Housing feels the first bite of interest rate rises

Monday 9 August 2004

Higher interest rates have barely begun to bite on household spending but their impact is already being felt in the housing market, says ASB Bank.

By The Landlord

Reserve Bank Governor Alan Bollard has raised interest rates four times this year and signalled more hikes to come. But with only a third of home loans at variable interest rates, the impact lags the rate rises, says ASB chief economist Anthony Byett in his quarterly report on the housing market, released today.

While the official cash rate was raised three-quarters of a percentage point during the first half of the year, the average increase in the home loan rate paid over the same period was only one-fifth of a percentage point, according to the Reserve Bank.

"Rate hikes to come, plus the lagged effects of higher interest rates when people come off their previous fixed rate, will see the interest rate effect bite harder in the current six months," Byett said.

"By the end of the year the extra interest cost will amount to around 1 per cent per annum, or around $900 million."

He said: "Interest rates may still be moderate by historical standards but higher house prices mean the debt servicing to income ratio for a current purchase is now approaching the peak of the previous housing cycle."

Read More - Opens in a new window
Commenting is closed

Property News

Major industrial development powers on

It’s full steam ahead for the Stevenson Group’s $800 million, 361-hectare industrial and residential development in South Auckland – despite the uncertainties of the post-Covid-19 era.

House Prices

House price drops are short-lived - Alexander

Periods of house price decline are rare and "short-lived", says economist Tony Alexander, amid forecasts of a drop of 10%-15% this year.


Resilience needed in face of change

The Reserve Bank says the commercial property sector is vulnerable to the Covid-19 crisis. But PMG Funds' chief executive believes that while there’ll be short-term pain, the biggest long-term impact will be structural change.

Site by PHP Developer