More affordable prices and shrinking repayments are making the market an attractive one for borrowers
New Zealand’s houses are the most affordable they have been since 2019. Lower mortgage rates, steady income growth and a 17% decline in property values from their post-COVID peak are all contributing, according to Cotality's latest Housing Affordability Report.
The national value-to-income ratio now sits at 7.5 in Q2 2025, down from a peak of 10.2 in Q4 2021, though still above the long-term average of 6.8.
The most significant change has been in mortgage servicing. Repayments are now absorbing 44% of median household income - the lowest level in more than four years.
"Servicing costs at or near their long-term average suggest that affordability is no longer the handbrake it was during the downturn," said Kelvin Davidson (pictured above left), Cotality's chief property economist.
"That doesn't mean housing is suddenly cheap, but it does mean buyers and existing borrowers are operating in conditions that are much more manageable than they were a few years ago.”
Affordability gains have been most pronounced in Auckland, Tauranga and Wellington, where mortgage repayments now sit slightly below their long-term norms. Auckland's value-to-income ratio of 7.9 marks the lowest level in a decade, while Wellington has returned to 6.4, back in line with its long-run average for the first time since 2016.
"Wellington is not suddenly a cheap market, but it is more affordable than it has been for many years," Davidson said. "The fact that key measures are now back at long-term norms in a number of key centres is a clear sign of how far conditions have adjusted, and helps to explain the renewed interest we are seeing from some buyer groups."
Market activity shifts
As affordability improves, there have also been some significant shifts in lending activity. Commenting on August trends, Nick Goodall, head of research, NZ at Cotality noted that multiple-property owners are making a comeback, and an increasing number of borrowers are changing providers.
"The biggest story is the return of mortgaged multiple property owners. In July, this group was just under a quarter of activity - a high not seen since late 2021. Reinstated interest deductibility has helped at the margin, but lower mortgage rates are the dominant driver," Goodall said.
"We've also seen a record wave of borrowers switching banks. In June, more than $2.4 billion of lending changed provider. That's over 3,500 borrowers. Cash back incentives, easier adviser-led comparisons, and the prevalence of 'ready to go refis' as fixed terms roll off have all lowered the friction to switch.”
Mortgage strategies
With affordability rising and rates likely to drop even lower, mortgage advisers have been adjusting their strategies. Squirrel’s David Cunningham (pictured above right) said longer-term fixes, or split mortgages, are currently a good way to go.
He said that cash incentives are also a strong draw card for those willing to move.
“Cashbacks are still alive and kicking,” Cunningham said. “You can expect 0.8% to 1%. With that expectation of falling rates, we’re tending to recommend customers go shorter.
“Of course each circumstance is different, it might be appropriate to fix a bit for a longer term - even as long as three years – and a shorter term like one year,” he said. “We think in one year, that’s probably where we’ll see interest rates settle at the bottom over the next 6-12 months.”
That said, the rate environment means savers are at a disadvantage. Those hoping to get onto the ladder can’t rely on much of a boost from savings rates or term deposits, which have been falling since the start of the OCR cuts last year. As for house prices, we can expect them to remain on the affordable side for now.
“Term deposit interest rates have also been reduced, so borrowers are ‘winning’ and savers are ‘losing’,” Cunningham said.
“The agri-strength and weight of lower mortgage rates flowing through as higher fixed rates roll off should improve sentiment over the next year, though very weak migration and, arguably, a surplus of housing stock as construction exceeds population growth, will constrain prices.”
