KEY POINTS:
Potential home buyers are rushing to ask about taking out mortgages, as a new report shows houses are more affordable than they have been in years.
A Wizard Home Loans Affordability report yesterday showed a sharp reduction in mortgage rates drove housing to its best level of affordability in 3 years in November.
Since then, a 1.5 percentage point drop in the official cash rate on December 4 has driven rates down further.
Mike Pero Mortgages chief executive Shaun Riley said someone with a new $200,000 mortgage would now pay about $100 a week less in interest than they would have at the height of the housing boom.
That was bringing between 50 and 100 per cent more people to his door asking about mortgages compared with a month ago, he said.
Those locked into existing mortgage rates would not yet benefit from the savings. But first-home buyers were in the best position they had been in years, he said.
The proportion of an after-tax median income needed to service the mortgage on a median priced home dropped to 63.9 per cent in November, from 67.9 per cent in October.
The 4 per cent reduction was the biggest monthly improvement on record in the affordability report.
The record worst level of 83.2 per cent was in November last year, when house prices hit their peak. The best level - 45 per cent - was in 2002 before the house price boom.
"This will be the best Christmas in home affordability terms in four years," said Wizard Home Loans director John Grant. "Tax cuts, lower house prices and interest rates are all working together to make housing more affordable going into 2009."
Mr Grant said further interest rate reductions and more tax cuts in April next year would make it much easier for first home buyers to enter the market. He said it had been a tough year for the economy. "But there has been a big silver lining in the form of much better housing affordability."
The report showed an improvement in the proportion of income required for a first-home buyer - defined as someone aged 25-29 who has saved 20 per cent of their after-tax income in the previous five years and who is buying a cheaper house (first quartile price). The first home buyer's affordability ratio improved to 54.5 per cent in November from 58.4 per cent in October to hit its best level since August 2005.
The biggest improvement in home loan affordability was in Southland, where the ratio improved dramatically to 34.2 per cent from 44.1 per cent in October, largely because of a 17 per cent slump in the median house price there to $165,000.
There were also big improvements in Taranaki, Wellington, Waikato and Queenstown because house prices fell sharply.
The only region where affordability worsened was Hawkes Bay and Gisborne, where house prices rose.
Southland remains the most affordable region, while Central Otago Lakes (Queenstown, Wanaka) was the least affordable at 96.9 per cent, although it dropped below 100 per cent for the first time in 2 years.
- ADDITIONAL REPORTING: NZPA
