A steady OCR, record low mortgage interest rates and favourable home affordability in many parts of the country are great news for first time homebuyers, but the Commission for Financial Literacy and Retirement Income says while the good times roll now, it's important to think long term.
The Commission's Executive Director David Kneebone says homebuyers looking to the OCR for direction on how mortgage rates will fare would be better served by focussing on their own finances.
"For first home buyers low interest rates may be a catalyst for buying a house, but if a couple of percentage points are what's encouraging you to take the plunge into the property ownership pool, it's probably a good idea to run your numbers a little more carefully.
"There's no telling in the years to come what interest rates will be like so you need to make sure that if things change you can still pay the mortgage. Think about the level of debt you want to take on, not just how much money the bank will lend you. It is easy to over-extend yourself and you still need a life as well as a mortgage," he says.
Mr Kneebone says a recent home loan affordability report* found affordability for young working couples remains near its best levels in almost eight years unless you're living in one of our three largest cities; central Auckland, Wellington and Christchurch, where affordability remains difficult.
"It shows the importance of making a decision about home ownership based on your circumstances. What is a great move for someone living in Whanganui where home ownership is more affordable might be a much more risky move for someone living in Auckland," he says.
As for how much of your household income should be spent on mortgage payments, Mr Kneebone says many experts would recommend your mortgage payments should not exceed 30 to 40% of your income.
"But of course it's just a guide. You need to do your own sums and work out what works for you.
"When it comes to interest rates and the OCR, what comes down may also go up," he says. "You should start your calculations with a money plan. It's a tried and true method. Write down your income and list all your expenses and outgoings and see how much you have left over. Punch in the worst case scenario of interest rates and make sure you can still afford the repayments."
"It's a good idea to keep an eye on the OCR and mortgage rates but your financial decisions should start at home," Mr Kneebone says.
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