What Will Happen To Interest Rates In 2015?

Potential property buyers and home owners alike always want to buy the best property they can afford and at the most favourable interest rate for their circumstances. The Reserve Bank’s Monetary Policy Statement (MPS) is often used to help buyers and owners predict what is going to happen in the future and help them decide on whether to float or fix their mortgage.

Further Interest Rate Drops Unlikely Despite Recent Falls
Reserve Bank Governor Graham Wheeler acknowledges that banks have been dropping their long term fixed interest rates recently, but says it has been in response to a growing need to attract more buyers from the rising lenders competition. “I think there’s probably limits to how much further that process could go in terms of bank profitability objectives and their funding costs, if you like,” he said.

In his recent MPS, Wheeler suggested that keeping the OCR at 3.5% is most likely for the next couple of years, to help combat the lowering inflation rate. He did mention though it inflation falls even lower; he could lower the OCR but would be more likely to use other tools to manage it instead.

OCR Drop Not Only Reliant On Auckland Property Market
Financial forecasters and business leaders, including the Prime Minister, are concerned that a drop in the OCR will cause Auckland house prices to rise even further. Wheeler shared his concern about the market, but said he would not use that as a reason not to lower the OCR if inflation dropped too low.

A 50 basis point drop in the OCR scenario was given by Wheeler, who said that if inflation halved to near one percent, he would need to act to secure the economy’s financial interests. With this going to have the effect of continuing to grow property prices in Auckland, he has again mentioned requiring lenders to hold more capital of landlords, particularly as over 40% of Auckland mortgage are with property investors.

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