The Governor of the Reserve Bank gave a long explanation on why he introduced the new restrictions on loans for property.
It is interesting to note that he forecasts that interest rates could reach 7-8% on mortgages.
However on closer inspection it should be noted that this prediction is only a prediction, and we all know what happens to predictions.
Furthermore 2016 is still three years away so a lot of things can go wrong between now and then.
What can be inferred from this prediction, is that now is the time to be buying or reshuffling your property portfolio and locking in the best long term interest rate possible.
If higher rates do eventuate, the cost if everything will also rise and feed straight into prices, rents and the exchange rate – and of course, inflation, as the Governor himself predicts.
Reserve Bank Governor Graeme Wheeler explains his reasoning for introducing ‘speed limits’ on high loan-to-value lending
October 3, 2013 – 08:32am,
By Graeme Wheeler
Many New Zealanders consider purchasing a house to be a rock solid investment, and assume that house prices will continue to rise steadily, having never seen a bear market or experienced rapid rises in mortgage rates.
While the Reserve Bank’s mandate is to promote financial stability, there are clear implications here for housing affordability. Over the next two years interest rates are likely to rise in order to restrain an expected increase in broader inflation pressures. We currently expect that the official cash rate could increase by 2 percent from 2014 to the beginning of 2016. This could result in interest rates on first mortgages of 7-8 percent. If the loan-to-value speed limit is unable to slow house price inflation, larger increases in the official cash rate would be required.
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