Housing the most unaffordable for 1st home buyers in the history of interest.co.nz’s Home Loan Affordability Report

Housing affordability for first home buyers continues to worsen in spite of house prices tumbling last year.

According to the Home Loan Affordability Report, housing is now the most unaffordable it has been for first home buyers since interest.co.nz began compiling the report in January 2004.

That’s because the impact of falling house prices last year was more than offset by rising mortgage interest rates, pushing the dream of home ownership further out of reach for aspiring first home buyers.

The Home Loan Affordability Reports tracks three main drivers of affordability for first home buyers:

  • The Real Estate Institute of New Zealand’s (REINZ’s) lower quartile selling price in each region/district.
  • Mortgage interest rates as measured by the average of the two-year fixed rates offered by the major banks.
  • The combined median after-tax pay for couples aged 25-29.

That allows us to track what the mortgage payments would be on a home purchased at the lower quartile price in each district, (assuming a 30 year term for the mortgage), with either a 10% or 20% deposit, and how much of a typical first home buying couple’s after-tax pay the mortgage payments would eat up each week.

Mortgage payments are considered in unaffordable territory when they hit 40% of after-tax pay.

Over the 12 months from December 2021 to December 2022 the REINZ’s national lower quartile selling price declined by $66,000 (-10.1%), from $655,000 to $589,000.

But over the same period the average two-year fixed mortgage interest rate increased from 4.21% to 6.58%.

Thrown into that mix was a slight (2.1%) increase in after-tax income for typical first home buyers, which would have given them an extra $37 a week.

So what did all of those movements do to home loan affordability last year?

The mortgage payments on a home purchased at the national lower quartile price in December 2021 with a 20% deposit would have been around $592 a week, which would have taken up 32.8% of a typical first home buying couple’s take home pay.

Twelve months later in December last year, the same calculation would have pushed mortgage payments up by $100 to $692 a week, equivalent to 37.6% of typical first home buyers’ take home pay.

That means there was a significant deterioration in home loan affordability for typical first home buyers last year, despite falling prices.

However, there are a few important points to note about those figures.

Firstly, although they show a deterioration in affordability, the mortgage affordability figure of 37.6% of take home pay is still below the 40% threshold at which mortgage payments start to be considered unaffordable.

But the numbers are steadily creeping closer to that unaffordability threshold.

Secondly, the numbers above are the national figures.


In Northland, Auckland and Bay of Plenty, lower quartile house prices remain so high that mortgage payments have already been pushed into unaffordable territory.

The above figures are also based on the first home buyer having a 20% deposit.

That would mean scraping together $117,800 for a 20% deposit on a home purchased at the December 2022 national lower quartile price of $589,000.

If you run the same figures assuming a more achievable 10% deposit, mortgage payments become unaffordable for typical first home buyers nationally and in all regions except Manawatu/Whanganui and Southland.

In Northland, Auckland and Bay of Plenty home ownership is likely completely out of reach for first home buyers unless they are earning substantially more than median rates of pay, and Waikato and Wellington aren’t far behind.

However, there are a couple of bright spots among the figures for first home buyers.

The drop in house prices has reduced both the amount needed for a deposit and the amount buyers need to borrow to buy a home.

The $66,000 decline in the national lower quartile price last year reduced the amount needed for a 20% deposit by $13,200, while the amount needed to be borrowed for an 80% mortgage declined by $52,800, from $524,000 in December 2021 to $471,200 in December last year .

But apart from those two positives, aspiring first home buyers had little to cheer about last year.

The tables below give the main home loan affordability measures for first home buyers with either a 10% or 20% deposit, in all main urban areas.

Leave a Comment