Home loan rates set to start rising
For people with home loans it's no longer a matter of 'if' interest rates are going to rise, it's a matter of when.
Monday, January 21st 2002, 2:28AM
The outlook for home loans isn't a particularly rosy one for New Zealanders this year as it seems there is only one way rates will go - up.
Such rises are likely to put more pressure on household budgets.
However, the news isn't all bad, as we are at the bottom of the interest rate cycle and there is time to lock in a low rate.
ASB Bank chief economist Anthony Byett says the question is when and by how much will rates go up.
One of the first signposts will be next week when the Reserve Bank makes its first Official Cash Rate statement for the year.
The rate set by the bank is instrumental in determining where general interest rates go, plus it has a major influence on floating home loan rates.
Byett says he is not expecting a change next week, however he will be watching for signs which indicate where the Reserve Bank may take rates later this year.
The reasons driving interest rates higher are the strong activity in the housing market and signs the global economy will start to recover this year.
In the past year central banks around the world, most notably the Federal Reserve in America, have been aggressively dropping rates to help avoid recession.
Byett says once these artificial stimuli kick in they will be taken away and rates will begin to rise.
"We are very much at the bottom of the floating rate cycle and already on the upstage of the fixed rate cycle."
Byett's view is that the Reserve Bank's cash rate could rise from the current position of 4.75% to be around 6.5% by the end of the year.
Consequently floating home loan rates could be up by 2% next Christmas and 3 and 5 year fixed rates could be up by 1%.
The latter part of this prediction is already proved correct as many lenders started increasing fixed home loan rates last month.
A key issue for people taking out a home loan, or refinancing an existing one, is that rates will go up this year and they could quite conceivably rise very quickly.
Currently some banks and institutions are offering 6 month fixed rates of 4.99%. Byett says that people who take out these rates need to be aware that when they come off them they may be facing significantly higher rates.
"There is a strong possibility that when they come off these periods they will be facing considerably higher rates."
"(Borrowers) do have to be careful in the short-term," he says.
| « Tucker lays out 2002's hurdles | OCR unlikely to change this week but future murky » |
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