First home buyers encouraged to ‘wait’ and watch interest rates

Source: 1News

First home buyers are being encouraged to ‘wait’ and see what interest rates will do, following the official cash rate hike, and as the housing market continues to heat up.

The Reserve Bank on Wednesday said the country should expect interest rates to keep rising, lifting the official cash rate by 25 basis points, to 0.75 percent.

Reserve Bank Governor Adrian Orr on Thursday told Breakfast he felt encouraged by the country’s economy, but had some advice for those looking to start out in the housing market.

“House prices have risen, yes, those who own homes are feeling slightly wealthier, those who want to have first homes wait and see what happens,” said the Governor.

“Because if I don’t raise interest rates they’re going to be more expensive, if I do well you might be able to afford one in the future.”

When asked if he thought New Zealanders should be concerned about the official cash rate rising, he said “yes”, and that people should “always be concerned” when borrowing money, especially for a house.

“It’s a long-term commitment. The price you might strike at the time with the interest rate, you have to understand that it will move up and down through time and we’ve been shouting from the rooftops for quite some time, making sure banks are stress testing their customers.”

Orr said the Reserve Bank sees inflation peaking at about 5.6, 5.7 per cent.

“So and if it does so that’s great. A lot of that is already in the tin. Around global oil prices, shipping costs all of the price pressures that we’re seeing.

“What we are nervous about is those price pressures leading to more generalised inflation and the environment is ripe for that happening, that’s why we are moving in advance.”

Orr also predicts house prices “will moderate”.

“The great news is that supply is now rapidly increasing.

“The message to first home buyers is high leverage leads to long term challenges and like wise asset prices go up and down.”