Floating mortgage rates could be between 7% and 8% in two
years and the Reserve Bank's loan-to-value ratios are likely
to remain until at least the end of the year.
Reserve Bank deputy governor Grant Spencer said in a speech
yesterday pressures in the New Zealand housing market were
easing gradually but risks remained.
''There are many parts to the housing market equation - and
many risks. Probably the major risk at present is the outlook
for net immigration, in part due to reduced departures of New
The Reserve Bank was forecasting net immigration to reduce
gradually as economic conditions improved in Australia, he
The bank had started raising the official cash rate (OCR),
with the aim of forestalling general inflation pressures in
the broader economy. Floating mortgage rates could be at 7%
to 8% in two years' time, closer to their average in the past
10 years, Mr Spencer said.
The bank believed the loan-to-value ratios (LVRs) were
achieving their purpose. The financial system was less
vulnerable to an adverse housing shock and banks were now
less exposed to potential credit losses as the interest rate
cycle turned upwards.
Before removing the LVRs, the bank wanted to be confident the
housing market was responding to interest rate increases and
immigration pressures were not causing a resurgence of house
''It will take some time to gain this assurance. At this
stage, we consider the earliest date for beginning to remove
LVRs is likely to be late in the year,'' he said.
ASB economist Christina Leung said the housing demand/supply
imbalance was again highlighted as the key driver of strong
house price inflation - particularly in Christchurch and
Residential construction in those two regions ramping up in
recent months had helped alleviate some of the supply
However, there was still a large volume of residential
construction required. Mr Spencer identified net migration
inflows as a key risk to the housing market.
The ASB expected annual migration to peak at about 40,000
later this year, Ms Leung said.
''With the annual flow reaching about 32,000 in March, the
Reserve Bank will almost certainly need to lift its migration
forecasts at the June Monetary Policy Statement and that will
flow through to housing and broader inflation forecasts.''
Westpac chief economist Dominick Stephens expected the
Reserve Bank to lift the OCR again in June but believed the
central bank would then make it clear the OCR would not rise
again in July.
''In our view, September and December would then become the
most likely dates for OCR hikes over the remainder of the
Some would argue against a September OCR rise on the basis
the bank would be loath to change the OCR nine days before a
But it had lifted rates in 1999 and 2002 close to the