Houses at most affordable levels in seven years

Houses are at their most affordable levels in seven years, with falling prices, interest rates at record lows and banks more willing to lend, according to a monthly report into affordability.

The Roost Home Loan Affordability report, released today, shows home loan affordability in May was at its best levels since April 2004. The report measures affordability for individual income earners and households, based on median house prices, interest rates and incomes. Affordability has been improving since December 2009.

The national median house price fell from $360,000 in April to $350,000 in May. It was a record high of $365,000 in March.

In May, affordability improved in most cities and provincial areas, including central Auckland, Wellington, Hamilton and New Plymouth, because of a drop in median house prices.

However, it worsened around Christchurch and Timaru as demand for houses not damaged by the earthquake drove prices up.

In Auckland, a shortage of supply because of leaky buildings and little new building was adding to firm demand from people moving to the city.

Banks have eased their lending criteria in recent months in an effort to boost lending volume growth from its record lows of around 1.4 percent a year. Lending was growing at 17 percent in 2004.

"We are finding banks are increasingly keen to compete hard to win new business and keep existing customers," Roost spokeswoman Rhonda Maxwell said.

Banks were offering 90 and 95 percent mortgages and were discounting establishment and legal fees, thanks to strong competition, she said.

The Roost Home Loan Affordability measure for all of New Zealand showed the proportion of a single median after tax income needed to service an 80 percent mortgage on a median was 51.3 percent in May, down from 53 percent in April.

The worst level of affordability was 83.4 percent, seen at the peak of the house price boom in March 2008, when two-year mortgage rates were close to 10 percent.