First-home buyers justified in anger
Opinion: Susan Edmunds finds that this generation are indeed doing it tougher, and criticisms of them are unfair.
Agrowing number of people want to tell first-home buyers to stop complaining about how tough it is to buy a house.
They point to low interest rates, government subsidies and programmes such as KiwiBuild and ask: What’s actually the problem?
I admit I’ve been one of them. Sorry about that.
While these arguments sound good in theory, they fail in reality.
Here’s why.
The claim: Interest rates are so low. Servicing a mortgage has never been easier.
It’s true that mortgage rates below 4 per cent are the lowest in more than half a century.
But that doesn’t mean firsthome buyers have it easy.
When I took out my first mortgage, interest rates were 8 per cent for two years. But the loan was only $250,000, so it felt like a $500,000 mortgage might today.
Across the entire country, the average first-home buyer borrowed $389,006 in October. Auckland borrowers would have borrowed significantly more.
The amounts being paid for homes are substantial, even if the interest rates currently aren’t.
CoreLogic data shows the median price paid by first-home buyers this year was $470,000 nationwide and $750,000 in Auckland.
Our wages have not kept pace with the housing market. From 1957 to the late 1980s the average New Zealand house price was between two and three times the average annual household income. In Auckland, ratios are now nudging 10 times.
Taking on a debt 10 times your annual income is a different proposition to one three times your income, no matter how cheap it is to service.
Interest rates will eventually rise, and those buyers will have to continue to pay off that debt over decades.
Unlike their parents’ generation, who had a tsunami of inflation wash away the real value of a lot of their debt, modern buyers are likely to feel the weight of their mortgage debt for much of their working lives.
The claim: House price growth has stalled, so you’ve got a chance to get your deposit together.
Sure, but how long have you got? If you are aiming for a 10 per cent deposit (and are willing to pay the higher interest rate that goes with that), you still have to save a median $75,000 in Auckland and $47,000 in the rest of the country.
KiwiSaver will help – if you’ve been in since the start you’re probably near that goal. But withdrawing your retirement savings to buy a house is a sacrifice and means you’ll need to save harder for the rest of your working life to make up for it.
Outside KiwiSaver, if you wanted to save $75,000 in five years, you’d need to put aside $255 a week in an investment returning 5 per cent a year.
That’s tough in an environment where Wellington’s rent is up 10 per cent year-on-year and Auckland’s is nudging a median $600 a week.
People suggest buyers group together to share a house to save costs, but when more of us are buying later in life, once we already have kids, that is not so feasible.
The claim: You get help from the Government!
There are programmes to help buyers.
If you use your KiwiSaver money as a deposit, you can tap into a HomeStart subsidy of up to $10,000 per couple for an existing house, or $20,000 for a new build.
There are also Welcome Home Loans for those struggling to qualify for 10 per cent deposit home loans, and KiwiBuild is offering more affordable housing.
But there are problems here, too.
HomeStart requires buyers to have a joint income of up to $130,000. KiwiBuild is a little more generous, at $180,000. By the time buyers are in the financial position to consider a purchase, many are earning more than this limit.
HomeStart buyers can also only buy properties up to $650,000 in Auckland and Queenstown, $550,000 in most regional centres and $450,000 elsewhere. Buyers say it’s hard to find places in those price ranges, even if you qualify.
KiwiBuild is still operating on a ballot system, so you need to be drawn to be successful.
Buyers are being encouraged to consider houses on the outskirts of Auckland but that comes with significant transport costs for those working in the city.
The claim: It’s easier to get a mortgage
The Reserve Bank has announced that loan-to-value restrictions will be eased from January.
That means banks can do a bit more of their lending to people with a deposit of less than 20 per cent.
That’s good news for first-time buyers, but it’s still expected to mean only about 5000 houses a year are funded that otherwise wouldn’t be. Cast your mind back 10 years and many people were getting into their first homes with a 100 per cent mortgage. Who’s got it easier, really?