New Zealanders spending half their income on mortgage repayments

Despite property prices easing across New Zealand, mortgage holders are still spending nearly half their income on repayments, according to a new report.

CoreLogic’s Housing Affordability Report found that mortgage repayments as a percentage of household income has declined slightly, from a peak of 53 per cent in the fourth quarter of 2022 to 49 per cent last quarter.

However, it remains well above the long-term average of 38 per cent after the record increase in home prices during the Covid years.

CoreLogic NZ Chief Property Economist Kelvin Davidson said the situation still looks pretty testing for new buyers. 

“Even after the recent improvements, almost half of a household’s income being eaten up by interest repayments is relatively unaffordable compared to long-term averages,” Mr Davidson said.

“Although lower mortgage rates seem likely over a one to two year horizon, we’re not expecting any relief via rate cuts in the immediate to short-term.

“Given the uneasy prospect that property values may start rising, albeit gradually, once again as we’re already starting to see in a couple of regions, this will only add to the strain on new home buyers, at least until interest rates start to come back down.”

According to Mr Davidson, each of the main centres has mortgage repayments as a percentage of household income at least eight percentage points higher than their long-term averages.

With mortgage holders in Tauranga the most stretched, spending 65 per cent of their income on their mortgage, while Wellington was the most affordable at 42 per cent.

The report found that properties in New Zealand were valued at 7.2 times the average household income, down from 7.8 six months ago. 

Mr Davidson said the figure has fallen in recent months as property values have dipped and incomes continued to rise along with strong employment.

However, the value-to-income ratio is still well above the long-term average of 6.1. 

“The latest figure of 7.2 is significantly lower than Q1 2022’s peak of 8.8 and is the lowest since 7.1 in Q4 2020,” he said.

“In other words, a lot of the strain that emerged post-Covid has been easing but remains elevated by longer-term historical levels.” 

He said Tauranga is the least affordable main centre, with a value-to-income ratio of 9.5 in the second quarter of 2023, followed by Auckland, Dunedin, Hamilton, Christchurch and Wellington. 

Source: CoreLogic NZ

“After a period of very stretched affordability, the sharp falls in Wellington City house prices lately have seen this part of the country get markedly better in terms of purchasing power and it retains the title of most affordable from Christchurch for the second consecutive report,” Mr Davidson said.

The state of the market for new buyers also remains challenging, despite the years to save a deposit metric falling to 9.6, it’s still above the long-term average of 8.1.

Of the main centres, it takes the longest amount of time to save for a deposit in Tauranga, at 12.6 years, which is well above its long-term average of 10.8 years, and the national figure of 9.6 years. 

Meanwhile, rental market affordability has remained relatively unchanged despite rents moving higher.

Mr Davidson said rising incomes have helped tenants in terms of rental affordability, but generally speaking, that has been offset by growth in rents themselves. 

“Indeed, at the national level, rents currently absorb 22 per cent of average household income, a touch above the average, but at least not much different from where it’s been for the past few years,” he said. 

“The market that stands out is probably Christchurch, which has long been regarded as NZ’s most favourable main centre for housing affordability, both in terms of buying and renting, but this no longer applies to the same extent. 

“It’s now relatively more expensive to rent in Christchurch than Wellington, Auckland, and Hamilton.”

Mr Davidson said housing affordability started from such a stretched position that even after the recent improvements, it remains significantly worse than normal. 

He said high immigration and supply constraints are seeing property prices start to recover, however, the lack of affordability will likely mean that growth will also be capped.

“We suspect this still-stretched starting point for housing affordability will play a role in capping the rate of price growth over the medium term, as would potential limits on debt to income ratios for mortgage lending that might be imposed by the Reserve Bank early next year,” he said.

“But any growth in house prices, even if modest, will put upwards pressure on many of these measures which will see housing affordability remain a critical issue for NZ in the coming years – even if incomes continue to rise and mortgage rates slowly fall in the longer term.”

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.