[Singel]

We have been doing a reality check on the mortgage rate versus our income.
The rule of the thumb is that mortgage should not be more than 40% of take-home pay.

2 years ago, we bought our 4-bedroom house at $400k
We have fixed our mortgage for 2 years @ 6.95% (34% of our take-home pay)

We have just renewed our fixed mortgage at 7.85% for another 2 years (39% of our take-home pay) :wah

Looking at income vs mortgage, we just managed :no

We also check on property prices versus our income

One year ago, our ex-neighbour sold his house for $455k and mortgage rate at that time is about 8%.

This month, another neighbour put up his house for sale and asking for offer over $525k
Spoken to a friend who is a real estate agent and he told me that property prices had increased everywhere.

May be, we should sell up and start renting ............ :roll :uhoh

[Trigirl]

our mortgage payments will be over 50% higher than our rental payments were. also we wont be getting interest on our deposit anymore. take the two together and for us the net cost of mortgage is almost 3 times the net cost of renting. but its absolutely worth it for us to have a home that no-one can kick us out of, a place that is ours. also rental money is just money down the drain. we're taking a shorter term mortgage so if all goes to plan the house will be 100% ours before i even turn 50.

[StevieD]

One thing is for certain, been an article on the BBC today that people are taking up to 5 times their salary here to get on the housing ladder! Now that is scary.

[Singel]

Just read today's Sunday on Herald http://www.nzherald.co.nz/section/1/story.cfm?c_id=1&objectid=10421228

There is also a special feature about Auckland Properties (can't find this online) ...........

The latest data from the Real Estate Institute of New Zealand gives a median price of $420k for an Auckland house in the 3 months to Dec 31, 2006.

3 years ago, Manurewa and Papatoetoe were of little interest to people wanting to invest in real estate. Now these areas have become the hottest in Auckland.

The real estate area Manurewa (also covering Alfriston, Clendon Park, Goodwood Heights, Hillpark, Homai, The Gardens, Totara Heights, Wattle Downs***, Weymouth and Wiri) not only tops the 2006 price rise ladder, it also grabs first place for the best gains over the last 3 years - with the median price jumping 55%, just ahead of neighbouring Papatoetoe at 49%.

Who, at the end of 2003, would have picked Papatoetoe and Manurewa as the quickest ways to make a dollar out of Auckland's residential real estate market?

*** this explain, why my neighbour is asking for such a high price

[Moorf]

One thing is for certain, been an article on the BBC today that people are taking up to 5 times their salary here to get on the housing ladder! Now that is scary.

Absolutely, and after being here for a while now I am finding it hard to comprehend the UK prices - a friend of mine just bought a 3-bed Victorian terrace house in South London (and not a posh area) for .... £680,000!! That's nearly $2 million here! :no You could buy a fab house here for that and live on the rest!! :roll

[Trigirl]

we've just paid $80k less for our new house here than the one we just sold in the uk. for that we got 50% more floor area and a 40 min walk to work compared to a (very expensive) 90+min train and tube journey. property prices may be going up here but in uk terms they are still really very very cheap.

[willsken]

We have been doing a reality check on the mortgage rate versus our income.
The rule of the thumb is that mortgage should not be more than 40% of take-home pay.


Is there anyone out there that can confirm that this works? Do people live comfortably working within this formula? Would love to know as we are about to take out a mortgage.

[MarkS]

I'd agree that 40% of take home pay is a pretty good rule of thumb. It really is only a starting point though and you need to look at your own circumstances in a bit more detail. We went through and made a complete budget to try to account for pretty much every dollar that we'd spend on a month by month basis and used that to work out how much we could afford. So for example if your essential living costs (excluding rent) come to 70% of your take home salary, you really can't afford a mortgage of 40% of income!

Or another example, if both people in a couple are working they can probably easily afford mortgage payments of 40% of joint income, but if one gives up work for a few years (e.g. to have children), that could suddenly become 80% of a single income!

[Avalon]

May be, we should sell up and start renting ............
As a wannabe property investor - id say sell up and rent:D

Seriously though - ride it out and do whatever you can to stay in your own home and not pay someone elses mortgage.

Housing affordabilty is getting worse in New Zealand - but the good news from your point of view is that you bought your house at 400k when its now worth over 500k. So for you- affordibilty issues relate ONLY to the cost of the mortgage and NOT the cost of the HOUSE AND MORTGAge.

According to an article in this months property magazine:

Housing is now less affordable than in early 1989 when mortgage rates were as high as 15.5%.

And thats down to the cost of the house to buy.

Im afraid its not good news for people who are still to buy :( House prices are still rising, rates are rising (fixed are anyway - floating are staying the same at the moment despite constant posturing by Alan Bollard), and wages are not - the property mag aslo says:

The decline (in affordability) is due to a rebound in the national median house price (up by 6.4%) outstripping increases in the average weekly wage (1.5%).

Unless you want to rent as a lifestyle choice - I think paying the mortage is still a way better option is in any way possible. Thats because - at some point - you get to live "rent free" - whereas if you rent, you are never in a position to live in a house without paying rent - which means you need a much higher income in retirement.

[Avalon]

Is there anyone out there that can confirm that this works? Do people live comfortably working within this formula? Would love to know as we are about to take out a mortgage.
Im afraid as far as I can see this comes down entirely to your individual wages. As a blanket rule - I personally dont see it as very helpful and would rather work out how much money I can comfortably afford to may on a mortgage irrespective of percentages.

However - its a bank rule and to be honest- perhaps not a bad guide. Take the number they give you - and then decide if thats affordable for you.

Also, consider this - if your take home pay is $1000 a week - that $400 you can pay to a mortgage which leaves $600 for everything else.

Now say your take home pay is $2000 a week. You can pay $800 on a mortgage but you now have $1200 a week for everything else - whicxh makes the "everything else" a bit easier to manage.

Honestly not sure if that makes sense to anyone but me :o

[Avalon]

One thing is for certain, been an article on the BBC today that people are taking up to 5 times their salary here to get on the housing ladder! Now that is scary.
Problem is that its likely to have to happen here as well. How else are people going to pay the prices being asked? Wages are not yet going up, so to pay the higher house prices - the multiplier has to increase.

Just a theory - based on the usual lack of any concrete evidence - blah blah - but Ive always though that if people would refuse to take mortgages out at more than 3x salary it would bring house prices down. If noone can afford to pay the asking price - nothing sells. I feel the problem here is that sellers ask a high price and instead of the population saying "we cant afford it" - they just ask the bank to give them the money TO afford it. Even if it takes 5x a joint salary.

So better than 40% takehome pay as a guide to repayments - also look at how many times salary the banks are lending you. I really feel that going above 3x is dangerous. We made a very deliberate decision when buying out UK house to only borrow 3x my OH's salary. One of the best decisions we ever made. Its the bigest reason why one of us doesnt have to work, and how we can cope much more easily with a redundancy. We have had to buy smaller houses - but we dont end up in a mess.

[wanderingoregonian]

"Just a theory - based on the usual lack of any concrete evidence - blah blah - but Ive always though that if people would refuse to take mortgages out at more than 3x salary it would bring house prices down. If noone can afford to pay the asking price - nothing sells. I feel the problem here is that sellers ask a high price and instead of the population saying "we cant afford it" - they just ask the bank to give them the money TO afford it. Even if it takes 5x a joint salary."

Avalon - I'm thinking the same... last night I played around with the morgage calculators online. Type in my husband and I's anticipated salaries (once he's working again, and assuming no stay at home mom time in the near future) and out pops a mortgage that is exactly the current market value of the plain-jane type house we'd be interested in minus our deposit. Only problem is that the monthly mortgage its well beyond what we'd be comfortable with... You begin to wonder if the market is not driven by the value of the housing stock (e.g,. land value, quatilty of housing), but just is whatever the mortgage/bank folks will give us regardless if it makes sense for consumers. Market pressures don't work the same on housing I reckon because the consumers (us) have so little direct influence on mortages and what builders build. For example in American, builders tend to build 3+ bedroom houses because they get more profit per sq foot even if consumers might be interested in different size houses...

There has to be a breaking point, right? Can the market for everyday people housing (i.e., not mansions, just the nice 2-3 bedroom house that I walk and drive by every day) really go much beyond 5, 6, 7x two people's salaries.... so even if the population isn't saying no, I am as a would be first time buyer, at least for now.

I get depressed at times over it... and then I just go back to my current plan... go for cheap rentals and save/invest the rest. Maybe in ten years I'll be plopping down a huge deposit so I can finally get a mortage that's only 1.5-3x our salaries. Or find work far from the city, harder to do here than back home where I could work at a local school district rather than a central office. Or I could rent close to the city during my working years and save for a place far beyond commuting range for my retirement. I also refuse to work crazy hard to pay a mortage on a house I rarely see because I'm commuting crazy hours.

And this certainly isn't just a NZ thing. I'd be no better off in America if I wanted to live near a city I liked or near my family. There is seems to be very little under 400k an hour from Portland... The little rural town I grew up in is sporting 500k house now... and I can't imagine many households there are making more than 80-100k jointly. If I went back, I'd be like all my friends who are driving to buy (in rural Montana) or are living with their parents propetually saving for a house. Or having parents move in with them and pay half the mortage... I guess then the housing is 3x salaries, of 3-4 people.

[jess]

The bank wanted to loan us a lot more than we expected. They told us that houses in the price range we were looking at weren't going to be any good, and we should go higher. We didn't -- we found a house we liked that was plenty of room for the two of us and came with the lower stress of a low mortgage (after our deposit). The bank literally wanted to loan us DOUBLE the amount we borrowed. I imagine lots of folks are taking them up on it. And unlike the US, they didn't even make us show them a valuation to prove they could get all their money back out of the house if we defaulted. Anyway, the banks are just as happy as the agents if you'll overextend your budget.

Sorry I guess that's all beside the point of Singel's question -- if it were me I would stay in a house I owned as long as I could and only switch to renting if I were desperate (or if I needed to be able to move frequently). If you're renting, you're paying on someone else's mortgage and it's money down the drain - as Avalon and Trigirl said.

[Singel]

Sorry I guess that's all beside the point of Singel's question -- if it were me I would stay in a house I owned as long as I could and only switch to renting if I were desperate (or if I needed to be able to move frequently). If you're renting, you're paying on someone else's mortgage and it's money down the drain - as Avalon and Trigirl said.
No worries, I find all the info are related to the subject of "affordability".

Thanks everyone for the thought-provoking views :nice1

[eternalkiwi]

As the fast rising house prices are unlikely to reduce, it best to enter and keep on the property ladder as soon as possible.
Most parts of Wellington have seen at least 60-70% increase in property values in the last 3-4 years and with 'first homes' now 8-10 times the average salary.

While rents are cheaper now, in 3 years they will probably increase to what your mortgage is now, and will continue rising, whereas your mortgage will only rise if the interest rates change, in 6 years (worst case) you would be ahead if you buy rather than rent plus you will have the capital gain if you purchased a house.

[Avalon]

While rents are cheaper now, in 3 years they will probably increase to what your mortgage is now, and will continue rising, .

You know - im not sure that will actually happen here. And I think this is something quite unique to New Zealand. A huge number of property investors purposefully rent out houses for LESS than the cost of the mortgage (and thats often looking at interest only mortgages). They pay some of that, plus rates and maintainance and then get a proportion back from the government though income tax rebates.

What this means is that rents are generally artifically low - and dont match the market value of the house - so certainly for the moment you can rent a house for less than you can service a mortgage. (Which is making finding a rental property which doesnt cost us an arm and a leg hard :D )

The problem is that you can get Tax back without getting rents which are lower than the mortgage - but many people dont. In effect - a lot of "investors" are actually subsidising rents.

And as the whole system of LAQC's and tax rebates is unlikely to change, as are peoples' understanding of them- I think rents may always stay relatively low.

Thats what my shiny new crystal ball is telling me anyway :laugh

[Trigirl]

but at the end of the day if you pay a mortgage eventually you'll have a house. if you pay rent eventually someone else will have a house.

rents do seem a lot lower compared to market values here - especially given interest rates. but i'd still prefer to buy - for the long term benefits, for the short term security of having a house than no one can kick me out of, and so that if i want to make changes to my home i can (ok i might possibly ask mark first :roll ).

[b&k]

In London, the median house costs 8.3x the median income. The average house price expected to rise £1,000 a month in 2007.

Now this is the scary bit...
For each extra £1,000, it will cost £1,904 to pay off on a 25-year mortagage at 6%. So, if you buy in 1 years time, you end up paying an extra £22,846 to own your house.

I have worked out that if we sell our flat in London (which is below the average London house price) and buy a house with a mortgage of 3x the average NZ wage, we will be able to afford a house which is 206% of the NZ average house price (162% of the Auckland average). If we earn more than the average wage, which we hope to, then the % is even higher.

NB: There are quite a few assumptions going on here which I can explain if anyone wants. A former life as an accountant does however mean that I am fairly certain of the figures :confused:

[Nathan]

I live in a (beautiful) rural area in the States and have for most of the past 20 years. The places I've lived were never strongly affected by the recent housing boom. As a result, despite a very well paid job, I can't afford to move to the coasts, or big cities, or other places where there has been a dramatic boom. I wasn't on the train when it left the station, so now I can't see a way to run fast enough to catch up. I think the same situation exists in NZ (and other places). If you don't get into real estate now, you won't be able to later.
...and I can't imagine paying off a mortgage 5x my salary! I've never borrowed more than 1x my salary and have loathed every payment! But that's just me.
...2 cents.

[pinkpiggy]

I can't remember where I read it but an article the other day said that property prices in Auckland were rising by $540 per day! That's astounding and very scary.

[jailhouse]

Well, watching the news today in the UK, repossessions are up 65%, 17900 according to latest figures for 2006. Is this due to the three interest rate rises we have had here lately, or the banks loaning customers money beyond their means? I'm no financial expert, but it seems the world appears to be shrinking and people are spending more on their "little bit of heaven".

I am in the fortunate position of where i owe nothing in the way of a mortgage, have a property that is worth more than the average NZ lovely home (4 beds +) and a pension to help me resettle in NZ (fingers, toes and things not polite to mention in a nice forum, are all crossed ;) )

I admire all of you who are taking the plunge, moving to a new country, new life and trying to build a new home, and i hope you will all be successful, which no doubt you will, especially if you follow the excellent advice given by Avalon.

Off subject, Avalon, a really big thank you for your financial column i have gleened a lot of useful information. If we get out their fingers x, would love to have a meet and buy you a drink.

jh

[Avalon]

Thank you Jailhouse - That would be lovely :) Ill see you when you get here!

Hxxx

[spudulike]

It's very interesting to see people's different experiences of owning a home here in NZ.

We owned a house in the UK (a 3 bedroomed Victorian terrace with garden in York) and find we are paying as much here to rent as our mortagage was -and on considerably less salary. There is no way we can afford to buy a house in NZ as it would cost more than we are currently paying. So the ironic thing is, to get back on the property market we need to return to the UK.

I agree that when you look at what you get for your money with sterling versus $NZ then yes you do get considerably more space here in NZ (although the quality of housing is very poor IMO) but the plain and simple fact is the wages are considerably less so it may still be unaffordable. If you are coming to NZ with a lot of money then chances are you'll be fine, if you haven't got the money then it will be every bit as hard to gain a place on the housing market in NZ as it is in the UK.

As for renting versus buying - I agree with Trigirl and would choose to buy so it's not wasted money. It's certainly what we intend to do when we return to the UK - and as quickly as possible!!

L :)

[Moorf]

There was an interesting section on Campbell Live last night (or was it Close Up, can't remember!) where property investments pro's were actually saying that now is not the time to buy in NZ - and that you'd be more savvy to rent!

Did anyone else see it?

[Mexican in NZ]

There was an interesting section on Campbell Live last night (or was it Close Up, can't remember!) where property investments pro's were actually saying that now is not the time to buy in NZ - and that you'd be more savvy to rent!

Did anyone else see it?
I did it Was Campbell Live and they said is better actually to buy and rent meaning buy what you can and rent where you like :uhoh my hubby and I were :confused: as we are planing to buy in wairarapa and we are looking for as much advise as we can...basicaly is pure luck u can buy today and prices go down or go up but my theory is this one, if you like it and you can afford it go for it at leas u invested your money in something that is important for u and your family and u r putting your money for ur own convinience and no for others (when u r renting ur money goes to the owner, so is not really an investment)
Ok guys c ya,
Adriana

[NeilV]

The problem is that you can get Tax back without getting rents which are lower than the mortgage - but many people dont. In effect - a lot of "investors" are actually subsidising rents.

And as the whole system of LAQC's and tax rebates is unlikely to change, as are peoples' understanding of them- I think rents may always stay relatively low.

Thats what my shiny new crystal ball is telling me anyway :laugh
Hi Avalon,
As we are currently debating splitting our deposit to do an LAQC please direct me to finding out how the not-LAQC tax workaround works?
Thanks,
Neil