How Much Do I Need to Earn to Avoid Mortgage Stress?

More and more home owners are facing the prospect of mortgage stress, which is defined as having to spend over a third (33%) of household income on mortgage repayments.

In August 2021, the average one-year fixed rate for owner-occupiers on Canstar’s mortgage database was 2.58%. At time of writing (01/06/23), the same rate is now 6.90%. This means that if you’re coming off a fixed rate in the next couple of months, your repayments will increase significantly.

For an average NZ mortgage of around $425k at 6.90% (principal and interest on a 25-year term) the monthly repayments are $2977 per month, which is just over $1000 more than the repayments on a similar sum at 2.58%.

But, of course, the national average Kiwi mortgage is only a statistic. House prices vary from region to region, around 20% of borrowers are first home buyers, and each household has a different income level and mortgage debt.

So to delve a little deeper into the nation’s mortgage stress numbers, Canstar’s research team crunched the numbers region to region.

Mortgage Stress: Region to Region

Canstar’s latest research shows Auckland households need to earn a whopping $219,000 to be able to afford an average-priced house ($995,000) and repay the mortgage on current rates without going into mortgage stress.

Given that this is nearly $80,000 more than the average Auckland household income, it means new homeowners will face mortgage stress unless they can save considerably more than a 20% deposit.

The next most expensive area, in terms of avoiding mortgage stress, is the Bay of Plenty. Houses there are currently selling, on average, for $824,500, and average household incomes are just over $107,000. However, to stay out of mortgage stress households incomes need to be over $180,000.

Here’s the full round-up, region to region, of what you need to earn to avoid mortgage stress when purchasing a median value home:

(The analysis assumes a house purchased in today’s market, with a 20% deposit. Source: www.canstar.co.nz – 23/05/2023. Median House Price per REINZ (April 2023). Monthly Repayment assumes principal & interest repayments for the fixed rate over a total loan term of 25 years, based on the average owner-occupier 2-year fixed rate of 6.68% (based on loans available for $500,000, 80%LVR, and principal & interest payments in Canstar’s database; excludes special condition loans). Average gross income based on the average gross household total income per Stats NZ Household Income and Housing-Cost Statistics (Year ended June 2022), adjusted by the Labour Cost Index for all salary and wage rates up to March 2023.)

Mortgage Stress: Shop Around

As you can see from our analysis, it’s tough in today’s market to avoid mortgage stress. Spending over 30% of a household’s income into a mortgage creates all sorts of other pressures, including not being able to afford other bills and maintain general wellbeing. It’s a really difficult situation and our analysis suggests many families across New Zealand are facing financial pain.

However, in good news, it appears we are at, or near the peak, of interest rate hikes. Over coming months, banks will likely be able to start borrowing money at cheaper rates and, in due course, these savings are expected to flow on to their customers. But even before rates drop, consumers may find banks more willing to negotiate discounts or special offers.

This is why it’s always important to shop around and open discussions with banks and lenders to try to achieve the best possible deals.

Compare with Canstar for the Cheapest Mortgage Rates

However, while low interest rates are important, when looking for the best mortgage, you do need to look at more than just interest charges. When Canstar compares and rates mortgages and mortgage lenders, our expert researchers look at each home loan and awards points for the array of features it offers and its comparative price, which includes rates and fees.

The best products then receive our 5-Star Ratings for Outstanding Value. We place a lot of importance on our ratings, which is why the comparison grids below are sorted first by Star Rating, highest to lowest. However, if you want to compare by lowest rates instead, just click through to access our full mortgage rate comparison tables.

Best Mortgage Rates for Refinancing

The table below displays some of the 2-year fixed-rate home loans on our database (some may have links to lenders’ websites) that are available for home owners looking to refinance. This table is sorted by Star Rating (highest to lowest), followed by company name (alphabetical). Products shown are principal and interest home loans available for a loan amount of $500K in Auckland. Before committing to a particular home loan product, check upfront with your lender and read the applicable loan documentation to confirm whether the terms of the loan meet your needs and repayment capacity. Use Canstar’s home loan selector to view a wider range of home loan products. Canstar may earn a fee for referrals.

Compare Cheapest Home Loan Rates

About the author of this page

This report was written by Canstar’s Editor, Bruce Pitchers. Bruce has three decades’ experience as a journalist and has worked for major media companies in the UK and Australasia, including ACP, Bauer Media Group, Fairfax, Pacific Magazines, News Corp and TVNZ. Prior to Canstar, he worked as a freelancer, including for The Australian Financial Review, the NZ Financial Markets Authority, and for real estate companies on both sides of the Tasman.