First Home Buyers: Is Improving Home Affordability A Sign to Buy?

COVID-19’s impact has been immense, and is continuing to be felt across the globe. Here in NZ, it’s changed the landscape of our housing market and altered home affordability. Not only has it helped subdue house price inflation, it’s led to record low mortgage rates. When paired with modest income growth, it’s made starter homes the most affordable they’ve been in years.

Already first home buyers (FHBs) are responding. They took a record high share of the mortgage money advanced this June, according to the latest Reserve Bank figures. 

Last month, FHBs accounted for $1.09bn (20.3%) of all mortgage lending. It’s the highest percentage recorded for FHBs since the Reserve Bank started collating the information, back in 2013. They even out-borrowed investors, which is only the second time that’s happened in the past six years.

House prices compared to incomes have improved

Figures from Massey University’s latest Home Affordability report, show that over the last three months home affordability has improved significantly. While national median house prices have dropped 3.1%, incomes have increased slightly, by 1.1%. 

As a result, overall home affordability this quarter improved nationally by 9.5%. It’s a figure reflected in the yearly figures, which show a 9% improvement in affordability. 

Around the country housing affordability improved in 15 of the 16 regions examined by Massey, with some of the most significant changes seen in:

Median house prices have shown a slight decrease

At a national level, median house prices saw a moderate decrease overall (3.1% or $20,000) for the quarter. Most regions (nine out of 16) showed this decrease. Again, the greatest reduction was measured in Otago (-8.3% or $45,900).

The greatest increase was in Southland (7.8% or $25,000) followed by Hawke’s Bay (5.6% or $29,041) and Tasman (5.5% or $36,500). 

In Auckland, the most expensive region in the country, the lower quartile price for a home was $726,000. Falling interest rates saw the mortgage payments on these homes drop from around $581 per week in February, to $547 in June.

Keep in mind, though, the most significant hurdle most FHBs face is not necessarily mortgage repayments, but saving for a deposit. Nationally, a 20% deposit for a home at the national lower quartile is around $90,000. In Auckland it’s closer to $145,000.

What kind of assistance is available to First Home Buyers?

Some assistance available to FHBs includes schemes such as the First Home Loan (previously the Welcome Home loan). You might be able to get a home loan if you only have a 5% deposit. How much you can borrow depends on where you live in NZ and what you can afford.

You can also apply to withdraw your KiwiSaver savings to put towards buying your first home. However, this only applies if you’ve been in KiwiSaver for at least three years.

It’s also possible for FHBs to enter “shared ownership” deals with housing trusts such as the New Zealand Housing Foundation. The homeowner buys a portion of the home – such as 60% or 80% – with the housing trust owning the rest. Over time, the homeowner buys more of the property until they own it outright. 

Housing New Zealand tenants can also look into buying their homes from the government, and some Maori may qualify for assistance from their Iwi, or qualify for Kainga Whenua loans on Maori land.

Don’t forget, knowledge is power when it comes to making a massive financial commitment such as entering a home loan agreement. Shop around, compare home loan interest rates for FHBs, and make sure you get the best fit for you.

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