Suburbs win over city

With the Reserve Bank set to keep interest rates low well into next year, prospective first-home buyers have reason to feel more confident about plunging into the market.

But buyers who jump in while interest rates are low can strike trouble when rates rise if they miscalculate how much they can afford.

Traditionally, the guideline figure on which buyers calculated the proportion of income they could spend on mortgage payments was 25 per cent, says Professor Bob Hargreaves, Massey University real estate analysis director.

That should now be upped to 30 per cent to account for interest rate rises.

While low interest rates fuel property booms, Hargreaves advises prospective buyers to be cautious through this period of flat prices.

Previously, first home buyers were committing a higher proportion of their income to servicing mortgages, thinking if they didn't jump in prices would keep showing 15-20 per cent annual increases.

To read the full NZ Herald article click here

Posted: 3 Aug 2009

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