Half of household income going to the mortgage

Mortgage payments are swallowing more than half of the median household income.

Wednesday, August 14th 2024, 10:39AM

Payments as a percentage of median household income at 54% are close to the 56-57% peak and well above the 43% average, CoreLogic research shows.

Despite weaker property values and rising incomes, affordability remains worse than long-term averages - with the median property value 7.7 times the gross annual median household income.

The value-to-income ratio has fallen from 7.9 in the first quarter of this year and is at the lowest level since early 2020.

Although the metric has declined from its peak of 10.2 during the height of the post-COVID boom in the fourth quarter of 2021, home values continue to exceed household incomes, remaining above the long-term average of 6.8 established since 2004.

However, there are concerns about households that have recently purchased a property and are paying more than half their income to servicing a new mortgage.

CoreLogic says the rising cost of living and dwindling savings are likely to intensify financial stress and leave little buffer for emergencies.

For nearly three years, the share of income needed for mortgage payments has remained in the 53% to 57% range, highlighting the prolonged period of elevated repayment burdens on households," Kelvin Davidson, CoreLogic chief property economist, says.

"To put this in perspective, during the previous peak in 2007-2008, mortgage payments only reached 50% or more of income for six quarters.

“The current phase of strained mortgage affordability has lasted much longer, possibly placing many more New Zealand households under considerable financial stress,” he says.

The only silver lining has been the sustained high employment and rising wages, which have helped people manage during this period.

Meanwhile rent consumes 28% of gross household, surpassing the long-term average of 26% and remaining near record highs.

Over the past three years, this ratio has stayed relatively constant as incomes and rents have increased at a similar pace.

"The rent-to-income ratio has stayed persistently high, creating financial pressure for many renters, particularly those with incomes below the median,” Davidson says.

These households are likely to feel the strain even more acutely than the average figure suggests”, he says.

Tags: mortgages