The BNZ Home Loan Affordability measure worsened in June from May, thanks to a slight rise in average fixed mortgage rates and an increase in the median house price.

The rise in both house prices and interest rates helped increase the proportion of after-tax pay needed to service a mortgage on a median home to 56.3% in June from 55.9%. However, this is sharply better than the 78.1% seen a year ago and the record worst level of 83.4% in March last year, said interest.co.nz, which produces the series of national and regional reports for BNZ.

Affordability improved in an unbroken run through 2008 as interest rates fell sharply and house prices fell. A rise in after-tax incomes because of wage inflation and a tax cut helped extend the trend. But that run of improvement ended in February, March and April this year as house prices stopped falling and interest rates began to bottom out.

"The rebound in the housing market through the autumn and winter will please homeowners, but first home buyers are now finding it slightly more difficult to get into the housing market," said interest.co.nz editor Bernard Hickey

"Housing affordability is unlikely to improve much further without further significant falls in house prices, given wage growth is likely to be subdued in the next couple of years without further tax cuts and as unemployment rises," Hickey said. The indefinite delay of tax cuts planned for 2010 and 2011 puts all the weight on interest rates and house prices as sources for further improvement.

The REINZ median house price rose to NZ$340,000 in June from NZ$337,500 in May, while the average 2 year mortgage rate rose to 6.25% from 6.23%. Affordability hit its worst level of 83.4% in March 2008 just after house prices peaked and 2 year mortgage rates were close to 10%.

Many home buyers jumped in March, April and May to take advantage of lower interest rates and look for bargains, which improved the number of houses sold and stabilised prices. But short term mortgage interest rates flattened out in late March and longer term mortgage rates began to rise in line with rises on wholesale markets. Affordability remains slightly out of reach for most individual home buyers.

The threshold proportion of after tax income considered prudent to sustainably own a house is around 40%. Anything above that is starting to become unaffordable. Affordability also worsened for a typical first home buyer. The Housing Affordability report's measure shows the mortgage servicing proportion worsened to 44.3 in June from 44.1% in May. This measure is for a median income earner aged 25-29 buying a first quartile home. Interest.co.nz thinks the 'affordable' threshold is 40% of take-home pay for such a home buyer.