Moving Up the Property Ladder Remains Affordable for Established Homeowners Despite High Mortgage Rates

Date Published: 28 March 2024

Key Facts

• Latest data highlights the affordability of moving up the property ladder for existing home owners, despite high mortgage interest rates.
• A working couple that purchased their first home 10 years ago at the lower quartile selling price would likely have accumulated enough equity to put a 50% deposit on a median-priced home today.
• Interest.co.nz expects the mortgage payments for such a home would only consume about a quarter of an average earning couple’s after-tax pay.
• Using real estate statistics from February 2014 and 2024, the initial home bought for $280,000 and sold for $595,000, would yield a net equity of $392,309 considering mortgage repayments and selling costs.
• This would facilitate a 50% deposit on a median-priced home of $790,000 in 2024, leading to a mortgage of $397,691 with weekly payments of about $600.
• Even regional variations do not considerably impact these figures. For instance, in Auckland, the second most expensive housing region in the country, the mortgage payments would increase to a third of take-home pay, still deemed affordable.

Article Summary

Conversations about housing affordability often center on the difficulty faced by first-time home buyers. However, current data suggests that for existing homeowners climbing the property ladder continues to be reasonably affordable, in spite of high mortgage interest rates. This is based on a model of a couple who bought their first home at the lower quartile selling price 10 years ago.

As per this model, the couple would have likely built up sufficient equity in their first home to provide a 50% deposit on a median-priced home today, and the mortgage payments on the remaining balance would take up just over a quarter of their after-tax income. This scenario assumes that they are on an average pay rate. The assumptions are also based on the mortgage being on a 30-year term and at the prevailing fixed rate for two years, with no lump-sum payments.

Even the figures factoring regional variations align with this affordability. For example, in Auckland, homeowners would be able to put down a deposit of 49% on a median-priced home, resulting in mortgage payments amounting to a third of their take-home pay, which is still within affordable limits.

Source Link: To read the full article, click here.