Renters Should Assess Home Loan Affordability Right Now

“Despite interest rates on the rise and borrowing via a bank seemingly harder, now is the time for renters to do their sums on lending affordability,” says Tim Kearins, Owner of Century 21 New Zealand.

The Century 21 leader says with the national median rent at nearly $600 a week, securing a mortgage and locking in a two-year rate, at say 5.25%, may make the cost of homeownership comparable, if not more cost effective, for many.

“With a 20% deposit, you can still buy a $600,000 property for a weekly mortgage repayment cost of $610. Even if you need to spend more, it gets you on the property ladder, you’re not working to pay your landlord, and long-term you’ll make good capital gain. What’s more, homeownership does improve living standards later in life,” says Mr Kearins.

To make it happen, he says, prospective first-home buyers should also consider getting in a flatmate or boarder. Showing an additional income stream could get a single person or couple over the line on serviceability assessments.

“While the Government is set to tweak the Credit Contract & Consumer Finance Act (CCCFA) this winter, many first and next-home buyers are still finding it difficult to satisfy the banks. However, borrowers have other options,” he says.

He points out that mortgage brokers like Julius Capilitan of Century 21 Financial can deliver competitive rates and greater borrowing flexibility than traditional banks. What’s more, buyers should not wait, thinking it’s going to get cheaper to purchase a house.

“It can be much more cost effective to buy at a higher price with a lower interest rate than the other way round. Right now, prices are softening but more importantly interest rates remain below New Zealand’s historical average,” says Mr Kearins.

The Reserve Bank’s next Official Cash Rate (OCR) decision is on 25 May. Last month the OCR rose by 50 basis points to 1.50% - marking the fourth consecutive hike since October last year and the biggest jump in over 20 years.

“Some economists are now forecasting that the OCR will rise to 3.50% by the end of this year. In the meantime, interest rates remain miles off where they have been in previous decades, with the average over the years about six or seven percent for Kiwi borrowers,” he says.

While house prices may be softening and sales slowing, no one’s yet predicting falling rents.

“Landlords are facing high compliance costs and inflationary pressures, so rents may just keep going up, particularly while demand is still strong. The prospect of future rent rises is yet another consideration for tenants when they’re on the mortgage calculators, deciding to take the homeownership plunge or not,” says Tim Kearins.

www.century21.co.nz

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