Home loan affordability improved slightly for first-time homebuyers in May despite higher interest rates


It got a little easier for aspiring first-time home buyers to afford their own homes in May as the benefits of falling house prices at market lows slightly outweighed the effects of the rise in interest rates.

According to Interest.co.nz’s Home Loan Affordability Report for May, the Real Estate Institute of New Zealand’s lowest quartile national selling price fell to $628,000 in May from $640. $000 in April.

This slightly reduced the amount needed for a 20% deposit on a home priced in the lower quartile, to $125,600 from $128,000.

It also reduced the amount that would have to be borrowed for an 80% mortgage by almost $10,000, from $512,000 to $502,400.

Unfortunately, most of the savings on mortgage payments that would have been realized with a smaller mortgage were eaten up by higher interest rates.

The average two-year fixed mortgage rate charged by the major banks fell from 4.96% in April to 5.10% in May (assuming a minimum deposit of 20%).

The net effect of this was that mortgage payments on a lower-quartile-priced home purchased with a 20% deposit declined to $629 in May from $631 in April.

In concrete terms, the drop in house prices in May made it a little easier for first-time home buyers to build up a down payment, while the effects of the drop in house prices on their mortgage payments were almost fully offset by rising interest rates.

First-time home buyers are therefore slightly ahead, but not by much.

Over the past six months, the effects of changing market conditions on first-time homebuyers have been more mixed.

The national REINZ bottom quartile home price peaked at $670,000 in November last year and has since declined from $42,000 to $628,000 in May.

This reduced the amount needed for a 20% deposit to $8,400, although raising $125,600 for a 20% deposit will likely be out of reach for many.

The amount needed for an 80% mortgage decreased by $33,600 between November and May, from $536,000 to $502,400.

During the same period, the average fixed two-year mortgage rate rose from 4.08% to 5.10%, pushing mortgage payments up from $596 per week to $629.

So the pattern for first-time home buyers is that home prices at the bottom of the market are falling, reducing how much they need for a deposit and how much they need to borrow. , while rising interest rates increase their likely mortgage payments.

With interest rates continuing to rise at a healthy pace, the trend noted above is likely to continue in the short to medium term unless property prices start to decline at a much faster rate than expected. they currently don’t.

The tables below show the main affordability measures for typical first-time home buyers in all major New Zealand urban districts, with a 10% or 20% down payment.

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