OCR hike unlikely to impact on housing market

Friday 9 March 2007

Latest OCR hike unlikely to impact on housing market in short-term

Homeowners and property investors are continuing to buy into the strong residential property market, with the latest Reserve Bank interest rate hike unlikely to have any short-term effect, says Mike Pero Mortgages Chief Executive Officer Jeff Staniland.

"We are seeing continued high activity this year in the mortgage market, which is much stronger than this time last year, and following on from record months for Mike Pero Mortgages in November and December last year," he says.

"The latest move from the Reserve Bank ­ a 25 basis point rise in the Official Cash Rate ­ will have little or no effect on the property market juggernaut.

"Prices are continuing to go up, driven by immigration, the strong domestic economy, and people seeking the capital gains available in the property market.

"The latest interest rate rise, once it flows through, will add approximately $30 a month to a mortgage of $150,000. That is insignificant when compared to the capital gains, in many cases tens or hundreds of thousands of dollars, people have made over the past few years on their homes and investment properties. The difference in these numbers helps explains why people continue to invest in residential property.

"We continue to advise our clients, however, to look carefully at the reasons they are buying a house and assess their overall financial situation in terms of how they would cope with a rise in their mortgage rate or a slower property market.

"Most of the people we advise are seeking the security of owning their own home, or are purchasing a second house for investment purposes.

"We also realise falling housing affordability in New Zealand is a growing problem and we support moves, including a Government select committee, to address this.

"For existing homeowners, however, the effect of the latest rise in interest rates will depend on their circumstances. Around 85 percent of home mortgages are fixed and only 30 percent of those are due for renewal in the coming 12 months. So that means that 70 percent of fixed mortgages will be unaffected for at least another year by the latest hike in the OCR," concludes Jeff Staniland.

ENDS

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