Home mortgages will not rise at the same rate as the OCR – CoreLogic

Corelogic predicts interest rates will not increase in tandem with OCR hikes.

CoreLogic thinks there are crumbs of comfort for would-be home buyers in the latest move by the Reserve Bank (RBNZ).

Its chief property economist Kelvin Davidson says interest rates will rise more slowly than the base interest rate imposed by the RBNZ.

The comments follow yesterday's move by the bank to raise the Official Cash Rate (OCR) by 25 basis points to 1%.

While this rise was a step back from the alternative 50 point jump, the bank's comments were still hawkish.

It said inflation was serious and the OCR could reach 3.4% in two years.

But that is slightly less of a challenge for the mortgage industry than might be supposed, according to Davidson,.

That is because the margin between the OCR and actual rates is likely to shrink.

“You might see the spread compressing a little bit,” Davidson said.

“If the OCR rises another two percentage points, mortgage rates might only rise one to one-and-a-half percentage points."

Davidson said retail rates had gone a bit flat lately and would rise in response to the RBNZ move.

It just would not be a proportionate rate.

“If you think of that standard fixed rate now – in the mid four percent range – I can see that going to 5% to 5.5%.

“That is still below the serviceability rate, so I think people should be able to absorb that level of payment, since they have already been tested at a much higher rate.”

Davidson also thought the serviceability rate would not rise in proportion to the rise in the OCR.

Though it was a new issue that needed more thought, he suspected this rate would not rise much past 7% from its current level a little over 6%.

The serviecability rate is a theoretical – and higher – rate of interest imposed on borrowers so that banks are satisfied they could still be paid if prevailing rates go higher.

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