How the ‘middle class’ can buy a house
Following a sobering report on the state of the nation’s property values, Susan Edmunds looks at what aspiring homeowners can do to get on the ladder.
Data released this week probably made many New Zealand first-home buyers feel a bit sick. Research group Demographia’s annual housing affordability survey showed it was getting tougher for Kiwi buyers – and Auckland was the sixth most unaffordable of the world’s main centres.
Demographia researcher Hugh Pavletich said it was putting pressure on the ‘‘middle class’’.
Teacher Emma Bell agreed – she said she was struggling to buy, even after moving to Whakatᾱ ne.
We asked the question: Is it still possible to buy a house in New Zealand if you’re earning a median income?
How much you can borrow
Mortgage broker Bruce Patten, of Loan Market, said people would generally borrow about four or five times their gross income.
‘‘We’ve always got to qualify that – that’s assuming you don’t have too much short-term debt. If you have a $40,000 personal loan, you maybe won’t be able to borrow more than three times. Some people have big credit card limits and nothing owing but we still have to take that into account. A student loan will affect it.’’
The median income in New Zealand is about $52,000 a year. On its own, that will probably not be enough to buy a house in any of the main centres.
Patten said he had someone come in earning $65,000 with a good deposit. ‘‘The reality is someone earning that will not be able to buy a house at all in Auckland.’’
But if you have a partner who is also earning, or you buy with a friend, the options start to improve a lot.
With combined income of $104,000 you could borrow up to about $520,000. With a $100,000 deposit saved between you, you could then buy a house in the early $600,000s.
If you already have kids, that will also dent how much you can borrow, particularly if you’re paying significant childcare or school fees.
Mortgage broker Campbell Hastie said parents would have additional food and living expenses.
‘‘For people with median incomes with kids trying to buy with a 10 per cent deposit in the Auckland market, with prices where they are it’s pretty tough. For a single person, it’s probably out of the question anywhere.’’
He said first-home buyers tended to be in a better financial situation than the average. Many had built up significant sums in their KiwiSaver accounts, he said.
Where you can buy
If you’re a couple earning $52,000 a year each, you’ll have relatively limited options in Auckland.
Taking the brokers’ measure of being able to borrow four or five times your gross income, you could look at Wellsford, where the median sale price of $521,500 is almost exactly five times a $100,000 household.
Clendon Park, Otara and Randwick Park are all options at less than six times your income, according to the Real Estate Institute. Tuakau is an option if you’re willing to go further out.
For those with a deposit, you might be able to stretch to Manurewa, or Weymouth with a median sale price of $645,000, or Clover Park at $649,000. Otahuhu is the cheapest central suburb, at $720,000, 6.9 times the gross income of a couple both earning the median income.
You could look at an apartment as a cheaper option, although it’s worth getting advice on how banks will view these properties.
The picture is much better in other parts of the country.
Waimate, in Canterbury, has a median sale price of $287,000 – less
‘‘Some people have big credit card limits and nothing owing but we still have to take that into account.’’
Mortgage broker Bruce Patten
than three times a $100,000 household’s income.
Aranui is only slightly more expensive. Properties in Phillipstown, Hampstead, Wainoni, Parkside, Netherby, Watlington, Ashburton and Tinwald are all less than four times your income.
In Wellington you need to be willing to travel. Most affordable is Masterton, with a Real Estate Institute median of $391,629. Birchville, Otaki, Wainuiomata, Otaki Beach, Carterton, Solway and Featherston all come in at less than five times income. Kuripuni and Lansdowne are less than four.
Smaller centres may have even more affordable prices but it could be harder for two halves of a couple to earn the national median income in a smaller centre.
In most cases, you’ll also need to consider your access to schools and other amenities.
Real Estate Institute chief executive Bindi Norwell said apartments were often suggested to first-home buyers.
‘‘However, apartment living isn’t always suited to families – particularly those with young children and who would like to have a backyard where the children can run around and play,’’ she said.
‘‘We looked at three of the major centres around the country – Auckland, Wellington and Christchurch – to find suburbs that might be affordable for families to consider. We based the research on 3-4 bedroom standalone homes with a presumed situation where two people each earned $52,000 per annum.
‘‘Surprisingly, most of the suburbs were still within a reasonable commute time of the CBD which wasn’t necessarily what we expected, and many – particularly in Auckland and Wellington – were close to good public transport links. Interestingly, there are also some suburbs in both Christchurch and Wellington that are close to the beach – New Brighton, Miramar and Lyall Bay.
‘‘Less surprising was that many of the areas are seen as up and coming suburbs that have a great community feel. While some of the suburbs might not have the ‘best’ school zones, they provide an opportunity for people to get onto the market and then consider moving when their children are closer to starting school.’’
What to buy
Alistair Helm, a sales representative with Bayleys, said research was the most important thing for any purchaser.
‘‘Get to know your market – that being the area you want to live, the type of property you want to buy, or actually the property scale and type you can afford – spend months doing this and become the local expert.
‘‘Seek out information and advice – agents are a great starting point, push them to give you sales facts – how much did properties sell for and when did they sell? Spend time at open homes – all open homes, this will help you better appreciate what you like as well as the true value of properties.’’
He said prospective purchasers should also do a couple of ‘‘dry runs’’ once they felt more confident about buying.
‘‘Seek out properties that are similar to your ideal property or at least the price range – view the property, make an intelligent and well-researched estimate as to sale price, and then follow through to attend the auction to see the outcome of both price and competition for the property or if tender or other sale, let the agent that you really want to know the sale price as soon as possible afterwards.
‘‘The more appealing it is now to a wider audience, then the more likely it will be to easily sell it in the future at a great price – i.e. don’t buy a house that appeals to a very narrow audience as they are harder to sell and don’t appreciate as much as properties that have broad appeal.’’
How to convince the bank
The brokers said that banks would want to see good account conduct and space in a household’s budget to handle the expenses of ownership.
Patten said that if your current rent repayments are not as much as your mortgage payments will be, you should put the difference between the two into savings for several months to prove that you can manage the extra.
‘‘If you have less than a 20 per cent deposit and your rent and savings don’t equate to the new mortgage payment it will be hard to justify to the bank.’’
It is possible to qualify for a loan with as little as a 5 per cent deposit if you qualify for a First Home Loan.
Patten said people who could show a household budget would stand out in their applications.
‘‘Anyone who comes in with their budget printed out or a spreadsheet on the computer, I don’t even assess their ability to borrow. I ask how much they want and they tell me and it’s normally less than what they could borrow. It’s really rare. If you approach the bank with a full budget it’s so much easier.’’
Chris Leatham, a property investor and former partner at PwC, said people could also consider using a guarantor to give the bank extra certainty about the loan, if they did not have enough equity in the deal themselves.