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Low interest rates keeping residential properties in New Zealand affordable, it is claimed

The latest Roost Home Loan Affordability report shows that in October there was a slight deterioration compared with September but buyers are encouraged by a more solid outlook for low interest rates.

It now takes 52% of one median income to pay the mortgage of a median priced house, up from 50.8% in September. A typical buyer is assumed to be aged 30 to 34.

But owning a property is still much more affordable than in the past. The index was 55% a year ago and 71.6% five years ago. The affordability index reached its highest point of 83.4% in March 2008.

But even so, the report shows that a median income is not high enough to buy a median priced house, even with a 20% deposit.

The good news is that interest rates are lower than a year ago. The average bank rate for a floating mortgage was 5.73% in October compared with 6.24% a year ago.

It also points out that the growing fear of a financial crisis in Europe and the outlook for slowing growth globally has dampened expectations for interest rate increases.

‘Home buyers are heartened by the more solid outlook for low interest rates,’ said Rhonda Maxwell, spokeswoman for mortgage broking company Roost.

‘Banks remain very competitive and the potential for further falls in fixed and floating mortgage rates is strengthening the appetites of home buyers,’ she added.

Affordability deteriorated nationally, with higher prices in North Shore, West Auckland, South Auckland, Wellington and Christchurch affecting affordability, although it remains near its best levels in seven years overall. Affordability improved in Central Auckland because of a slight fall in the median price.

Affordability has generally been improving since December 2009 as house prices have flattened out and interest rates have fallen. More than 50% of home owners are now on floating mortgages and most new borrowers are choosing to float.

Affordability is difficult in Auckland, Wellington, Christchurch, Hamilton and Tauranga for those on a single median income, but home buyers in smaller provincial cities will find home ownership much more affordable, the report also points out. Households with two incomes are also in a stronger position.