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Small declines in mortgage rates, static house prices and rising incomes improving home ownership prospects for first home buyers


By Greg Ninness

Housing affordability for first home buyers is slowly but steadily improving, driven by declining mortgage interest rates, steady prices at the bottom of the market and rising incomes.

Although expectations of cuts to the Reserve Bank's Official Cash Rate (OCR) keep getting pushed out, fixed mortgage rates have actually been slowly declining, driven by lower wholesale funding rates.

That has resulted in the average of the two year fixed rates offered by the major banks, the rate used in's affordability calculations, steadily declining from a peak of 7.04% in November last year to 6.73% in April this year.

Although the decline isn't huge, it has taken the average two year fixed rate back to where it was in July last year.

Over the same period, house prices at the bottom of the market have remained relatively steady.

The Real Estate Institute of New Zealand's national lower quartile selling price was $590,000 in April, and has remained within a few thousand dollars of that since it dropped below $600,000 at the end of 2022.

That's still well below the record high of $670,000 reached in November 2021, with the subsequent declines taking the lower quartile price back to where it was in April 2021. It appears to be settling around the $590,000 mark for the time being, with small monthly movements up or down.

The other factor affecting affordability is one that gets far less attention than house prices or interest rates, but is just as important; incomes. uses the median rates of pay for people aged 25-29 to calculate a representative after-tax pay rate for a couple in the first home buying age group, if both were working full time.

This was increasing by about $10 a month between April and December last year, but has slowed to around $2 to $3 a month so far this year.

The net result is that in April this year, the representative take home pay for a typical first home buying couple was $2056 a week, up $91 a week (4.6%) compared to April last year.

So when you take all of those factors into account, what does it mean for first home buyers?

Firstly, because house prices at the bottom of the market have been largely static for the last 12 months, the amounts needed for a deposit and a mortgage have hardly moved.

To buy a home at the April 2024 national lower quartile price of $590,000 would require $59,000 for a 10% deposit or $118,000 for a 20% deposit, and corresponding mortgages of $531,000 or $472,000.

Those figures are exactly the same as they were in June last year. So while there may have been small movements in those figures from month to month, essentially the goal posts are not moving for first home buyers in terms of how much they would need to save for a deposit and how much they would need to borrow to buy a lower quartile-priced home.

However, although mortgage interest rates have moved down very slightly this year, they remain high, and that means mortgage payments remain high.

The mortgage payments on a home purchased at the national lower quartile price with a 10% deposit would be around $893 a week. For the same home purchased with a 20% deposit it would be $705 a week.

The rise in incomes referred to above would have helped first home buyers make those payments, although in a high inflation environment there would be an increase in other claims on household budgets as well.

But taking the income and mortgage payment figures for April this year, the mortgage payments on a home purchased at the national lower quartile price in April would eat up 43% of median take home pay for typical first home buyers.

For buyers with a 20% deposit the mortgage payments would consume 34% of take home pay.

Both of those affordability measures have been in an almost continuous decline since they peaked at 46% for buyers with a 10% deposit and 36% for buyers with a 20% deposit in November last year.

While any improvement in affordability is good news for first home buyers, we need to remember the above numbers are based on national averages.

The tables below show the main affordability measures for the main urban districts throughout the country. These show the dream of home ownership remains hopelessly out of reach for first home buyers on average incomes in the Auckland region, even if they had a 20% deposit.

For that to change meaningfully, three things would need to happen: There would need to be a substantial drop in house prices, a substantial drop in mortgage interest rates and a substantial rise in incomes.

Don't hold your breath.





This story was originally published on and has been republished here with permission.