Home Affordability

[72andsunny]

I've been running through mortgage calculators on the bank websites, and they all seem to be returning huge numbers for what I "can afford to borrow". Do Kiwis making $100,000/year really buy $600k homes? Seems crazy...though I'd really like a $600k home.

[SueDonim]

To me, this is the scariest part about moving to NZ. Housing is in a bubble. It can stay in a bubble for a while. California proved that. But ultimately, all bubbles pop.

If people cannot afford a mortgage payment on an average house, they can stretch for a while. But that leaves them no flexibility should bad times come. Once that happens, housing prices at best will stagnate. Most likely they will fall. Thew question is whether it is a slow decline or a plunge.

I'm glad there is a large stock of rental housing there (at least compared to where I live). I'd prefer to wait a while before I buy.

[Duncan74]

And back to the OP, then I found the same. Was a bit like that in the UK a few years ago, but I agree that the ASB and National calsulators both came up with silly numbers. Indeed when you look at the mortgage payements that ensue in some cases (ie 5 year fix) then it ended up being more than take home salary. Seems a better idea to go the other way, start with what you can afford on a monthly basis, then multiply up to what that gives you as a mortgage.

[Super_BQ]

Yes they do buy because the norm is DINKS (Dual Income No Kids).

It's inflation! Average kiwi's don't understand it and it's effects. NZ has very high inflation among the OECD nations - it will always have higher than normal inflation rates in the future too. This is why $100K/year income seems like a lot but in NZ, it doesn't really buy a lot.

In the US, $100k/year job certainly does buy a lot when comparing same size city.

[Millieandme]

The calculators seem to be overly optomistic about how much you can afford. A $600,000 mortgage would take more than 55% of a 100k salary. Most banks have a lower limit on the amount you could borrow.

You can always try one of the non-bank calculators. The number are the same, just the rates vary by country. Yahoo has a reasonable table here http://loan.yahoo.com/m/basics6.html

The two numbers to look at are GDS and TDS. The limits can vary a bit but staying below gives you breathing room for rate fluctuations.

Gross Debt Service (GDS) Ratio - The percentage of gross income required to cover monthly payments associated with housing costs. Most lenders recommend that the GDS ratio be no more than 32% of your gross (before tax) monthly income.

Total Debt Service (TDS) Ratio - The percentage of gross income needed to cover monthly payments for housing and all other debts and financing obligations. The total should generally not exceed 37% of gross monthly income.

[Kiwi Mac]

They don't really work the calculations in reality in the same way that they do when you need the money.

Be aware though that they do not actually value the security - other than by looking it up on the computer to see whether it ought to be worth what you are paying for it. They are more interested in your means to pay them back. It's an approach that I have always found strange.

At one point since being here we had $1 million of available borrowing authorised on a combined salary at that time of about $220,000 a year.

[James 1077]

When we applied for our mortgage just under a year ago we were able to get $450k on my $110k salary and would need a 20% deposit for the property. But they do look at your ability to repay after living expenses and, at the moment, my wife is at home with the kids so isn't bring in any income so the maximum borrowing amount decreased to reflect the fact that I am supporting 3 others on my salary.

[Daniel]

They don't really work the calculations in reality in the same way that they do when you need the money.

Be aware though that they do not actually value the security - other than by looking it up on the computer to see whether it ought to be worth what you are paying for it. They are more interested in your means to pay them back. It's an approach that I have always found strange.

At one point since being here we had $1 million of available borrowing authorised on a combined salary at that time of about $220,000 a year.

that happens because banks know that you are a rich guy!

[Daniel]

As mentioned: "start with what you can afford on a monthly basis" or renting on a temporary basis and build your own house, which is the best choice. According to the building cost, a section and a 100 sqm house could cost near NZD 400 k... remember that it would be a new house

[veronica]

Best thing to do is to make no plans on it til you get here, experience the cost of things first hand, personally hate renting as its dead money, and would rather invest in a smaller house and have some free income. It is a good time to buy at the moment but until you are here its hard to sort the market out for yourself.