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Business Environment Profiles - New Zealand

Mortgage affordability

Published: 04 July 2024

Key Metrics

Mortgage affordability

Total (2025)

60 Percentage

Annualized Growth 2020-25

-1.9 %

Definition of Mortgage affordability

This report analyses mortgage affordability in New Zealand, which is presented as the proportion of a household's monthly earnings left over after a mortgage repayment. This is calculated using the average monthly repayment for a standard 30-year loan on the median house price with a 20% deposit. An increase in the percentage indicates the average mortgage becoming more affordable for households. The data for this report is calculated from information sourced from Statistics New Zealand (Tatauranga Aotearoa) and the Reserve Bank of New Zealand (Te Putea Matua) and is presented as a percentage of average household earnings.

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Recent Trends – Mortgage affordability

IBISWorld forecasts the proportion of household monthly earnings remaining after a mortgage repayment to rise by 4.7 percentage points in 2024-25 to 60.2%. After several years of surging interest rates, the RBNZ is expected to start reducing the Official Cash Rate (OCR) as inflation continues to ease over the year. This will ease pressure on households with mortgage repayments and boost the amount of money left over after a mortgage repayment. On the other hand, this growth is also expected to be moderated by an expected surge in house prices. Strong growth in migration is intensifying pressure on the housing supply. A steep rise in house prices may also moderate the RBNZ's plans to reduce the OCR.

The economic fallout of the COVID-19 pandemic has driven significant volatility in residential housing markets over the past five years. The RBNZ cut the official cash rate (OCR) to a record low of 0.25% in March 2020 to support economic activity in the early stages of the pandemic. Low borrowing costs increased demand for residential property from both owner-occupiers and investors, causing house prices to rise sharply over the two years through 2021-22. In response to an overheating property market and rising inflation, the RBNZ subsequently started tightening monetary policy and lifting the OCR from October 2021. The RBNZ then engaged in one of its fastest hiking cycles in history, lifting the OCR a cumulative 525 basis points between October 2021 and May 2023. As a result, mortgage affordability plummeted in 2022-23 and 2023-24.

Another key driver of falling mortgage affordability over the past five years is the significant growth in residential property prices. A housing shortage in New Zealand has contributed to the significant rise in property prices and led to larger mortgages being taken out by households over the past five years. Though housing price growth eased somewhat in 2023-24, prices are expected to surge again in 2024-25. Residential housing price growth has outpaced household income growth, contributing to the overall decline in mortgage affordability. Overall, IBISWorld forecasts the proportion of monthly household earnings remaining after a mortgage repayment to fall at an average annual rate of 1.86 percentage points over the five years through 2024-25.

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5-Year Outlook – Mortgage affordability

IBISWorld forecasts the proportion of household monthly earnings remaining after mortgage repayme...

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