Mortgage payments are now accounting for about half of household income for many Kiwis according to a recent CoreLogic Housing Affordability Report. Data shows that mortgage holders were allocating 53 per cent of their income to making mortgage payments in the last quarter of 2022.
This has now slightly dropped but is still well above the 38 per cent long-term average. In all main centres that were assessed, it was found that the percentage of household income going towards mortgage repayment was at least eight percentage points higher than the local long-term averages.
The average value of houses was also found to have dropped to 7.2 times the average household income as of the end of June. This is down from 7.8 at the beginning of the year and a record peak of 8.8 in 2022. The current ratio is however still well above the long-term average of 6.1.
Mortgage holders are likely to continue with this struggle in the short term as rate cuts are not expected any time soon. Mortgage rates are expected to drop over the next one to two years. Even as the Reserve Bank (RBNZ) opted to hold the official cash rate steady at 5.5 per cent in May, higher mortgage rates are flowing into the market.
New home buyers are in for tough times as the years to save a deposit is at 9.6, which is also well above the long-term average of 8.1. Also, while housing prices have declined, some centres are starting to pick up again. CoreLogic’s NZ chief property economist, Kelvin Davidson, said that though housing affordability had improved marginally, the dream of home ownership was still out of reach for many.
Any gains made with the marginal decline are also expected to be erased with some centres indicating that house prices may soon be on the rise again. With housing affordability likely to remain worse than normal for a prolonged period, further strain could be placed on the recovery of house prices.
With net interest margins becoming tighter in the highly competitive market, many banks are growing anxious due to the low demand for credit. The country’s major banks – the majority of whom are owned by Australian banks – are struggling to maintain and grow their loan books. Part of the problem has been attributed to the Macquarie Bank which has eaten into the market share by using their quick loan turnaround times as a selling point. This pushed other lenders into lowering their mortgage rates to prevent the loss of borrowers.
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