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Mortgages eating big portion of income

The average homeowner in Masterton is spending 43 per cent of their income on mortgage costs, while Carterton homeowners are floating at the 46 per cent mark, and South Wairarapa homeowners are paying over half of their earnings on mortgages at 52 per cent.

Homeowners in the Tararua District, however are spending 28 per cent of their income on mortgages.

CoreLogic NZ chief property economist Kelvin Davis said Wairarapa homeowners were feeling the same pinch as the rest of New Zealand.

“House prices got high in relation to incomes almost everywhere, and Wairarapa had a boom in house prices like everywhere else,” he said.

“Since the tail end of 2021, we’ve seen house prices fall and it’s done some of the job at restoring housing affordability, but Wairarapa’s still relatively expensive.” The CoreLogic report said that in Masterton, it would take over eight years on average to save for a deposit.

In Carterton prospective buyers are looking at nine years of saving, and in South Wairarapa over 10 years. Those in the Tararua District were looking at nearly half the time, with an estimate of 5.5 years.

Mortgage servicing costs are unlikely to get worse, but Davis noted he didn’t think there would be rapid relief for homeowners or first-time buyers either.

“It’s likely mortgage rates will stay where they are for a little while yet.

“But provided employment stays high, which it will in a rural area, people should be able to manage.”

Economic consultancy Infometrics NZ’s Housing Affordability Index showed similar figures for 2022, with mortgages costing the average Masterton homeowner 42.1 per cent of their income. This figure was a significant increase from 2018, when the estimated average percentage of household earnings going towards a mortgage was 24.4 per cent.

Carterton’s figures saw a similar leap, rising to 47.5 per cent in five years from 29.7 per cent in 2018. These figures were calculated using the average household income needed to service a 20-year mortgage on the average house value, with a 20 per cent deposit at average 2-year fixed interest rates.

Data on South Wairarapa was not available through Infometrics. Senior Infometrics economist at Nick Brunsdon said the average fixed mortgage rate had risen since last year, so current figures were likely to be even higher.

Traditionally, 30 per cent of household earnings has been the rule of thumb for how much housing should cost, but Brunsdon said this figure hasn’t been relevant in New Zealand for a long time.

“The reality is if you’re on a particularly low income, wage or benefit, it’s going to be pretty hard to get it anywhere near a third,” Brunsdon said.

“And if you’re a first home buyer, that’s probably the toughest point in your housing affordability journey.”

Infometrics’ estimate of housing affordability showed that the ratio between house prices and household incomes had fallen for both Masterton and Carterton [data was unavailable for South Wairarapa].

Masterton’s ratio dropped from 7.5 in 2021 to 6.3 in 2022, meaning the average house in Masterton in 2022 cost 6.3 times the town’s average household income. Carterton’s ratio also dropped, from 8.1 in 2021 to 6.8 in 2022.

Despite these falls, Brunsdon said Masterton and Carterton were still not considered ‘affordable’, though they were still more affordable than the national average of 7.8.

“Similar to the 30 per cent golden rule, a ratio of household prices to household incomes of 3 is generally regarded as being affordable,” he said.

Brunsdon noted that although these ratios were dropping, this did not mean mortgage costs were dropping too.

“These ratios don’t take into account changes in interest rates, so although houses are cheaper today than a year ago, servicing a mortgage is likely to cost a similar amount.”

Bella Cleary
Bella Cleary
Bella Cleary is a reporter at the Wairarapa Times-Age, originally hailing from Wellington. She is interested in social issues and writes about the local arts and culture scene.

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