NZ home loan rates going to continue to grow - economist

Source: 1News

An independent economist has challenged the Reserve Bank Governor's claim the New Zealand's housing market is cooling down, saying the central bank is "well behind" fixing the housing market.

Tony Alexander's comments come after Reserve Bank Governor Adrian Orr said on Tuesday the "tide is turning" when it comes to high house prices.

In a speech to a retail conference on Tuesday Governor Adrian Orr said a number of factors are leading to changes in the currently “unsustainable” housing market.

He took some blame for low interest rates and the resulting housing market frenzy in recent times.

But he said the “tide is changing, supply is responding, population growth is no longer, it’s stagnating, and interest rates are on the rise”.

However, Alexander disagrees telling Breakfast on Wednesday he doesn't think prices will be coming down any time soon.

"It's not pretty at all," Alexander said.

"Six months ago, the Reserve Bank was predicting the inflation rate at the moment would be 2.5 per cent but instead it's 4.9 per cent.

"They are well behind the curve in terms of doing their job in keeping the inflation rate between one and three per cent."

As such, Alexander said the Reserve Bank is now playing catch up to reach those goals - an action the housing market has already anticipated and accounted for.

Wellington housing.

"The borrowing costs for the banks has gone up so the mortgage rates have already gone up by 1.5 per cent," he said.

"If you look about the past year, most people were fixing for one year at 2.19 per cent but now the best you're going to get there is one year at 3.19 or 3.49 per cent.

"The best rate was five years fixed at 2.99 per cent and now that's about 1.5 per cent higher."

For those currently with a mortgage worried about a potential increase in the near future, Alexander said a consultation with their mortgage advisor was needed.

"They'll be up to speed not just with the actual rates but all the changes in regulations from the banks," he said.

"Personally, if I was borrowing at the moment, I'd probably look at the three-year fixed rate period.

"Some people are going to keep rolling with the one-year - it's worked fantastically for a decade - but there's going to be a pinch point in the next one to two years."