Housing More Affordable as Lending increases – A Sign of Things to Come?

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Housing More Affordable as Lending increases – A Sign of Things to Come?

Summer is just around the corner and after a winter that seemed to consist of a constantly flatlining market, it seems like there may be signs of life according to new reports. These reports have indicated that housing in Auckland is becoming increasingly more affordable and as a result, mortgage lending is on a rise, but does this mean we can start getting hopeful for a resurgence in summer?

Interest.co.nz’s Home Loan Affordability Report has indicated that first-time buyers are benefiting the most from recent interest rate cuts in Auckland. The data shows that mortgage payments have been under the 40% affordability threshold for typical first home buyers in Auckland since March. The most recent mortgage rate cuts saw affordability plunge to 35.77% in September, which was the lowest it has been since September 2014.

It’s the mix of falling mortgage rates and the modest rise in wages and take-home pay for first-time buyers in the city that has helped make this possible. Take-home pay for typical first home buyers in Auckland (based on the median pay rates for couples aged 25-29) increasing by 10.3% over the same period of time that interest rates have decreased, and house prices have plateaued.

The improvement in affordability occurred in all districts within the Auckland region and means that six of the region’s seven districts are now considered affordable for first home buyers. So, looking at this data first, can we get excited about the future of the market? The simple answer comes down to the variables that have contributed to this: if employment and average take-home pay continues to be healthy, more people are likely to buy, other continuing factors such as low mortgage rates are also import – something that could change either way in the near future with the Reserve Bank announcements lingering.

So will the Reserve Bank make further cuts, or are they confident in the current levels?

The Reserve Bank announced that, according to their statistics, mortgage lending soared for the month of September. Total lending jumped to $5.5 billion in September, up from $4.7 billion in September last year and $4.5 billion in September 2017, according to newly released figures.

What is interesting from the statistics is which groups are on the rise, many will be happy to see that First home buyers represented $967 million of total lending, – up from $821 million in the same month last year. But it was ‘other owner-occupiers’ that continued to dominate with $3.4 billion of the market, up from $2.8 billion in September 2018. CoreLogic analyst Kelvin Davidson has credited the easing of interest rates as the core factor for the increase in lending, “the figures suggest that the easing of the interest rates used for banks’ internal serviceability tests in late August has had an immediate and significant impact.” Davidson also predicted that the data could have a positive impact on the chances of LVR limits being further loosened in November, “The strength in lending activity in September also starts to put a bigger question mark over the chances that the loan-to-value speed limits get loosened in November.”

One group that experts are keeping an eye on, and that the Reserve Bank will be attempting to win over in the near future, is Investors. According to the data released, Investor lending stayed largely flat at $1.07 billion, up from $1.01 billion in September last year, although this is only a small number, it does indicate a slight uptick which could soar if the Reserve Bank announces further cuts in November. Reserve bank’s data is indicating that Investors are watching closely, and responding to the changes, with their percentage of borrowing increasing slightly over the past three months: 18.7% of the total in July, 19% in August, and now 19.5% in September.

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Daniel Vernon