Homeowners hit hard as OCR rises

Last updated 11:14 13/03/2014

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Homeowners face increased mortgage payments after the Reserve Bank today lifted the official cash rate from 2.5 per cent to 2.75 per cent, with more rises to come.

The increase this morning kicks off what is likely to be an extended run of rate rises over the next two years, with economists expecting the next increase in April.

The increase was unwelcome in the home-building industry.

Master Builders Nelson vice-president and director of Fowler Homes, Andrew Stevenson, said it was yet another barrier for people wanting to build.

"It does not seem to get any easier. I can't work out when the Government has a massive housing shortage and then we have something like this happen."

Nelson Grey Power president Neville Male said: "We have people at both ends. We have a lot of people who will see a greater return with increased interest rates as well as those reliant on borrowings having to pay more. It's some good news and not so good news."

BNZ chief economist Tony Alexander is advising prospective home buyers to fix home loans rather than risk borrowing on a floating rate.

"If I were borrowing at the moment I would be getting a three-year fixed rate. We expect that within three months time, the floating rate is going to be at the level the three year fixed rate is now," he said outside a Nelson Tasman Chamber of Commerce function at Seifried Estate yesterday.

Floating mortgage rates are now about 5.75 per cent. Two and three-year fixed rates have already moved up to around 6.3 per cent and 6.6 per cent respectively.

A forecast from the Westpac bank yesterday said the Reserve Bank may lift the OCR as much as five times this year, with the first move kicking off today.

The Westpac forecast said borrowers could face rates approaching 8 per cent in a couple of years.

The OCR has been at extreme lows of just 2.5 per cent since early 2009, aside from a small lift in 2010, reversed in early 2011. That has kept mortgage rates at the lowest levels for about 50 years, in the wake of the global financial crisis.

Mr Alexander said whatever the interest rate, a rule of thumb was that people should do all they could to reduce their mortgages, regardless of whether they were on a floating or fixed rate.

Mr Alexander declined to have media present during his talk to the chamber of commerce yesterday. In answer to a question about the strength of the local economy, he said outside the function that there were signs of strengthening across the region's four key sectors

"There's nothing really jumping out that says one would be justified in having a negative view on the Nelson Tasman economy in the near future. With strong demand for primary products coming out of China, and Nelson has a strong primary export base, I'd have a positive view."

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Mr Alexander also predicted population growth in the region, as increased house prices in bigger centres drove people to relocate to other centres.

- Nelson

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