Home buyers have it easier than in the 1980s

First-time home buyers are being stretched to pay off their mortgages, but not as much as they were in the mid-1980s, according to a report by Infometrics.

House prices have risen 61 per cent in the past three years.

"Though housing is apparently outrageously unaffordable, the 1980s were tougher for buyers," Infometrics economist Gareth Keirnan said.

"Mortgage holders are stretched, but not to breaking point."

The present 8 per cent fixed mortgage rates were "nothing compared to the 20 per cent charged in the mid-1980s," he said.

The Reserve Bank is expected to increase official interest rates again this morning, to 7.25 per cent, pushing up other lending rates. There is also the chance of another rate rise in January.

Big banks are charging 9.25 per cent interest on floating mortgages and about 8.3 per cent on two year fixed rates. They have inched up from about 7.6 per cent two months ago.

The Infometrics report said that in 1987, the average first-home buyer was paying half their income on mortgage interest repayments. Now the ratio was 36 per cent, reflecting the availability of low fixed rate mortgages. That ratio was about one tenth higher than the average for the past 30 years.

The average person would need to spend every cent of income for eight years to buy an average home, compared with just more than three years in 1981.

But buying a home was now more affordable because there were more two-income households, with many more women in the workforce than in the 1980s, Mr Keirnan said.

That meant household incomes had risen faster than single incomes, by 7.5 per cent a year on average, compared with 6 per cent for an individual.

People were also willing to pay high prices for property because unemployment was low and there was good job security. Mortgage rates would need to rise to 11.6 per cent to leave first-home buyers as badly off as they were in the 1980s.

But for that to happen, wholesale bond rates would have to rise to double figures for the first time in 14 years. Floating mortgage rates would need to rise 2 percentage points, with all fixed rates rising by as much as 3.5 per cent percentage points.

Potential capital gains from buying property were fuelling the housing boom, Mr Keirnan said. But the boom was vulnerable to rising interest rates, a slower rate of new household formation, and a high number of new homes being built.

- nzpa