The start of increases in the official cash rate may prompt some borrowers to move to fix the floating part of their debts, economists said.The Reserve Bank of New Zealand has lifted the official cash rate by 25 basis points to 2.75 percent. The move is e
The start of increases in the official cash rate may prompt some borrowers to move to fix the floating part of their debts, economists said.
The Reserve Bank of New Zealand has lifted the official cash rate by 25 basis points to 2.75 percent. The move is expected to filter through to higher mortgage rates and also higher deposit rates and is seen as the start of a move to less stimulatory monetary policy. The official cash rate has been at a record low since April 2009.
ASB said floating mortgage rates have been very low, because of the low official cash rate.
Increases in floating rates were almost certain in the coming months now that the central bank has started its tightening cycle. Short-term fixed rates were already off lows recorded in the second part of last year, and were expected to lift further.
"Our calculations suggest there is not much cost difference over a two-year horizon between floating or fixing, with the certainty of short-term fixed rates comes at very little cost.
"Beyond the three-year mark, fixing looks expensive," ASB said, while noting that fixing a mortgage rate for a longer term did provide certainty.
The Real Estate Institute of New Zealand (REINZ) said property prices and the current stability of the housing market would not be adversely affected by the higher official cash rate.
"Interest rates are only one of many factors which influence the property market," said Reinz president Peter McDonald.
More than 30 percent of mortgage debt is now on floating rates.
ANZ said borrowers should not panic.
"The official cash rate is heading higher, but will do so in an orderly fashion," ANZ economists said.
"If you are a floating-rate borrower, the RBNZ is 'on your side', so to speak.":
The central bank noted today that bank funding costs are higher, long-term rates are higher than short-term rates and a greater proportion of borrowers using floating rates. This meant that the official cash rate would not have to rise as much as in previous economic cycles.
Bank workers' union Finsec is calling on the RBNZ to provide an analysis of bank funding similar to that recently provided by the Reserve Bank of Australia.
Australians had crucial information about their banks' actual funding costs, while New Zealanders did not, said Finsec campaigns sirector Andrew Campbell.
"Banks are considering today whether to raise mortgage interest rates on the back of this official cash rate rise. They do so with a full range of information that customers and regulators never see and are therefore not able to fully assess these decisions," said Mr Campbell.
