Home payments become affordable
Paying off the mortgage in Palmerston North has become affordable for the first time in three months, according to a recent survey.
The Roost home loan affordability survey found it would take 39.7 per cent of one average income to pay the mortgage on an average-priced house in Palmerston North purchased in June.
That was well down from May's 44 per cent, and the first time it has dipped below 40 per cent since March.
It took 40 per cent of an income a year ago, and 45.8 per cent five years ago.
Any percentage above 40 is considered to be unaffordable.
The biggest driver in affordability movement was house prices.
The median price in Palmerston North in June was $270,500 - 9.5 per cent lower than May's price and 2.1 per cent lower than the price a year ago. Weekly income was also up slightly.
Palmerston North mortgages would have been even more affordable if it were not for rising interest rates.
The Reserve Bank increased the official cash rate in June by 0.25 percentage points, leading banks to kick up floating interest rates.
The average interest rate for a floating mortgage was 6.42 per cent, up from 5.76 per cent a year ago.
Interest rates are set to continue rising though, as the Reserve Bank put up the official cash rate (OCR) last week by another 0.25 percentage points to 3.5 per cent.
It was the third rise in a row, with the bank set to raise the rate by about 2 percentage points in two years.
The Roost report said that the rises would have "a substantial and negative impact on affordability".
"Our model now assumes that borrowers switched to a two-year fixed rate in June 2014, following the shift reflected in [Reserve Bank] data.
"Wholesale interest rates often move differently to the OCR and borrowers should check their options to switch to a fixed rate."
Real Estate Institute of New Zealand's Manawatu spokesman Andy Stewart said many homeowners should have switched to fixed rates by now as the OCR hikes had been predicted.
Affordability improved nationally, but it was a silver lining to a grey cloud - it took 62.2 per cent of the average income to service a mortgage.
The only places more affordable than Palmerston North were Whanganui, Rotorua and Invercargill, with affordability improving in all of those, except Whanganui.
It would take 101.8 per cent of a median income to service a mortgage in the most unaffordable place in New Zealand - Queenstown.