Mortgage rates tipped to stay high
Page 1 of 2 .... 4:00AM Sunday Oct 12, 2008
By Jacqueline Smith

The Reserve Bank of New Zealand is tipped to cut the official cash rate this month, but mortgage holders and first home buyers are warned not to expect lower interest rates yet.

ASB chief economist Nick Tuffley expects the Reserve Bank to drop the OCR 100 points to 6.5 per cent at the scheduled meeting on October 23. He says it is unlikely to act before then.

By the end of the year, Tuffley expects the rate will be reduced to 6 per cent and a further cut in the early part of next year will drop it to 5.5 per cent by March.

ANZ senior economist Khoon Goh says under normal circumstances a drop in the OCR would translate into lower mortgage rates and improve home affordability.

But given the credit crisis and the cost of banks borrowing offshore, the way mortgage rates are set is becoming more complicated. If the economic situation does not improve overseas, banks' increased borrowing costs could offset any relief from a lower OCR.

BNZ chief economist Tony Alexander says conditions are improving affordability for first home buyers - there's tax cuts, a steady labour market, cheaper house prices and easing interest rates.

More here.