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Floating rates may go even higher

By Janine Ogier

Tuesday 8th November 2005

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Weekly home loan report: Reserve Bank of New Zealand governor Alan Bollard took another swipe at mortgage lenders and Kiwi borrowers in a speech last week, which re-emphasised the high chance of an official rate hike next month.

Following on from his blatant comments when he raised the cash rate to 7% less than a fortnight ago, Bollard took aim at the housing market and Kiwi spenders as the main driver of demand and ingredient in inflation pressures. He is hammering home his message, but it may take floating rates to be a bit higher in the 9% range before the appetite for borrowing and spending is somewhat subdued.

The vehement rhetoric has the market gauging a further tightening move is on the cards, even if the economic picture looks like switching in the latter half of next year and an easing cycle beginning then.

"The Reserve Bank seems to be on a campaign of clearly articulating their worries about the problems facing the New Zealand economy," ANZ chief economist John McDermott says.

"We now expect a 25-basis-point hike in December and the door to be left open for January," he says.

The financial market is pricing in an 80% chance of a hike in December, which could prove too tempting for the RBNZ to ignore.

"The message to the leaders of the mortgage price war is simple. If you want to play the price game to drive volumes, then the RBNZ is going to stomp on volume growth as well through higher front-dated rates," McDermott says.

Many lenders moved their floating rates higher over the week and fixed mortgage rates still showed a double-digit number of increases.

Twenty-nine lenders raised variable rates, which range from Silver Fern's 7.85% to NZ Mortgage Trust's 9.50%.

One-year rates now vary from the 7.60% offered by Southern Cross to 8.90% from GEM Home Loans and there were 16 rises.

For two-year fixed terms, Loan Plan's 7.55% sets the lowest mark and the rates vary up to Headstart's 8.75%, with 16 increases again.

Three-year rates range from the 7.55% offered by Loan Plan to Headstart's 8.6% and there were 15 revisions upwards.

In the five-year part of the market, rates vary from 7.40% offered by Housing Corporation and Loan Plan to Gem Home Loans' 8.40%, while 13 moves higher were recorded.

In contrast to the rest of the home loan market, Resi put all its rates down a few basis points.

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