I blogged on this topic earlier in the year and found it interesting that although mortgage repayments have become more affordable it is the deposits which people find hard to muster mainly due to the significant increase in house prices over the years. Below is an informative graphic about housing affordability in New Zealand.
Over the last 20 years mortgages have become much more affordable even with the increase in house prices mainly due to lower interest rates. Remember even though house prices were lower 20 years ago the interest payments were much higher. Today we have seen much lower interest rates and higher house prices but it also should be noted that the banks have got much more flexible mortgage plans that allow buyers to spread payments over many years which means lower weekly payments.
*Mortgage affordability is measured by the weekly cost of servicing a two year fixed rate mortgage at a normal house price compared to the change in median income.
Deposit affordability is key
Note that it is the deposit which is much less affordable but the mortgage payments are much more affordable. It is twice as hard to get a deposit on a house on a median income than it was 20 years ago. Therefore those that can muster a deposit find the repayments very affordable. The increase in house prices has become a major problem to those trying to muster a deposit – higher house price = higher deposit. Therefore unless incomes rise with house prices deposit affordability becomes out of reach for many.
Source: WSBG Commerce Teachers’ Professional Development Day 2021
“New Zealand housing market: the importance of interest rates and urban land supply”, Dominick Stephens, Deputy Secretary, Chief Economic Advisor at The Treasury