeting, which would represent the largest increase in official interest rates in the developed world:

Central Bank monetary tightening

Westpac also tips the RBNZ to lift the OCR “to 5% and to hold it there for the next couple of years”.

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If the RBNZ follows through, then mortgage rates will obviously rise further, increasing mortgage repayments and worsening first home buyer housing affordability.

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.