Adrian Orr: We put our best foot forward

Hundreds of thousands of mortgage holders could get a shock as rising interest rates start to bite in the next 12 months.

Thursday, November 25th 2021, 6:00AM 3 Comments

This is the inference from comments from the Reserve Bank (RBNZ) that 70% of all mortgages will come up for renewal in the coming year.

And the RBNZ says this will be among the “headwinds” facing the economy.

The comments came at a media conference after the Monetary Policy Committee of the Reserve Bank (RBNZ) raised the Official Cash Rate (OCR) by 25bps to 0.75%.

Some retail interest rates rose in response and others had risen in anticipation of this move by the RBNZ.

Other rises are still to come.  Many of these will affect people with fixed mortgages for say six months or one or two years. When these types of loan expire, they are usually rolled over and re-set at the rate that applies at that time.

With interest rates going up, these people will be in for rude shock, and comments from the deputy governor of the Bank, Geoff Bascand, suggest there will be quite a few of them.

“We've got about 70% of mortgages that we expect to re-price over the coming year, effectively facing some of those higher mortgage rates.

“This is really a question of uncertainty., we are not sitting here alarmed about it, we are just conscious that the (increase) will bite into free cash flow, into people's surplus and into the extent to which they hold back a little bit on spending.”

Bascand went on to suggest this was one of the headwinds facing the economy and the bank would observe and watch this.

Earlier, the Governor Adrian Orr explained why the bank went for a 25 basis point rise in place of the 50 point jump that some people had forecast.

“We did consider a range of options …. 50 was amongst it, what you see is our best foot forward.

“Slow steady changes in the Official Cash Rate give us more optionality to observe how the economy is behaving and balancing the risks that are in front of us.

“We have upside risks given inflation pressures, given capacity constraints, and on the other side we have continued health risks globally and here domestically.

“We are very aware that monetary conditions across the board have tightened.

“Likewise, we have to be careful, there is a considerable amount of debt and interest rate sensitivity and so we are in a good space to observe and take our time at this point.”

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Comments from our readers

On 25 November 2021 at 12:02 pm valkyrie6 said:
“Slow steady changes in the Official Cash Rate give us more optionality to observe how the economy is behaving and balancing the risks that are in front of us.
Maybe the reserve bank should have taken this approach when dropping the cash rate down to only .25% , dropping the cash rate to fast and to low has actually caused the current issues I think, what was wrong with having a steady 4% rate in hindsight
On 1 December 2021 at 9:32 am John Smith said:
The RBNZ published Governor Adrian Orr’s speech related to the unsustainable level of house prices posing monetary and financial stability challenges. His speech laid emphasis on the RBNZ caring about the level and causes of house prices. The speech also contemplated on the solution towards promoting better functioning of the housing market, resulting in more sustainable house prices over a period. Of late, property data leader CoreLogic has published a price comparison, reflecting 99.1% properties resold in the quarter closed September gained profit. Wellington noted the biggest gain, with median resale yield standing at NZ$555K.
On 2 December 2021 at 10:28 am Amused said:
@ John Smith

As far as the Reserve Bank goes about them "caring about the level and causes of house prices" its acknowledged now by most economists that the Reserve Bank's earlier decision to lower interest rates too low has been a key cause of house prices being out of control in New Zealand. Having a little chuckle at your comment about "property data leader CoreLogic" The country's biggest lender dumped them earlier this year as a reliable source for current house values when lending to borrowers. Respectfully Corelogic's property data has been proven now to be unreliable and not up to date.

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