The Reserve Bank left the Official Cash Rate (OCR) unchanged at 2.50 percent this morning. With the Kiwi dollar still high and inflation remaining low the likelihood of the OCR been increased before 2014 is remote. It is unlikely then that interest rates for homeowners will rise significantly any time soon. We have in recent weeks seen the banks themselves increase their longer term fixed rates (due to some improvement in the US economy) but we believe these increases could just as easily be removed in the coming months. Unless there is a specific reason why committing yourself to a long term fixed rate makes sense now we still favour floating (with a discount applied) or fixing 6 months only. Borrowers need to be reminded that there can be significant early repayment costs associated with exiting a long term fixed rate agreement early.
LOAN TO VALUE RATIO RESTRICTIONS:
The Reserve Bank is currently looking at limiting the supply of mortgages that banks can appove above 80% borrowing. Simply put any first home buyer or existing home owner with less than 20% deposit could potentially find themselves unable to purchase a new home. This would have a significant impact on the housing market over time but we are yet to see exactly what the Reserve Bank will rule on. We will keep you up to date with developments as they happen.
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